As filed with the Securities and Exchange Commission on January 12, 1996
Registration No. 33-46924
811-6618
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 10 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 12 X
FIRST INVESTORS SERIES FUND II, INC.
(Exact name of Registrant as specified in charter)
Ms. Concetta Durso
Secretary and Vice President
First Investors Series Fund II, Inc.
95 Wall Street
New York, New York 10005
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of this Registration Statement
It is proposed that this filing will become effective on February 15, 1996
pursuant to paragraph (b) of Rule 485.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
previously elected to register an indefinite number of shares of common stock,
par value $.001 per share, under the Securities Act of 1933. Registrant filed a
Rule 24f-2 Notice for its fiscal year ending October 31, 1995 on November 14,
1995.
<PAGE>
FIRST INVESTORS SERIES FUND II, INC.
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A Item No. Location
<S> <C>
PART A: PROSPECTUS
1. Cover Page.............................................................. Cover Page
2. Synopsis................................................................ Fee Table
3. Condensed Financial Information......................................... Financial Highlights
4. General Description of Registrant....................................... Investment Objectives and
Policies; General
Information
5. Management of the Fund.................................................. Management
5A. Management's Discussion of
Fund Performance....................................................... Performance Information
6. Capital Stock and Other Securities...................................... Description of Shares;
Dividends and Other
Distributions; Taxes;
Determination of Net
Asset Value
7. Purchase of Securities Being Offered.................................... Alternative Purchase
Plan; How to Buy Shares
8. Redemption or Repurchase................................................ How to Exchange Shares;
How to Redeem Shares;
Telephone Transactions
9. Pending Legal Proceedings............................................... Management
PART B: STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page.............................................................. Cover Page
11. Table of Contents....................................................... Table of Contents
12. General Information and History......................................... General Information
13. Investment Objectives and Policies...................................... Investment Policies;
Investment Restrictions
14. Management of the Fund.................................................. Directors and Officers
15. Control Persons and Principal
Holders of Securities.................................................. Not Applicable
16. Investment Advisory and Other Services.................................. Management
17. Brokerage Allocation.................................................... Allocation of Portfolio
Brokerage
18. Capital Stock and Other Securities...................................... Determination of Net
Asset Value
19. Purchase, Redemption and Pricing
of Securities Being Offered............................................ Reduced Sales Charges,
Additional Exchange and
Redemption Information
and Other Services;
Determination of Net
Asset Value
<PAGE>
N-1A Item No. Location
20. Tax Status.............................................................. Taxes
21. Underwriters............................................................ Underwriter
22. Performance Data........................................................ Performance Information
23. Financial Statements.................................................... Financial Statements;
Report of Independent
Accountants
</TABLE>
PART C: OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
item so numbered, in Part C hereof.
<PAGE>
First Investors Series Fund II, Inc.
Growth & Income Fund
Made In The U.S.A. Fund
Utilities Income Fund
95 Wall Street, New York, New York 10005/1-800-423-4026
This is a Prospectus for First Investors Series Fund II, Inc. ("Series Fund
II"), an open-end diversified management investment company. The Fund offers
three separate investment series, each of which has different investment
objectives and policies: Growth & Income Fund, Made In The U.S.A. Fund and
Utilities Income Fund (each a "Fund"). Each Fund sells two classes of shares.
Investors may select Class A or Class B shares, each with a public offering
price that reflects different sales charges and expense levels. See "Alternative
Purchase Plans."
Growth & Income Fund seeks long-term growth of capital and current income.
This Fund seeks to achieve its objective by investing, under normal market
conditions, at least 65% of its total assets in securities that provide the
potential for growth and offer income, such as dividend-paying stocks and
securities convertible into common stock.
Made In The U.S.A. Fund seeks long-term capital growth. This Fund seeks to
achieve its objective by investing, under normal market conditions, at least 75%
of its total assets in common and preferred stocks of companies that its
investment adviser considers to have potential for capital growth. In addition,
under normal market conditions, 65% of the Fund's total assets will be invested
in securities of companies that have a medium market capitalization and are
incorporated and have their principal place of business in the United States.
Utilities Income Fund primarily seeks high current income. Long-term
capital appreciation is a secondary objective. This Fund seeks to achieve its
objectives by investing, under normal market conditions, at least 65% of its
total assets in equity and debt securities issued by companies primarily engaged
in the public utilities industry.
There can be no assurance that any Fund will achieve its investment
objective.
This Prospectus sets forth concisely the information about the Funds that
a prospective investor should know before investing and should be retained for
future reference. First Investors Management Company, Inc. ("FIMCO" or
"Adviser") serves as investment adviser to the Funds and First Investors
Corporation ("FIC" or "Underwriter") serves as distributor of the Funds' shares.
A Statement of Additional Information ("SAI"), dated February 15, 1996 (which is
incorporated by reference herein), has been filed with the Securities and
Exchange Commission. The SAI is available at no charge upon request to the Funds
at the address or telephone number indicated above.
An investment in these securities is not a deposit or obligation of, or
guaranteed or endorsed by, any bank and is not federally insured or protected by
the Federal Deposit Insurance Corporation, the Federal Reserve Board or any
other government agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is February 16, 1996
<PAGE>
FEE TABLE
The following table is intended to assist investors in understanding the
expenses associated with investing in each class of shares of a Fund. Shares of
the Funds issued prior to January 12, 1995 have been designated as Class A
shares.
Shareholder Transaction Expenses
<TABLE>
<CAPTION>
Class A Class B
Shares Shares
<S> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)................................ 6.25% None
Deferred Sales Load
(as a percentage of the lower of original purchase
price or redemption proceeds)...................................... None* 4% in the first year;
declining to 0% after
the sixth year
Exchange Fee** None None
</TABLE>
Annual Fund Operating Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Growth & Income Fund Made in the U.S.A. Fund Utilities Income Fund
Class A Class B(1) Class A Class B(1) Class A Class B(1)
Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C>
Management Fees(2).................. 0.75% 0.75% 0.75% 0.75% 0.75% 0.75%
12b-1 Fees(3)....................... 0.30 1.00 0.30 1.00 0.30 1.00
Other Expenses(4)................... 0.54 0.54 0.45 0.45 0.45 0.45
Total Fund Operating Expenses(5) 1.59 2.29 1.50 2.20 1.50 2.20
</TABLE>
* A contingent deferred sales charge ("CDSC") of 1.00% will be assessed on
certain redemptions of Class A shares that are purchased without a sales
charge. See "How to Buy Shares."
** Although there is a $5.00 exchange fee for exchanges into a Fund, this fee
is being assumed by that Fund for a minimum period ending October 31, 1996.
Each Fund reserves the right to change or suspend this privilege after
October 31, 1996.
See "How to Exchange Shares."
(1) Other Expenses and Total Fund Operating Expenses are based on estimated
amounts for the fiscal year ending October 31, 1996.
(2) Management Fees have been restated to reflect the maximum Management
Fees that may be incurred by each Fund for a minimum period ending
October 31, 1996. Actual fees for the fiscal year ended October 31,
1995 were as follows; Growth & Income Fund - 0.53%; Made In The U.S.A.
Fund - 0.58%; and Utilities Income Fund - 0.46%. The Adviser will waive
0.25% of Management Fees for Made In The U.S.A. Fund for a minimum
period ending October 31, 1996. Otherwise, such fee could have been
1.00%.
(3) 12b-1 Fees have been restated to reflect the maximum distribution
expenses that may be incurred by each Fund for a minimum period ending
October 31, 1996. Actual fees for the fiscal year ended October 31,
1995 were 1.00% for each Fund with respect to Class B shares and 0.13%
for Growth & Income Fund and 0.26% for each other Fund with respect to
Class B shares.
(4) Other Expenses for Growth & Income Fund have been restated to reflect
Other Expenses expected to be incurred for a minimum period ending
October 31, 1996. Other Expenses for Made In The U.S.A. Fund and
Utilities Income Fund are net of reimbursed expenses. Otherwise, Other
Expenses for each class of shares would have been as follows: Made In
The U.S.A. Fund-1.02% and Utilities Income Fund-0.52%. The Adviser
intends to reimburse Made In The U.S.A. Fund and Utilities Income Fund
for Other Expenses in excess of 0.45% of average net assets through
October 31, 1996.
(5) Net of waived Management Fees and/or reimbursed expenses. If certain
Management Fees and Other Expenses were not waived or reimbursed, Total
Fund Operating Expenses would have been 2.07% for Made In The U.S.A.
Fund and
2
<PAGE>
1.57% for Utilities Income Fund for Class A shares and are estimated to
be 2.77% for Made In The U.S.A. Fund and 2.27% for Utilities Income
Fund for Class B shares.
For a more complete description of the various costs and expenses, see
"Alternative Purchase Plans," "How to Buy Shares," "How to Redeem Shares,"
"Management" and "Distribution Plans." Due to the imposition of 12b-1 fees, it
is possible that long-term shareholders of a Fund may pay more in total sales
charges than the economic equivalent of the maximum front-end sales charge
permitted by the rules of the National Association of Securities Dealers, Inc.
The Example below is based on Class A and Class B expense data for each
Fund's fiscal year ended October 31, 1995, except that certain Operating
Expenses have been restated, as noted above.
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
One Year Three Years Five Years Ten Years
<S> <C> <C> <C> <C>
Growth & Income Fund
Class A........................................... $78 $110 $144 $240
Class B........................................... 63 102 143 245
Made In The U.S.A. Fund
Class A........................................... 77 107 139 230
Class B........................................... 62 99 138 236
Utilities Income Fund
Class A........................................... 77 107 139 230
Class B........................................... 62 99 138 236
</TABLE>
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) no redemption at the end of each time period:
<TABLE>
<CAPTION>
One Year Three Years Five Years Ten Years
<S> <C> <C> <C> <C>
Growth & Income Fund
Class A........................................... $78 $110 $144 $240
Class B........................................... 23 72 123 244
Made In The U.S.A. Fund
Class A........................................... 77 107 139 230
Class B........................................... 22 69 118 234
Utilities Income Fund
Class A........................................... 77 107 139 230
Class B........................................... 22 69 118 234
</TABLE>
The expenses in the Example should not be considered a representation by
the Funds of past or future expenses. Actual expenses in future years may be
greater or less than those shown.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth the per share operating performance data for a
share outstanding, total return, ratios to average net assets and other
supplemental data for each period indicated. The table has been derived from
financial statements which have been examined by Tait, Weller & Baker,
independent certified public accountants, whose report thereon appears in the
SAI. This information should be read in conjunction with the Financial
Statements and Notes thereto, which also appear in the SAI, available at no
charge upon request to the Funds.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
PER SHARE DATA
Income From Investment Operations Less Distributions from
Net Realized Total
Net Asset Value Net and Unrealized from Net Net
Beginning of Investment Gain (Loss)on Investment Investment Realized Total Net Asset Value
Period Income Investments Operations Income Gain Distributions End of Period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GROWTH & INCOME FUND
CLASS A
10/4/93* to 10/31/93......... $ 6.56 $ .005 $ -- $ .005 $ .005 $ -- $ .005 $ 6.56
11/1/93 to 10/31/94.......... 6.56 .128 .109 .237 .107 -- .107 6.69
11/1/94 to 10/31/95.......... 6.69 .163 1.125 1.288 .168 -- .168 7.81
CLASS B
1/12/95* to 10/31/95......... 6.43 .084 1.372 1.456 .106 -- .106 7.78
MADE IN THE U.S.A. FUND
CLASS A
8/24/92* to 10/31/92......... 11.64 .036 .050 .086 .026 -- .026 11.70
11/1/92 to 10/31/93.......... 11.70 .122 .373 .495 .045 -- .045 12.15
11/1/93 to 10/31/94.......... 12.15 .078 (.326) (.248) .122 -- .122 11.78
11/1/94 to 10/31/95.......... 11.78 .083 2.796 2.879 .079 -- .079 14.58
CLASS B
1/12/95* to 10/31/95......... 12.03 (.011) 2.491 2.480 -- -- -- 14.51
UTILITIES INCOME FUND
CLASS A
2/22/93* to 10/31/93......... 5.59 .118 .317 .435 .105 -- .105 5.92
11/1/93 to 10/31/94.......... 5.92 .239 (.839) (.600) .227 .013 .240 5.08
11/1/94 to 10/31/95.......... 5.08 .233 .822 1.055 .235 -- .235 5.90
CLASS B
1/12/95* to 10/31/95......... 4.95 .144 .930 1.074 .164 -- .164 5.86
</TABLE>
* Commencement of operations of Class A shares or date Class B shares were
first offered
** Calculated without sales charges
+ Annualized
++ Some or all expenses have been waived or assumed from commencement
of operations through October 31, 1995
4
<PAGE>
<TABLE>
<CAPTION>
RATIOS / SUPPLEMENTAL DATA
Ratio to Average Net Assets Before
Ratio to Average Net Assets++ Expenses Waived or Assumed
Net Assets Net Net Portfolio
Total End of Period Investment Investment Turnover
Return**(%) (in thousands) Expenses(%) Income(%) Expenses(%) Income(%) Rate(%)
<S> <C> <C> <C> <C> <C> <C>
.99+ $ 3,407 -- 1.02+ 1.37+ (.35)+ 0
3.67 34,489 .67 2.26 1.83 1.11 6
19.51 63,493 .98 2.34 1.59 1.74 19
22.73 3,602 1.90+ 2.23+ 2.61+ 1.52+ 19
3.86+ 8,150 .06+ 1.87+ 2.64+ (.72)+ 0
4.23 15,586 .81 .96 2.03 (.26) 52
(2.05) 7,651 .90 .45 2.32 (.97) 29
24.59 8,818 1.34 .48 2.36 (.55) 106
20.62 298 2.29+ (.03)+ 3.79+ (1.53)+ 106
11.28+ 58,373 .35+ 3.84+ 1.80+ 2.39+ 17
(10.15) 62,671 .80 4.59+ 1.59 3.80 58
21.35 83,691 1.04 4.37 1.57 3.84 16
21.99 3,209 1.82+ 4.93+ 2.53+ 4.21+ 16
</TABLE>
5
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Growth & Income Fund
The investment objective of Growth & Income Fund is to seek long-term
growth of capital and current income. The Fund seeks its objective by investing,
under normal market conditions, at least 65% of its total assets in securities
that provide the potential for growth and offer income, such as dividend-paying
stocks and securities convertible into common stock. The portion of the Fund's
assets invested in equity securities and in debt securities may vary from time
to time due to changes in interest rates and economic and other factors. The
Fund is not designed for investors seeking a steady flow of income
distributions. Rather, the Fund's policy of investing in income producing
securities is intended to provide investors with a more consistent total return
than may be achieved by investing solely in growth stocks.
The convertible securities in which the Fund may invest are not subject to
any limitations as to ratings and may include high, medium, lower and unrated
securities. However, the Fund may not invest more than 20% of its total assets
in convertible securities rated below Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's Ratings Group ("S&P") (including
convertible securities that have been downgraded), or in unrated convertible
securities that are of comparable quality as determined by the Fund's
subadviser, Wellington Management Company ("WMC" or "Subadviser"). Convertible
securities rated lower than BBB by S&P or Baa by Moody's, commonly referred to
as "junk bonds," are speculative and generally involve a higher risk of loss of
principal and income than higher-rated securities. See "Debt Securities-Risk
Factors" below, and Appendix A to the SAI for a description of convertible
security ratings.
The Fund may invest up to 35% of its total assets in the following
instruments: money market instruments, including U.S. bank certificates of
deposit, bankers' acceptances, commercial paper issued by domestic corporations
and repurchase agreements; fixed income securities, including obligations issued
or guaranteed as to principal and interest by the U.S. Government, its agencies
or instrumentalities ("U.S. Government Obligations"), including mortgage-backed
securities, and corporate debt securities rated at least Baa by Moody's or BBB
by S&P, commonly known as "investment grade securities" or unrated securities
that are of comparable quality as determined by the Subadviser; and common stock
and securities convertible into common stock of companies that are not paying a
dividend if there exists the potential for growth of capital or future income.
See "Description of Certain Securities, Other Investment Policies and Risk
Factors," below, and the SAI for additional information concerning these
securities. It is the Fund's policy to attempt to sell, within a reasonable time
period, a debt security which has been downgraded below investment grade (other
than convertible securities, as previously discussed), provided that such
disposition is in the best interests of the Fund and its shareholders. See "Debt
Securities-Risk Factors," below, and Appendix A to the SAI for a description of
corporate bond ratings.
Generally, the prices of equity securities could be affected by such
factors as a change in a company's earnings, fluctuations in interest rates or
changes in the rate of economic growth. To the extent the Fund invests in
issuers with small capitalizations, the Fund would be subject to greater risk
than may be involved in investing in companies with larger capitalizations.
These securities generally include newer and less seasoned companies which are
more speculative than securities issued by well-established issuers. Other risks
may include less available information about the
6
<PAGE>
issuer, the absence of a business history or historical pattern of performance,
as well as normal risks which accompany the development of new products, markets
or services.
The Fund may invest up to 20% of its total assets in securities of
well-established foreign companies in developed countries which are traded on a
recognized domestic or foreign securities exchange. Although such foreign
securities may be denominated in foreign currencies, the Fund anticipates that
the majority of its foreign investments will be in American Depository Receipts
("ADRs") and Global Depository Receipts ("GDRs"). See "Foreign Securities-Risk
Factors" and "American Depository Receipts and Global Depository Receipts."
Although it does not intend to engage in these strategies in the coming year,
the Fund may enter into forward currency contracts to protect against
uncertainty in the level of future exchange rates. The Subadviser will not
attempt to time actively either short-term market trends or short-term currency
trends in any market. See "Hedging and Option Income Strategies" in the SAI.
The Fund may also borrow money for temporary or emergency purposes in
amounts not exceeding 5% of its net assets, make loans of portfolio securities
and invest in securities issued on a "when-issued" or delayed delivery basis. In
addition, in any period of market weakness or of uncertain market or economic
conditions, the Fund may establish a temporary defensive position to preserve
capital by having up to 100% of its assets invested in short-term fixed income
securities or retained in cash or cash equivalents. See "Description of Certain
Securities, Other Investment Policies and Risk Factors" for additional
information concerning these securities.
Made In The U.S.A. Fund
Made In The U.S.A. Fund seeks long-term capital growth by investing, under
normal market conditions, at least 75% of its total assets in common and
preferred stocks of companies that the Adviser considers to have potential for
capital growth. In addition, under normal market conditions, 65% of the Fund's
total assets will be invested in securities of companies that have a medium
market capitalization and are incorporated and have their principal place of
business in the United States, irrespective of whether they have most of their
operations in the United States. This could result in the Fund investing in
companies that do not actually manufacture products in the United States. An
investment in the Fund will not necessarily promote manufacturing or employment
in the United States since many companies that are incorporated and have their
principal place of business in the United States have significant operations
outside of the United States.
The Fund seeks to invest in growth equity securities, including securities
of companies with above-average earnings growth as compared to the average of
the stocks in the Standard & Poor's 500 Composite Stock Price Index, other
companies that the Adviser believes demonstrate changing or accelerating growth
records, and companies with outstanding growth records and potential based on
the Adviser's fundamental analysis of the company. The companies in which the
Fund will invest will be primarily those with medium market capitalization.
Market capitalization is the total market value of a company's outstanding
common stock. Companies with medium capitalization are those companies with a
market capitalization of between $750 million and $5 billion, but which could be
higher under certain market conditions. Growth equity securities tend to have
above-average price/earnings ratios and less-than-average current yields
compared to non-growth equity securities. The payment of dividend income will
not be a primary consideration in the selection of equity investments.
7
<PAGE>
Although the companies in which the Fund will invest will be primarily
those with medium market capitalizations, the Fund may also invest in companies
with small market capitalizations, as discussed under "Investment Objectives and
Policies - Growth & Income Fund."
The majority of the Fund's equity investments are securities listed on the
New York Stock Exchange ("NYSE"), other national securities exchanges or
securities that have an established over-the-counter ("OTC") market, although
the depth and liquidity of the OTC market may vary from time to time and from
security to security. The Fund's policy of investing in seasoned companies with
above-average earnings growth, other companies with changing or accelerating
growth profiles and companies with outstanding growth records and potential
subjects the Fund to greater risk than may be involved in investing in
securities that are not selected for such growth characteristics.
The Fund may invest up to 25% of its total assets in U.S. Government
Obligations, including mortgage-backed securities, and investment grade debt
securities or unrated securities that are of comparable quality as determined by
the Adviser, repurchase agreements, investment grade securities convertible into
common stock, warrants to purchase common stock and zero coupon and pay-in-kind
securities. See "Description of Certain Securities, Other Investment Policies
and Risk Factors," below, and "Investment Policies" in the SAI for information
on these securities. The Fund may borrow money for temporary or emergency
purposes in an amount not exceeding 5% of its net assets, invest in securities
issued on a "when-issued" or delayed delivery basis and engage in short sales
"against the box." The Adviser continually monitors the investments in the
Fund's portfolio and carefully evaluates on a case-by-case basis whether to
dispose of or retain a debt security that has been downgraded below investment
grade. No more than 5% of the Fund's net assets will remain invested in such
downgraded securities. See Appendix A to the SAI for a description of corporate
bond ratings.
In any period of market weakness or of uncertain market or economic
conditions, the Fund may establish a temporary defensive position to preserve
capital by having all or part of its assets invested in short-term fixed income
securities or retained in cash or cash equivalents, including U.S. Government
Obligations, mortgage-backed securities, bank certificates of deposit, bankers'
acceptances and commercial paper issued by domestic corporations. See
"Description of Certain Securities, Other Investment Policies and Risk Factors."
Utilities Income Fund
The primary investment objective of Utilities Income Fund is to seek high
current income. Long-term capital appreciation is a secondary objective. The
Fund seeks its objectives by investing, under normal market conditions, at least
65% of its total assets in equity and debt securities issued by companies
primarily engaged in the public utilities industry. Equity securities in which
the Fund may invest include common stocks, preferred stocks, securities
convertible into common stocks or preferred stocks and warrants to purchase
common or preferred stocks. Debt securities in which the Fund may invest will be
rated at the time of investment at least A by Moody's or S&P or will be of
comparable quality as determined by the Adviser. The Fund's policy is to attempt
to sell, within a reasonable time period, a debt security in its portfolio which
has been downgraded below A, provided that such disposition is in the best
interests of the Fund and its shareholders. See Appendix A to the SAI for a
description of corporate bond ratings. The portion of the Fund's assets invested
in equity securities and in debt securities will vary from time to time due to
changes in interest rates and economic and other factors.
8
<PAGE>
The utilities companies in which the Fund will invest include companies
primarily engaged in the ownership or operation of facilities used to provide
electricity, gas, water or telecommunications (including telephone, telegraph
and satellite, but not companies engaged in public broadcasting or cable
television). For these purposes, "primarily engaged" means that (1) more than
50% of the company's assets are devoted to the ownership or operation of one or
more facilities as described above, or (2) more than 50% of the company's
operating revenues are derived from the business or combination of any of the
businesses described above. It should be noted that based on this definition,
the Fund may invest in companies which are also involved to a significant degree
in non-public utilities activities.
Utilities stocks generally offer dividend yields that exceed those of
industrial companies and their prices tend to be less volatile than stocks of
industrial companies. However, utilities stocks can still be affected by the
risks of the stock of industrial companies. Because the Fund concentrates its
investments in public utilities companies, the value of its shares will be
especially affected by factors peculiar to the utilities industry, and may
fluctuate more widely than the value of shares of a fund that invests in a
broader range of industries. See "Utilities Industries--Risk Factors."
The Fund may invest up to 35% of its total assets in the following
instruments: debt securities (rated at least A by Moody's or S&P) and common and
preferred stocks of non-utilities companies; U.S. Government Obligations;
mortgage-backed securities; cash; and money market instruments consisting of
prime commercial paper, bankers' acceptances, certificates of deposit and
repurchase agreements. The Fund may invest in securities on a "when-issued" or
delayed delivery basis, engage in short sales "against the box" and make loans
of portfolio securities. The Fund may invest up to 10% of its net assets in
ADRs. The Fund may borrow money for temporary or emergency purposes in amounts
not exceeding 5% of its net assets. The Fund also may invest in zero coupon and
pay-inkind securities. In addition, in any period of market weakness or of
uncertain market or economic conditions, the Fund may establish a temporary
defensive position to preserve capital by having up to 100% of its assets
invested in short-term fixed income securities or retained in cash or cash
equivalents. See "Description of Certain Securities, Other Investment Policies
and Risk Factors," below, and "Investment Policies" in the SAI for a description
of these securities.
General. Each Fund's net asset value fluctuates based mainly upon changes
in the value of its portfolio securities. Each Fund's investment objective and
certain investment policies set forth in the SAI that are designated fundamental
policies may not be changed without shareholder approval. There can be no
assurance that any Fund will achieve its investment objective.
Description of Certain Securities, Other Investment Policies and Risk Factors
American Depository Receipts and Global Depository Receipts. Growth &
Income Fund may invest in sponsored and unsponsored ADRs and GDRs. ADRs are
receipts typically issued by a U.S. bank or trust company evidencing ownership
of the underlying securities of foreign issuers, and other forms of depository
receipts for securities of foreign issuers. Generally, ADRs, in registered form,
are denominated in U.S. dollars and are designed for use in the U.S. securities
markets. Thus, these securities are not denominated in the same currency as the
securities into which they may be converted. In addition, the issuers of the
securities underlying unsponsored ADRs are not obligated to disclose material
information in the United States and, therefore, there may be less information
available regarding such issuers and there may not be a correlation between such
information and the market value to the ADRs. GDRs are issued globally and
evidence a
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similar ownership arrangement. Generally, GDRs are designed for trading in
non-U.S. securities markets. ADRs and GDRs are considered to be foreign
securities by the Fund. See "Foreign Securities--Risk Factors."
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or
dividends paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Convertible securities have unique investment
characteristics in that they generally (1) have higher yields than common
stocks, but lower yields than comparable non-convertible securities, (2) are
less subject to fluctuation in value than the underlying stock because they have
fixed income characteristics, and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases.
Lower-rated and certain unrated convertible securities are subject to certain
risks that may not be present with investments in higher-grade securities. See
"Debt Securities-Risk Factors," below, and "Risk Factors of High Yield
Securities" in the SAI.
Debt Securities--Risk Factors. The market value of debt securities,
including convertible securities, is influenced primarily by changes in the
level of interest rates. Generally, as interest rates rise, the market value of
debt securities decreases. Conversely, as interest rates fall, the market value
of debt securities increases. Factors which could result in a rise in interest
rates, and a decrease in the market value of debt securities, include an
increase in inflation or inflation expectations, an increase in the rate of U.S.
economic growth, an expansion in the Federal budget deficit, or an increase in
the price of commodities such as oil. In addition to interest rate risk, there
is also credit risk involved in investing in debt securities. Debt obligations
rated lower than Baa by Moody's or BBB by S&P, commonly referred to as "junk
bonds," are speculative and generally involve a higher risk of loss of principal
and income than higher-rated securities. See Appendix A to the SAI for a
description of corporate bond and convertible security ratings.
The prices of lower-rated debt obligations, including convertible
securities, tend to be less sensitive to interest rate changes than higher-rated
investments, but may be more sensitive to adverse economic changes or individual
corporate developments. Thus, there could be a higher incidence of default. This
would affect the value of such securities and thus a Fund's net asset value.
Further, if the issuer of a security owned by a Fund defaults, the Fund might
incur additional expenses to seek recovery. Generally, when interest rates rise,
the value of fixed rate debt obligations tends to decrease; when interest rates
fall, the value of fixed rate debt obligations tends to increase. If a Fund
experiences unexpected net redemptions in a rising interest rate market, it
might be forced to sell certain securities, regardless of investment merit. This
could result in decreasing the assets to which Fund expenses could be allocated
and in a reduced rate of return for the Fund. While it is impossible to protect
entirely against this risk, diversification of a Fund's portfolio and the
careful analysis by the Adviser or the Subadviser of prospective portfolio
securities should minimize the impact of a decrease in value of a particular
security or group of securities in a Fund's portfolio.
The credit ratings issued by credit rating services may not fully reflect
the true risks of an investment. For example, credit ratings typically evaluate
the safety of principal and interest payments, not market value risk, of
lower-rated debt securities. Also, credit rating agencies may fail to change on
a timely basis a credit rating to reflect changes in economic or company
conditions that
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affect a security's market value. Although the Adviser or the Subadviser
consider ratings of recognized rating services such as Moody's and S&P, the
Adviser or the Subadviser primarily rely on their own credit analysis, which
includes a study of existing debt, capital structure, ability to service debt
and to pay dividends, the issuer's sensitivity to economic conditions, its
operating history and the current trend of earnings. Growth & Income Fund may
invest in securities rated B by S&P or Moody's or, if unrated, deemed to be of
comparable quality by the Subadviser. Debt obligations with these ratings, while
currently having the capacity to meet interest payments and principal
repayments, have a greater vulnerability to default. The Subadviser continually
monitors the investments in the Fund's portfolio and carefully evaluates whether
to dispose of or retain lowerrated debt securities whose credit ratings have
changed. See Appendix A to the SAI for a description of corporate bond ratings.
Lower-rated debt securities are typically traded among a smaller number of
broker-dealers than in a broad secondary market. Purchasers of such securities
tend to be institutions, rather than individuals, which is a factor that further
limits the secondary market. To the extent that no established retail secondary
market exists, many lower-rated debt securities may not be as liquid as
higher-grade securities. A less active and thinner market for such securities
than that available for higher quality securities may result in more volatile
valuations of a Fund's holdings and more difficulty in executing trades at fair
value during unsettled market conditions. The ability of a Fund to value or sell
lower-rated debt securities will be adversely affected to the extent that such
securities are thinly traded or illiquid. See "Risks Factors of High Yield
Securities" in the SAI.
Foreign Securities--Risk Factors. Growth & Income Fund may sell a security
denominated in a foreign currency and retain the proceeds in that foreign
currency to use at a future date (to purchase other securities denominated in
that currency) or the Fund may buy foreign currency outright to purchase
securities denominated in that foreign currency at a future date. Because the
Fund does not presently intend to hedge its foreign investments against the risk
of foreign currency fluctuations, changes in the value of these currencies can
significantly affect the Fund's share price. In addition, the Fund will be
affected by changes in exchange control regulations and fluctuations in the
relative rates of exchange between the currencies of different nations, as well
as by economic and political developments. Other risks involved in foreign
securities include the following: there may be less publicly available
information about foreign companies comparable to the reports and ratings that
are published about companies in the United States; foreign companies are not
generally subject to uniform accounting, auditing and financial reporting
standards and requirements comparable to those applicable to U.S. companies;
some foreign stock markets have substantially less volume than U.S. markets, and
securities of some foreign companies are less liquid and more volatile than
securities of comparable U.S. companies; there may be less government
supervision and regulation of foreign stock exchanges, brokers and listed
companies than exist in the United States; and there may be the possibility of
expropriation or confiscatory taxation, political or social instability or
diplomatic developments which could affect assets of the Fund held in foreign
countries.
Hedging and Option Income Strategies. Utilities Income Fund may attempt to
reduce the overall risk of its investments (hedge) by using options and futures
contracts and may engage in certain strategies involving options to attempt to
enhance income. Growth & Income Fund may use forward currency contracts to
protect against uncertainty in the level of future exchange rates. A Fund's
ability to use these instruments may be limited by market conditions, regulatory
limits and
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tax considerations. Neither Fund presently intends to engage in these
strategies. See the SAI for more information regarding hedging and option income
strategies.
Money Market Instruments. Investments in commercial paper are limited to
obligations rated Prime-1 by Moody's or A-1 by S&P. Commercial paper includes
notes, drafts, or similar instruments payable on demand or having a maturity at
the time of issuance not exceeding nine months, exclusive of days of grace or
any renewal thereof. Investments in certificates of deposit will be made only
with domestic institutions with assets in excess of $500 million. See the SAI
for more information regarding money market instruments and Appendix B to the
SAI for a description of commercial paper ratings.
Mortgage-Backed Securities. Mortgage loans often are assembled into pools,
the interests in which are issued and guaranteed by an agency or instrumentality
of the U.S. Government, though not necessarily by the U.S. Government itself.
Interests in such pools are referred to herein as "mortgage-backed securities."
The market value of these securities can and will fluctuate as interest rates
and market conditions change. In addition, prepayment of principal by the
mortgagees which often occurs with mortgage-backed securities when interest
rates decline, can significantly change the realized yield of these securities.
See the SAI for more information concerning mortgage-backed securities.
Preferred Stock. A preferred stock is a blend of the characteristics of a
bond and common stock. It can offer the higher yield of a bond and has priority
over common stock in equity ownership, but does not have the seniority of a bond
and, unlike common stock, its participation in the issuer's growth may be
limited. Preferred stock has preference over common stock in the receipt of
dividends and in any residual assets after payment to creditors should the
issuer be dissolved. Although the dividend is set at a fixed annual rate, in
some circumstances it can be changed or omitted by the issuer.
Repurchase Agreements. Repurchase agreements are transactions in which a
Fund purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank or dealer at an
agreed-upon date and price reflecting a market rate of interest unrelated to the
coupon rate or maturity of the purchased securities. Each Fund's risk is limited
to the ability of the seller to repurchase the securities at the agreed-upon
price upon the delivery date. See the SAI for more information regarding
repurchase agreements.
Restricted and Illiquid Securities. Each Fund may invest up to 15% of its
net assets in illiquid securities, including (1) securities that are illiquid
due to the absence of a readily available market or due to legal or contractual
restrictions on resale and (2) repurchase agreements maturing in more than seven
days. However, illiquid securities for purposes of this limitation do not
include securities eligible for resale under Rule 144A under the Securities Act
of 1933, as amended, which the Board of Directors or the Adviser or the
Subadviser has determined are liquid under Boardapproved guidelines. See the SAI
for more information regarding restricted and illiquid securities.
U.S. Government Obligations. Securities issued or guaranteed as to
principal and interest by the U.S. Government include (1) U.S. Treasury
obligations which differ only in their interest rates, maturities and times of
issuance as follows: U.S. Treasury bills (maturities of one year or less), U.S.
Treasury notes (maturities of one to ten years) and U.S. Treasury bonds
(generally maturities of greater than ten years), and (2) obligations issued or
guaranteed by U.S. Government
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agencies and instrumentalities that are backed by the full faith and credit of
the U.S., 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.
Utilities Industries--Risk Factors. Many utilities companies, especially
electric and gas and other energy-related utilities companies, have historically
been subject to the risk of increases in fuel and other operating costs, changes
in interest rates on borrowings for capital improvement programs, changes in
applicable laws and regulations, and costs and operating constraints associated
with compliance with environmental regulations. In particular, regulatory
changes with respect to nuclear and conventionally-fueled power generating
facilities could increase costs or impair the ability of utilities companies to
operate such facilities or obtain adequate return on invested capital.
Certain utilities, especially gas and telephone utilities, have in recent
years been affected by increased competition, which could adversely affect the
profitability of such utilities companies. In addition, expansion by companies
engaged in telephone communication services of their non-regulated activities
into other businesses (such as cellular telephone services, data processing,
equipment retailing, computer services and financial services) has provided the
opportunity for increases in earnings and dividends at faster rates than have
been allowed in traditional regulated businesses. However, technological
innovations and other structural changes also could adversely affect the
profitability of such companies.
Because securities issued by utilities companies are particularly
sensitive to movement in interest rates, the equity securities of such companies
are more affected by movement in interest rates than are the equity securities
of other companies.
Each of these risks could adversely affect the ability and inclination of
public utilities companies to declare or pay dividends and the ability of
holders of common stock, such as Utilities Income Fund, to realize any value
from the assets of the company upon liquidation or bankruptcy.
Portfolio Turnover. Made In The U.S.A. Fund had an increase in trading
activity in 1995 because the Adviser restructured the Fund's portfolio to
increase the diversity of the Fund's holdings. This resulted in a portfolio
turnover rate of 106% for the Fund for the fiscal year ended October 31, 1995. A
high rate of portfolio turnover generally leads to increased transaction costs
and may result in a greater number of taxable transactions. See the SAI for the
portfolio turnover rates for Growth & Income Fund and Utilities Income Fund and
for more information on portfolio turnover.
ALTERNATIVE PURCHASE PLANS
Each Fund has two classes of shares, Class A and Class B, which represent
interests in the same portfolio of securities and have identical voting,
dividend, liquidation and other rights and the same terms and conditions, except
that each class (i) is subject to a different sales charge and bears its
separate distribution and certain other class expenses; (ii) has exclusive
voting rights with respect to matters affecting only that class; and (iii) has
different exchange privileges.
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Class A Shares. Class A shares are sold with an initial sales charge of up
to 6.25% of the amount invested with discounts available for volume purchases.
Class A shares pay a 12b-1 fee at the annual rate of 0.30% of each Fund's
average daily net assets attributable to Class A shares, of which no more than
0.25% may be paid as a service fee and the balance thereof paid as an
asset-based sales charge. The initial sales charge is waived for certain
purchases and a CDSC may be imposed on such purchases. See "How to Buy Shares."
Class B Shares. Class B shares are sold without an initial sales charge,
but are generally subject to a CDSC which declines in steps from 4% to 0% during
a six-year period and bear a higher 12b-1 fee than Class A shares. Class B
shares pay a 12b-1 fee at the annual rate of 1.00% of each Fund's average daily
net assets attributable to Class B shares, of which no more than 0.25% may be
paid as a service fee and the balance thereof paid as an asset-based sales
charge. Class B shares automatically convert into Class A shares after eight
years. See "How to Buy Shares."
Factors to Consider in Choosing a Class of Shares. In deciding which
alternative is most suitable, an investor should consider several factors, as
discussed below. Regardless of whether an investor purchases Class A or Class B
shares, your Representative, as defined under "How to Buy Shares," receives
compensation for selling shares of a Fund, which may differ for each class.
The principal advantages of purchasing Class A shares are the lower
overall expenses, the availability of quantity discounts on volume purchases and
certain account privileges which are not offered to Class B shareholders. If an
investor plans to make a substantial investment, the sales charge on Class A
shares may either be lower due to the reduced sales charges available on volume
purchases of Class A shares or waived for certain eligible purchasers. Because
of the reduced sales charge available on quantity purchases of Class A shares,
it is recommended that investments of $250,000 or more be made in Class A
shares. Investments in excess of $1,000,000 will only be accepted as purchases
of Class A shares. Distributions paid by each Fund with respect to Class A
shares will also generally be greater than those paid with respect to Class B
shares because expenses attributable to Class A shares will generally be lower.
The principal advantage of purchasing Class B shares is that, since no
initial sales charge is paid, all of an investor's money is put to work from the
outset. Furthermore, although any investment in a Fund should only be viewed as
a long-term investment, if a redemption must be made soon after purchase, an
investor will pay a lower sales charge than if Class A shares had been
purchased. Conversely, because Class B shares are subject to a higher
asset-based sales charge, long-term Class B shareholders may pay more in an
asset-based sales charge than the economic equivalent of the maximum sales
charge on Class A shares. The automatic conversion of Class B shares into Class
A shares is designed to reduce the probability of this occurring.
HOW TO BUY SHARES
You may buy shares of a Fund through a First Investors registered
representative ("FIC Representative") or through a registered representative
("Dealer Representative") of an unaffiliated broker-dealer ("Dealer") which is
authorized to sell shares of a Fund. Your FIC Representative or Dealer
Representative (collectively, "Representative") may help you complete and submit
an application to open an account with a Fund. Applications accompanied by
checks drawn on U.S. banks made payable to "FIC" received in FIC's Woodbridge
offices by the close of regular trading on the New York Stock Exchange ("NYSE"),
generally 4:00 P.M. (New York City time), will be processed
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and shares will be purchased at the public offering price determined at the
close of regular trading on the NYSE on that day. The "public offering price" is
defined in this Prospectus as net asset value plus the applicable sales charge
for Class A shares and net asset value for Class B shares. Orders given to
Representatives before the close of regular trading on the NYSE and received by
FIC at their Woodbridge offices before the close of its business day, generally
5:00 P.M. (New York City time), will be executed at the public offering price
determined at the close of regular trading on the NYSE on that day. It is the
responsibility of Representatives to promptly transmit orders they receive to
FIC. Each Fund reserves the right to reject any application or order for its
shares for any reason and to suspend the offering of its shares.
When you open a Fund account, you must specify which class of shares you
wish to purchase. If you do not specify which class of shares you wish to
purchase, your order will be processed according to procedures established by
the Adviser. For more information, see the SAI.
Initial Investment in a Fund. You may open a Fund account with as little
as $1,000. This account minimum is waived if you open an account for a
particular class of shares through a full exchange of shares of the same class
of another "Eligible Fund," as defined below. Class A share accounts opened
through an exchange of shares from First Investors Cash Management Fund, Inc. or
First Investors Tax-Exempt Money Market Fund, Inc. (collectively, "Money Market
Funds") may be subject to an initial sales charge. You may open a Fund account
with $250 for individual retirement accounts ("IRAs") or, at the Fund's
discretion, a lesser amount for Simplified Employee Pension Plans ("SEPs"),
salary reduction SEPs ("SARSEPs") and qualified or other retirement plans.
Automatic investment plans allow you to open an account with as little as $50,
provided you invest at least $600 a year. See "Systematic Investing."
Additional Purchases. After you make your first investment in a Fund, you
may purchase additional shares of a Fund by mailing a check made payable to FIC,
directly to First Investors Corporation, 581 Main Street, Woodbridge, NJ
07095-1198, Attn: Dept. CP. Include your account number on the face of the
check. There is no minimum on additional purchases of Fund shares.
Eligible Funds. The funds in the First Investors family of funds, except
as noted below, are eligible to participate in certain shareholder privileges
noted in this Prospectus and the SAI (singularly, "Eligible Fund" and,
collectively, "Eligible Funds"). First Investors Special Bond Fund, Inc., First
Investors Life Series Fund and First Investors U.S. Government Plus Fund are not
deemed to be Eligible Funds. The Money Market Funds, unless otherwise noted, are
not deemed to be Eligible Funds. The series of Executive Investors Trust
("Executive Investors") are deemed to be Eligible Funds provided the shares of
any such series either have been (a) acquired through an exchange from an
Eligible Fund which imposes a maximum sales charge of 6.25%, or (b) held for at
least one year from their date of purchase.
Systematic Investing. You may arrange for automatic investments in a Fund
on a systematic basis through First Investors Money Line and through automatic
payroll investments. You may also elect to invest in Class A shares of a Fund at
net asset value all the cash distributions or Systematic Withdrawal Plan
payments from the same class of shares of another Eligible Fund. If you wish to
participate in any of these systematic investment plans, please call Shareholder
Services at 1-800- 423-4026 or see the SAI.
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Class A Shares. Class A shares of each Fund are sold at the public
offering price, which will vary with the size of the purchase, as shown in the
following table:
Sales Charge as % of Concession to
Offering Net Amount Dealers as % of
Amount of Investment Price Invested Offering Price
- -------------------- --------- ------------- --------------
Less than $25,000.................... 6.25% 6.67% 5.13%
$25,000 but under $50,000............ 5.75 6.10 4.72
$50,000 but under $100,000........... 5.50 5.82 4.51
$100,000 but under $250,000.......... 4.50 4.71 3.69
$250,000 but under $500,000.......... 3.50 3.63 2.87
$500,000 but under $1,000,000........ 2.50 2.56 2.05
There is no sales charge on transactions of $1 million or more, including
transactions of this amount which are subject to the Cumulative Purchase
Privilege or a Letter of Intent. The Underwriter will pay from its own resources
a sales commission to FIC Representatives and a concession equal to 0.90% of the
amount invested to Dealers on such purchases. If shares are redeemed within 24
months of purchase (this holding period is 18 months for shares purchased prior
to May 1, 1995), a CDSC of 1.00% will be deducted from the redemption proceeds.
The CDSC will be applied in the same manner as the CDSC on the Class B shares.
See "Class B Shares."
Cumulative Purchase Privilege and Letters of Intent. You may purchase
Class A shares of a Fund at a reduced sales charge through the Cumulative
Purchase Privilege or by executing a Letter of Intent. For more information, see
the SAI, call your Representative or call Shareholder Services at
1-800-423-4026.
Waivers of Class A Sales Charges. Sales charges on Class A shares do not
apply to: (1) any purchase by an officer, director, trustee or full-time
employee (who has completed the introductory period) of a Fund, the Underwriter,
the Adviser, or their affiliates, by a Representative, or by the spouse, or by
the children and grandchildren under the age of 21 of any such person; (2) any
purchase by a former officer, director, trustee or full-time employee of Series
Fund II, the Underwriter, the Adviser, or their affiliates, or by a former FIC
Representative; provided they had acted as such for at least five years and had
retired or otherwise terminated the relationship in good standing; (3) the
proceeds of any settlement reached with FIC, FIMCO and/or certain First
Investors funds; (4) any reinvestment of the loan repayments by a participant in
a loan program of any First Investors sponsored qualified retirement plan; and
(5) a purchase with proceeds from the liquidation of a First Investors Life
Variable Annuity Fund A contract or a First Investors Life Variable Annuity Fund
C contract during the one-year period preceding the maturity date of the
contract.
The sales charge will be waived on any purchases of Class A shares by a
participant in a Qualified Plan account, as defined under "Retirement Plans," if
the purchase is made with the proceeds from a redemption of shares of a fund in
another fund group on which either an initial sales charge or a CDSC has been
paid.
Additionally, policyholders of participating life insurance policies
issued by First Investors Life Insurance Company ("FIL"), an affiliate of the
Adviser and Underwriter, may elect to invest dividends earned on such policies
in Class A shares of a Fund at net asset value, provided the annual dividend is
at least $50 and the policyholder has an existing account with the Fund.
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Holders of certain unit trusts ("Unitholders") who have elected to invest
the entire amount of cash distributions from either principal, interest income
or capital gains or any combination thereof ("Unit Distributions") from the
following trusts may invest such Unit Distributions in Class A shares of a Fund
at a reduced sales charge. Unitholders of various series of New York Insured
MunicipalsIncome Trust sponsored by Van Kampen Merritt Inc. (the "New York
Trust"); Unitholders of various series of the Multistate Tax Exempt Trust
sponsored by Advest Inc.; and Unitholders of various series of the Municipal
Insured National Trust, J.C. Bradford & Co. as agent, may purchase Class A
shares of a Fund with Unit Distributions at an offering price which is the net
asset value per share plus a sales charge of 1.5%. Unitholders of various series
of tax-exempt trusts, other than the New York Trust, sponsored by Van Kampen
Merritt Inc. may purchase Class A shares of a Fund with Unit Distributions at an
offering price which is the net asset value per share plus a sales charge of
1.0%. Each Fund's initial minimum investment requirement is waived for purchases
of Class A shares with Unit Distributions. Shares of a Fund purchased by
Unitholders may be exchanged for Class A shares of any Eligible Fund subject to
the terms and conditions set forth under "How to Exchange Shares."
Retirement Plans. You may invest in shares of a Fund through an IRA, SEP,
SARSEP or any other retirement plan. Participant directed plans, such as 401(k)
plans, profit sharing and money purchase plans and 403(b) plans, that are
subject to Title I of ERISA (each, a "Qualified Plan") are entitled to a reduced
sales charge provided the number of employees eligible to participate are 99 or
less, as follows:
Sales Charge as % of Concession to
Offering Net Amount Dealers as % of
Price Invested Offering Price
3.00% 3.09% 2.55%
There is no sales charge on purchases through a Qualified Plan with 100 or
more eligible employees. A CDSC of 1.00% will be deducted from the redemption
proceeds of such accounts for redemptions made within 24 months of purchase. The
CDSC will be applied in the same manner as the CDSC on Class B shares. See
"Class B Shares." The Underwriter will pay from its own resources a sales
commission to FIC Representatives and a concession equal to 0.90% of the amount
invested to Dealers on such purchases. These sales charges will be available
regardless of whether the account is registered with the Transfer Agent in the
name of the individual participant or the sponsoring employer or plan trustee. A
Qualified Plan account will be subject to the lower of the sales charge for
Qualified Plans or the sales charge for the purchase of Fund shares (see page
16).
Class B Shares. The public offering price of Class B shares of each Fund
is the next determined net asset value, with no initial sales charge imposed. A
CDSC, however, is imposed upon most redemptions of Class B shares at the rates
set forth below:
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Contingent Deferred Sales Charge
Year Since Purchase as a Percentage of Dollars Invested
Payment Made or Redemption Proceeds
First.............................. 4%
Second............................. 4
Third.............................. 3
Fourth............................. 3
Fifth.............................. 2
Sixth.............................. 1
Seventh and thereafter............. 0
The CDSC will not be imposed on (1) the redemption of Class B shares
acquired as dividends or other distributions, or (2) any increase in the net
asset value of redeemed shares above their initial purchase price (in other
words, the CDSC will be imposed on the lower of net asset value or purchase
price). In determining whether a CDSC is payable on any redemption, it will be
assumed that the redemption is made first of any Class B shares acquired as
dividends or distributions, second of Class B shares that have been held for a
sufficient period of time such that the CDSC no longer is applicable to such
shares and finally of Class B shares held longest during the period of time that
a CDSC is applicable to such shares. This will result in your paying the lowest
possible CDSC.
As an example, assume an investor purchased 100 shares of Class B shares
at $10 per share for a total cost of $1,000 and in the second year after
purchase, the net asset value per share is $12 and, during such time, the
investor has acquired 10 additional Class B shares as dividends. If at such time
the investor makes his or her first redemption of 50 shares (proceeds of $600),
10 shares will not be subject to a CDSC charge because redemptions are first
made of shares acquired through dividend reinvestment. With respect to the
remaining 40 shares, the charge is applied only to the original cost of $10 per
share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds will be charged at a rate of 4.00% (the
applicable rate in the second year after purchase).
For purposes of determining the CDSC on Class B shares, all purchases made
during a calendar month will be deemed to have been made on the first business
day of that month at the average cost of all purchases made during that month.
The holding period of Class B shares acquired through an exchange with another
Eligible Fund will be calculated from the first business day of the month that
the Class B shares were initially acquired in the other Eligible Fund. The
amount of any CDSC will be paid to FIC. The CDSC imposed on the purchase of
Class B shares will be waived under certain circumstances. See "Waivers of CDSC
on Class B Shares" in the SAI.
Conversion of Class B Shares. A shareholder's Class B shares will
automatically convert to Class A shares approximately eight years after the date
of purchase, together with a pro rata portion of all Class B shares representing
dividends and other distributions paid in additional Class B shares. The Class B
shares so converted will no longer be subject to the higher expenses borne by
Class B shares. The conversion will be effected at the relative net asset values
per share of the two classes on the first business day of the month following
that in which the eighth anniversary of the purchase of the Class B shares
occurs. If a shareholder effects one or more exchanges between Class B shares of
the Eligible Funds during the eight-year period, the holding period for the
shares so exchanged will commence upon the date of the purchase of the original
shares. Because the per
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share net asset value of the Class A shares may be higher than that of the Class
B shares at the time of conversion, a shareholder may receive fewer Class A
shares than the number of Class B shares converted. See "Determination of Net
Asset Value."
General. The Underwriter may at times agree to reallow to Dealers up to an
additional 0.25% of the dollar amount of shares of the Funds and/or certain
other First Investors funds sold by such Dealers during a specific period of
time. From time to time, the Underwriter also will pay, through additional
reallowances or other sources, a bonus or other compensation to Dealers which
employ a Dealer Representative who sells a minimum dollar amount of the shares
of the Funds and/or certain other First Investors or Executive Investors funds
during a specific period of time. Such bonus or other compensation may take the
form of reimbursement of certain seminar expenses, co-operative advertising, or
payment for travel expenses, including lodging incurred in connection with trips
taken by qualifying Dealer Representatives to the Underwriter's principal office
in New York City.
HOW TO EXCHANGE SHARES
Should your investment needs change, you may exchange, at net asset value,
shares of a Fund for shares of any Eligible Fund, including the Money Market
Funds. In addition, Class A shares of a Fund may be exchanged at net asset value
for units of any single payment plan ("plan") sponsored by the Underwriter.
Shares of a particular class may be exchanged only for shares of the same class
of another fund. Exchanges can only be made into accounts registered to
identical owners. If your exchange is into a new account, it must meet the
minimum investment and other requirements of the fund or plan into which the
exchange is being made. Additionally, the fund or plan must be available for
sale in the state where you reside. A $5.00 exchange fee is charged for each
exchange into a Fund. However, currently this fee is being voluntarily borne by
the fund into which you are making the exchange and, thus, that fund's
shareholders are bearing the fee ratably. Before exchanging Fund shares for
shares of another fund or plan, you should read the Prospectus of the fund or
plan into which the exchange is to be made. You may obtain Prospectuses and
information with respect to which funds or plans qualify for the exchange
privilege free of charge by calling Shareholder Services at 1-800-423-4026.
Exchange requests received in "good order" by the Transfer Agent before the
close of regular trading on the NYSE will be processed at the net asset value
determined as of the close of regular trading on the NYSE on that day; exchange
requests received after that time will be processed on the following trading
day.
Exchanges By Mail. To exchange shares by mail, you should mail requests to
Administrative Data Management Corp. (the "Transfer Agent"), 581 Main Street,
Woodbridge, NJ 07095-1198. Shares will be exchanged after the request is
received in "good order" by the Transfer Agent. "Good order" means that an
exchange request must include: (1) the names of the funds, account numbers (if
existing accounts), the dollar amount, number of shares or percentage of the
account you wish to exchange; and (2) the signature of all registered owners
exactly as the account is registered. If the request is not in good order or
information is missing, the Transfer Agent will seek additional information from
you and process the exchange on the day it receives such information. Certain
account registrations may require additional legal documentation in order to
exchange. To review these requirements, please call Shareholder Services at
1-800-423-4026.
Exchanges By Telephone. See "Telephone Transactions."
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Additional Exchange Information. Exchanges should be made for investment
purposes only. A pattern of frequent exchanges may be contrary to the best
interests of a Fund's other shareholders. Accordingly, each Fund has the right,
at its sole discretion, to limit the amount of an exchange, reject any exchange,
or, upon 60 days' notice, materially modify or discontinue the exchange
privilege. Each Fund will consider all relevant factors in determining whether a
particular frequency of exchanges is contrary to the best interests of the Fund
and/or a class of the Fund and its other shareholders. Any such restriction will
be made by a Fund on a prospective basis only, upon notice to the shareholder
not later than ten days following such shareholder's most recent exchange.
HOW TO REDEEM SHARES
You may redeem your Fund shares at the next determined net asset value,
less any applicable CDSC, on any day the NYSE is open, directly through the
Transfer Agent. Your Representative may help you with this transaction. Shares
may be redeemed by mail or telephone (provided written authorization for
telephone transactions is on file). Redemption requests received in "good order"
by the Transfer Agent before the close of regular trading on the NYSE, will be
processed at the net asset value, less any applicable CDSC, determined as of the
close of regular trading on the NYSE on that day. Payment of redemption proceeds
will be made within three days. If the shares being redeemed were recently
purchased by check, payment may be delayed to verify that the check has been
honored, normally not more than fifteen days.
Redemptions By Mail. Written redemption requests should be mailed to
Administrative Data Management Corp., 581 Main Street, Woodbridge, NJ
07095-1198. For your redemption request to be in good order, you must include:
(1) the name of the Fund; (2) your account number; (3) the dollar amount, number
of shares or percentage of the account you want redeemed; (4) share
certificates, if issued; (5) the original signatures of all registered owners
exactly as the account is registered; (6) signature guarantees as described
below; and (7) additional documents required for redemptions by corporations,
trusts, partnerships, organizations, retirement, pension or profit sharing plans
and for requests from anyone other than the shareholder(s) of record. If 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. Certain account registrations may require additional
legal documentation in order to redeem. To review these requirements, please
call Shareholder Services at 1-800-423-4026.
Signature Guarantees. In order to protect you, the Funds and their agents,
each Fund reserves the right to require signature guarantees in order to process
certain exchange or redemption requests. Members of the STAMP (Securities
Transfer Agents Medallion Program), MSP (New York Stock Exchange Medallion
Signature Program), SEMP (Stock Exchanges Medallion Program) and FIC are
eligible signature guarantors. A notary public is not an acceptable guarantor.
See the SAI or call Shareholder Services at 1-800-423-4026 for instances when
signature guarantees are required.
Redemptions By Telephone. See "Telephone Transactions."
Systematic Withdrawal Plan. If you own noncertificated shares, you may set
up a plan for redemptions to be made automatically at regular intervals. You may
elect to have the payments automatically (a) sent directly to you or persons you
designate; or (b) invested in shares of the same class of any other Eligible
Fund, including the Money Market Funds; or (c) paid to FIL for the purchase of a
life insurance policy or a variable annuity. See the SAI for more information on
the
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Systematic Withdrawal Plan. To establish a Systematic Withdrawal Plan, call
Shareholder Services at 1-800-423-4026.
Reinvestment after Redemption. If you redeem Class A or Class B shares in
your Fund account, you can reinvest within ninety days from the date of
redemption all or any part of the proceeds in shares of the same class of the
same Fund or any other Eligible Fund, including the Money Market Funds, at net
asset value, on the date the Transfer Agent receives your purchase request. For
more information on the reinvestment privilege, please see the SAI or call
Shareholder Services at 1-800-423-4026.
Repurchase through Underwriter. You may redeem Class A shares for which a
certificate has been issued through a Dealer. In this event, the Underwriter,
acting as agent for each Fund, will offer to repurchase or accept an offer to
sell such shares at a price equal to the net asset value next determined after
the making of such offer. The Dealer may charge you an added commission for
handling any redemption transaction.
Redemption of Low Balance Accounts. Because each Fund incurs certain fixed
costs in maintaining shareholder accounts, each Fund may redeem without your
consent, on at least 60 days' prior written notice (which may appear on your
account statement), any Fund account of Class A or Class B shares which has a
net asset value of less than $500. To avoid such redemption, you may, during
such 60-day period, purchase additional Fund shares of the same class so as to
increase your account balance to the required minimum. There will be no CDSC
imposed on such redemptions of Class B shares. A Fund will not redeem accounts
that fall below $500 solely as a result of a reduction in net asset value.
Accounts established under a Systematic Investment Plan which have been
discontinued prior to meeting the $1,000 minimum are subject to this policy.
Additional information concerning how to redeem shares of the Fund is
available upon request to your Representative or Shareholder Services at
1-800-423-4026.
TELEPHONE TRANSACTIONS
You may redeem or exchange noncertificated shares of a Fund by calling the
Special Services Department at 1-800-342-6221 weekdays (except holidays) between
9:00 A.M. and 5:00 P.M. (New York City time). Exchange or redemption requests
received before the close of regular trading on the NYSE, will be processed at
the net asset value, less any applicable CDSC, determined as of the close of
business on that day. For more information on telephone privileges, please call
Shareholder Services at 1-800-423-4026 or see the SAI.
Telephone Exchanges. Exchange requests may be made by telephone (for
shares held on deposit only). You are limited to one telephone exchange within
any 30-day period for each account authorized. Telephone exchanges to Money
Market Funds are not available if your address of record has changed within 60
days prior to the exchange request. Telephone exchange instructions will be
accepted from any one owner.
Telephone Redemptions. The telephone redemption privilege may be used
provided: (1) the redemption proceeds are being mailed to the address of record;
(2) your address of record has not changed within the past 60 days; (3) the
shares to be redeemed have not been issued in certificate form; (4) the proceeds
of the redemption do not exceed $50,000; and (5) shares have not been
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redeemed by telephone from the account in the past 30 days. For joint accounts,
telephone redemption instructions will be accepted from any one owner.
Additional Information. Series Fund II, the Adviser, the Underwriter and
their officers, directors and employees will not be liable for any loss, damage,
cost or expense arising out of any instruction (or any interpretation of such
instruction) received by telephone which they reasonably believe to be
authentic. In acting upon telephone instructions, these parties use procedures
which are reasonably designed to ensure that such instructions are genuine. This
policy places the entire risk of loss for unauthorized or fraudulent
transactions on the shareholder, except that if Series Fund II, the Adviser, the
Underwriter and their officers, directors and employees do not follow reasonable
procedures, some or all of them may be liable for any such losses. For more
information on telephone transactions see the SAI. Each Fund has the right, at
its sole discretion, upon 60 days' notice, to materially modify or discontinue
the telephone exchange and redemption privilege. During times of drastic
economic or market changes, telephone exchanges or redemptions may be difficult
to implement. If you experience difficulty in making a telephone exchange or
redemption, your exchange or redemption request may be made by regular or
express mail, and it will be implemented at the next determined net asset value,
less any applicable CDSC, following receipt by the Transfer Agent.
MANAGEMENT
Board of Directors. Series Fund II's Board of Directors, as part of its
overall management responsibility, oversees various organizations responsible
for each Fund's day-to-day management.
Adviser. First Investors Management Company, Inc. supervises and manages
each Fund's investments, supervises all aspects of each Fund's operations and,
for Made In The U.S.A. Fund and Utilities Income Fund, determines those Funds'
portfolio transactions. The Adviser is a New York corporation located at 95 Wall
Street, New York, NY 10005. The Adviser presently acts as investment adviser to
14 mutual funds. First Investors Consolidated Corporation ("FICC") owns all of
the voting common stock of the Adviser and all of the outstanding stock of FIC
and the Transfer Agent. Mr. Glenn O. Head (and members of his family) and Mrs.
Julie W. Grayson (as executrix of the estate of her deceased husband, David D.
Grayson) are controlling persons of FICC and, therefore, jointly control the
Adviser.
As compensation for its services, the Adviser receives an annual fee from
each of the Funds, which is payable monthly. For the fiscal year ended October
31, 1995, advisory fees, net of waiver for Growth & Income Fund, Made In The
U.S.A. Fund and Utilities Income Fund were 0.53%, 0.58% and 0.46%, respectively,
of each Fund's average daily net assets.
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.
Subadviser-Growth & Income Fund. Wellington Management Company has been
retained by the Adviser and Series Fund II as the investment subadviser to
Growth & Income Fund. The
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Adviser has delegated discretionary trading authority to WMC with respect to all
of the Fund's assets, subject to the continuing oversight and supervision by the
Adviser. As compensation for its services, WMC is paid by the Adviser, and not
by the Fund, a fee which is computed daily and paid monthly.
WMC, located at 75 State Street, Boston, MA 02109, is a Massachusetts
general partnership of which Robert W. Doran, Duncan M. McFarland and John R.
Ryan are Managing Partners. WMC is a professional investment counseling firm
which provides investment services to investment companies, employee benefit
plans, endowment funds, foundations and other institutions and individuals. As
of October 31, 1995, WMC held investment management authority with respect to
approximately $102.2 billion of assets. Of that amount, WMC acted as investment
adviser or subadviser to approximately 110 registered investment companies or
series of such companies, with net assets of approximately $70.6 billion as of
October 31, 1995. WMC is not affiliated with the Adviser or any of its
affiliates.
For the fiscal year ended October 31, 1995, the Subadviser's fees amounted
to 0.32% of Growth & Income Fund's average daily net assets, all of which was
paid by the Adviser and not by the Fund.
Portfolio Managers. Patricia D. Poitra, Director of Equities, has been
primarily responsible for the day-to-day management of the Made In The U.S.A.
Fund since October 1994. Ms. Poitra is assisted by a team of portfolio analysts.
Ms. Poitra also is responsible for the management of the Special Situation
Series, the Blue Chip Series and the small capitalization equity portion of the
Total Return Series, all Series of First Investors Series Fund. In addition, Ms.
Poitra is responsible for the management of the Blue Chip Fund and Discovery
Fund of First Investors Life Series Fund and the Blue Chip Fund of Executive
Investors Trust. Ms. Poitra joined FIMCO in 1985 as a Senior Equity Analyst.
Margaret R. Haggerty has been Portfolio Manager for Utilities Income Fund
since its inception in February 1993. Ms. Haggerty joined FIMCO in 1990 as an
analyst for several First Investors equity funds. In addition, she monitored the
management of several First Investors funds for which WMC was the subadviser.
Ms. Haggerty has been Portfolio Manager of the Utilities Income Fund of First
Investors Life Series Fund since its inception in November 1993.
Growth & Income Fund has been managed since its inception in 1993 by Laura
J. Allen, Vice President of WMC. Ms. Allen joined WMC in 1981 as a portfolio
assistant and became a portfolio manager in 1984.
Brokerage. Each Fund may allocate brokerage commissions, if any, to
broker-dealers in consideration of Fund share distribution, but only when
execution and price are comparable to that offered by other broker-dealers. See
the SAI for more information on allocation of portfolio brokerage.
Underwriter. Series Fund II has entered into an Underwriting Agreement
with First Investors Corporation, 95 Wall Street, New York, NY 10005, as
Underwriter. The Underwriter receives all sales charges in connection with the
sale of each Fund's Class A shares and all contingent deferred sales charges in
connection with each Fund's Class B shares and may receive payments under a plan
of distribution. See "How to Buy Shares" and "Distribution Plans."
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DISTRIBUTION PLANS
Pursuant to separate distribution plans pertaining to each Fund's Class A
and Class B shares ("Class A Plan" or "Class B Plan," and collectively,
"Plans"), each Fund is authorized to compensate the Underwriter for certain
expenses incurred in the distribution of that Fund's shares ("distribution
fees") and the servicing or maintenance of existing Fund shareholder accounts
("service fees"). Pursuant to the Plans, distribution fees are paid for
activities relating to the distribution of Fund shares, including costs of
printing and dissemination of sales material or literature, prospectuses and
reports used in connection with the sale of Fund shares. Service fees are paid
for the ongoing maintenance and servicing of existing shareholder accounts,
including payments to Representatives who provide shareholder liaison services
to their customers who are holders of that Fund, provided they meet certain
criteria.
Pursuant to the Class A Plan, each Fund is authorized to pay the
Underwriter a distribution fee at the annual rate of 0.05% of that Fund's
average daily net assets attributable to Class A shares and a service fee of
0.25% of that Fund's average daily net assets attributable to Class A shares.
Pursuant to the Class B Plan, each Fund is authorized to pay the Underwriter a
distribution fee at the annual rate of 0.75% of that Fund's average daily net
assets attributable to Class B shares and a service fee of 0.25% of that Fund's
average daily net assets attributable to Class B shares. Payments made to the
Underwriter under the Plans represent compensation for distribution and service
activities, not reimbursement for specific expenses incurred.
Although Class B shares are sold without an initial sales charge, the
Underwriter pays from its own resources a sales commission to FIC
Representatives and a concession equal to 3.5% of the amount invested to Dealers
who sell Class B shares. In addition, the Underwriter will make quarterly
payments of service fees to Representatives commencing after the thirteenth
month following the initial sale of Class B shares. The Underwriter will make
such payments at an annual rate of up to 0.25% of the average net asset value of
Class B shares which are attributable to shareholders for whom the
Representatives are designated as dealer of record.
A Fund may suspend or modify payments under the Plans at any time, and
payments are subject to the continuation of each Plan, the terms of any dealer
agreements between Dealers and the Underwriter and any applicable limits imposed
by the National Association of Securities Dealers, Inc. Each Fund will not carry
over any fees under the Plans to the next fiscal year. See "Distribution Plans"
in the SAI for a full discussion of the various Plans.
DETERMINATION OF NET ASSET VALUE
The net asset value of each Fund's shares fluctuates and is determined
separately for each class of shares. The per share net asset value of the Class
B shares will generally be lower than that of the Class A shares because of the
higher expenses borne by the Class B shares. The net asset value of shares of a
given class of each Fund is determined as of the close of regular trading on the
NYSE (generally 4:00 P.M., New York City time) on each day the NYSE is open for
trading, and at such other times as the Board of Directors deems necessary, by
dividing the market value of the securities held by such Fund, plus any cash and
other assets, less all liabilities, by the number of shares of the applicable
class outstanding. If there is no available market value, securities will be
valued at their fair value as determined in good faith pursuant to procedures
adopted by the Board of Directors.
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The NYSE currently observes the following holidays: New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
DIVIDENDS AND OTHER DISTRIBUTIONS
Dividends from net investment income are generally declared and paid
quarterly by Growth & Income Fund and Utilities Income Fund and annually by Made
In The U.S.A. Fund. Unless you direct the Transfer Agent otherwise, dividends
declared on a class of shares of a Fund are paid in additional shares of that
class at the net asset value generally determined as of the close of business on
the business day immediately following the record date of the dividend. Net
investment income includes interest, earned discount, dividends and other income
earned on portfolio securities less expenses.
Each Fund also distributes with its regular dividend at the end of the
year substantially all of its net capital gain (the excess of net long-term
capital gain over net short-term capital loss) and net short-term capital gain,
if any, after deducting any available capital loss carryovers and, for Growth &
Income Fund, any net realized gains from foreign currency transactions. Unless
you direct the Transfer Agent otherwise, these distributions are paid in
additional shares of the same class of the distributing Fund at the net asset
value generally determined as of the close of business on the business day
immediately following the record date of the distribution. A Fund may make an
additional distribution in any year if necessary to avoid a Federal excise tax
on certain undistributed 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 elect to receive dividends and/or other distributions in
cash by notifying the Transfer Agent by telephone or in writing prior to the
record date of any such distribution. If you elect this form of payment, the
payment date generally is two weeks following the record date of any such
distribution. Your election remains in effect until you revoke it by written
notice to the Transfer Agent.
You may elect to invest the entire amount of any cash distribution on
Class A shares in shares of the same class of any Eligible Fund, including the
Money Market Funds, by notifying the Transfer Agent. See the SAI or call
Shareholder Services at 1-800-423-4026 for more information. The investment will
be made at the net asset value per share of the other fund, generally determined
as of the close of business, on the business day immediately following the
record date of any such distribution.
A dividend or other distribution paid on a class of shares of a Fund will
be paid in additional shares of that class and not in cash if any of the
following events occurs: (1) the total amount of the distribution is under $5,
(2) the Fund has received notice of your death on an individual account (until
written alternate payment instructions and other necessary documents are
provided by your
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legal representative), or (3) a distribution check is returned to the Transfer
Agent, marked as being undeliverable, by the U.S. Postal Service after two
consecutive mailings.
TAXES
Each Fund intends to continue to qualify for treatment as a regulated
investment company under the Code so that it will be relieved of Federal income
tax on that part of its investment company taxable income (consisting generally
of net investment income, net short-term capital gain and, for Growth & Income
Fund, net gains from certain foreign currency transactions) and net capital gain
that is distributed to its shareholders.
Dividends from a Fund's investment company taxable income are taxable to
you as ordinary income, to the extent of the Fund's earnings and profits,
whether paid in cash or in additional Fund shares. Distributions of a Fund's net
capital gain, when designated as such, are taxable to you as long-term capital
gain, whether paid in cash or in additional Fund shares, regardless of the
length of time you have owned your shares. If you purchase shares shortly before
the record date for a dividend or other distribution, you will pay full price
for the shares and receive some portion of the price back as a taxable
distribution. You will receive an annual statement following the end of each
calendar year describing the tax status of distributions paid by the Fund during
that year.
Each Fund is required to withhold 31% of all dividends, capital gain
distributions and redemption proceeds payable to you (if you are an individual
or certain other non-corporate shareholder) if the Fund is not furnished with
your correct taxpayer identification number, and that percentage of dividends
and such distributions in certain other circumstances.
Your redemption of Fund shares will result in a taxable gain or loss to
you, depending on whether the redemption proceeds are more or less than your
adjusted basis for the redeemed shares (which normally includes any initial
sales charge paid on Class A shares). An exchange of Fund shares for shares of
any Eligible Fund generally will have similar tax consequences. However, special
tax rules apply when a shareholder (1) disposes of Class A shares through a
redemption or exchange within 90 days of purchase and (2) subsequently acquires
Class A shares of an Eligible Fund without paying a sales charge due to the
90-day reinvestment privilege or exchange privilege. In these cases, any gain on
the disposition of the original Class A shares will be increased, or loss
decreased, by the amount of the sales charge paid when the shares were acquired,
and that amount will increase the basis of the Eligible Fund's shares
subsequently acquired. In addition, if you purchase Fund shares within 30 days
before or after redeeming other shares of that Fund (regardless of class) at a
loss, all or a portion of the loss will not be deductible and will increase the
basis of the newly purchased shares. No gain or loss will be recognized to a
shareholder as a result of a conversion of Class B shares into Class A shares.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting each Fund and its shareholders; see the SAI
for a further discussion. There may be other Federal, state and local tax
considerations applicable to a particular investor. You therefore are urged to
consult you own tax adviser.
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PERFORMANCE INFORMATION
For purposes of advertising, each Fund's performance may be calculated for
each class of its shares based on average annual total return and total return.
Each of these figures reflects past performance and does not necessarily
indicate future results. Average annual total return shows the average annual
percentage change in an assumed $1,000 investment. It reflects the hypothetical
annually compounded return that would have produced the same total return if a
Fund's performance had been constant over the entire period. Because average
annual total return tends to smooth out variations in a Fund's return, you
should recognize that it is not the same as actual year-by-year results. Average
annual total return includes the effect of paying the maximum sales charge (in
the case of Class A shares) or the deduction of any applicable CDSC (in the case
of Class B shares) and payment of dividends and other distributions in
additional shares. One, five and ten year periods will be shown unless the class
has been in existence for a shorter period. Total return is computed using the
same calculations as average annual total return. However, the rate expressed is
the percentage change from the initial $1,000 invested to the value of the
investment at the end of the stated period. Total return calculations assume
reinvestment of dividends and other distributions.
Each of the above performance calculations may be based on investment at
reduced sales charge levels or at net asset value. Any quotation of performance
figures not reflecting the maximum sales charge will be greater than if the
maximum sales charge were used. Additional performance information is contained
in the Funds' Annual Report which may be obtained without charge by contacting
the Funds at 1-800-423-4026.
GENERAL INFORMATION
Organization. Series Fund II is a Maryland corporation organized on April
1, 1992. Series Fund II is authorized to issue 400 million shares of common
stock, $0.001 par value, in such separate and distinct series and classes of
shares as Series Fund II's Board of Directors shall from time to time establish.
The shares of common stock of Series Fund II are presently divided into three
separate and distinct series, each having two classes, designated Class A shares
and Class B shares. Each class of a Fund represents interests in the same assets
of that Fund. The classes differ in that (1) each class has exclusive voting
rights on matters affecting only that class, (2) Class A shares are subject to
an initial sales charge and relatively lower ongoing distribution fees, (3)
Class B shares bear higher ongoing distribution fees, are subject to a CDSC upon
certain redemptions and will automatically convert to Class A shares
approximately eight years after purchase, (4) each class may bear differing
amounts of certain other class-specific expenses, and (5) each class has
different exchange privileges. The Board of Directors anticipates that there
will not be any conflicts among the interests of the holders of the different
classes of each Fund's shares. On an ongoing basis, the Board of Directors will
consider whether any such conflict exists and, if so, take appropriate action.
Series Fund II does not hold annual shareholder meetings. If requested to do so
by the holders of at least 10% of Series Fund II's outstanding shares, the Board
of Directors will call a special meeting of shareholders for any purpose,
including the removal of Directors. Each share of each Fund has equal voting
rights except as noted above. Each share of a Fund is entitled to participate
equally in dividends and other distributions and the proceeds of any liquidation
except that, due to the higher expenses borne by the Class B shares, such
dividends and proceeds are likely to be lower for the Class B shares than for
the Class A shares.
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Custodian. The Bank of New York, 48 Wall Street, New York, NY 10286, is
custodian of the securities and cash of each Fund and may employ foreign
sub-custodians to provide custody of Growth & Income Fund's foreign assets.
Transfer Agent. Administrative Data Management Corp., 581 Main Street,
Woodbridge, NJ 07095-1198, an affiliate of FIMCO and FIC, acts as transfer and
dividend disbursing agent for each Fund and as redemption agent for regular
redemptions. The Transfer Agent's telephone number is 1-800-423-4026.
Share Certificates. The Funds do not issue certificates for Class B shares
or for Class A shares purchased under any retirement account. The Funds,
however, will issue share certificates on Class A shares at the shareholder's
request. Ownership of shares of each Fund is recorded on a stock register by the
Transfer Agent and shareholders have the same rights of ownership with respect
to such shares as if certificates had been issued.
Confirmations and Statements. You will receive confirmations of purchases
and redemptions of shares of a Fund. A statement of shares owned will be sent to
you following a transaction in the account, including payment of a dividend or
capital gain distribution in additional shares or cash.
Shareholder Inquiries. Shareholder inquiries can be made by calling
Shareholder Services at 1-800-423-4026.
Annual and Semi-Annual Reports to Shareholders. It is the Funds' practice
to mail only one copy of its annual and semi-annual reports to any address at
which more than one shareholder with the same last name has indicated that mail
is to be delivered. Additional copies of the reports will be mailed if requested
in writing or by telephone by any shareholder. The Funds will mail an additional
copy of such reports to any shareholder who subsequently changes his or her
mailing address.
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FIRST INVESTORS SERIES FUND II, INC.
Growth & Income Fund
Made In The U.S.A. Fund
Utilities Income Fund
95 Wall Street 1-800-423-4026
New York, New York 10005
Statement of Additional Information
dated February 15, 1996
This is a Statement of Additional Information ("SAI") for First
Investors Series Fund II, Inc. ("Series Fund II"), an open-end diversified
management investment company. Series Fund II offers three separate series, each
of which has different investment objectives and policies: Growth & Income Fund,
Made In The U.S.A. Fund and Utilities Income Fund (each, a "Fund"). The
investment objectives of each Fund is as follows:
Growth & Income Fund seeks long-term growth of capital and current
income.
Made In The U.S.A. Fund seeks long-term capital growth.
Utilities Income Fund primarily seeks high current income. Long-term
capital appreciation is a secondary objective.
There can be no assurance that any Fund will achieve its investment
objective.
This SAI is not a prospectus. It should be read in conjunction with the
Funds' Prospectus dated February 15, 1996, which may be obtained free of cost
from the Funds at the address or telephone number noted above.
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TABLE OF CONTENTS
Page
Investment Policies .................................................
Hedging and Option Income Strategies.................................
Investment Restrictions..............................................
Directors and Officers...............................................
Management...........................................................
Underwriter..........................................................
Distribution Plan....................................................
Determination of Net Asset Value.....................................
Allocation of Portfolio Brokerage....................................
Reduced Sales Charges, Additional Exchange and
Redemption Information and Other Services..........................
Taxes................................................................
Performance Information..............................................
General Information..................................................
Appendix A...........................................................
Appendix B...........................................................
Appendix C...........................................................
Financial Statements.................................................
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INVESTMENT POLICIES
Bankers' Acceptances. Each Fund may invest in bankers' acceptances.
Bankers' acceptances are short-term credit instruments used to finance
commercial transactions. Generally, an acceptance is a time draft drawn on a
bank by an exporter or importer to obtain a stated amount of funds to pay for
specific merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an asset
or it may be sold in the secondary market at the going rate of interest for a
specific maturity. Although maturities for acceptances can be as long as 270
days, most acceptances have maturities of six months or less.
Certificates of Deposit. Each Fund may invest in bank certificates of
deposit ("CDs") subject to the restrictions set forth in the Prospectus. The
Federal Deposit Insurance Corporation is an agency of the U.S. Government which
insures the deposits of certain banks and savings and loan associations up to
$100,000 per deposit. The interest on such deposits may not be insured if this
limit is exceeded. Current Federal regulations also permit such institutions to
issue insured negotiable CDs in amounts of $100,000 or more, without regard to
the interest rate ceilings on other deposits. To remain fully insured, these
investments currently must be limited to $100,000 per insured bank or savings
and loan association.
Convertible Securities. While no securities investment is without some
risk, investments in convertible securities generally entail less risk than the
issuer's common stock, although the extent to which such risk is reduced depends
in large measure upon the degree to which the convertible security sells above
its value as a fixed income security. First Investors Management Company, Inc.
("FIMCO" or "Adviser"), or for Growth & Income Fund, its subadviser, Wellington
Management Company ("WMC" or "Subadviser"), will decide to invest based upon a
fundamental analysis of the long-term attractiveness of the issuer and the
underlying common stock, the evaluation of the relative attractiveness of the
current price of the underlying common stock, and the judgment of the value of
the convertible security relative to the common stock at current prices.
Loans of Portfolio Securities. Growth & Income Fund and Utilities
Income Fund may loan securities to qualified broker-dealers or other
institutional investors provided: the borrower pledges to a Fund and agrees to
maintain at all times with the Fund collateral equal to not less than 100% of
the value of the securities loaned (plus accrued interest or dividend, if any);
the loan is terminable at will by the Fund; the Fund pays only reasonable
custodian fees in connection with the loan; and the Adviser or the Subadviser
monitors the creditworthiness of the borrower throughout the life of the loan.
Such loans may be terminated by a Fund at any time and the Fund may vote the
proxies if a material event affecting the investment is to occur. The market
risk applicable to any security loaned remains a risk of the Fund. The borrower
must add to the collateral whenever the market value of the securities rises
above the level of such collateral. A Fund could incur a loss if the borrower
should fail financially at a time when the value of the loaned securities is
greater than the collateral.
Mortgage-Backed Securities. Each Fund may invest in mortgage-backed
securities, including those representing an undivided ownership interest in a
pool of mortgage loans. Each of the certificates described below is
characterized by monthly payments to the security holder, reflecting the monthly
payments made by the mortgagees of the underlying mortgage loans. The payments
to the security holders (such as a Fund), like the payments on the underlying
loans, represent both principal and interest. Although the underlying mortgage
loans are for specified periods of time, such as twenty to thirty years,
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the borrowers can, and typically do, repay them sooner. Thus, the security
holders frequently receive prepayments of principal, in addition to the
principal which is part of the regular monthly payments. A borrower is more
likely to prepay a mortgage which bears a relatively high rate of interest.
Thus, in times of declining interest rates, some higher yielding mortgages might
be repaid resulting in larger cash payments to a Fund, and the Fund will be
forced to accept lower interest rates when that cash is used to purchase
additional securities.
Interest rate fluctuations may significantly alter the average maturity
of mortgage-backed securities, due to the level of refinancing by homeowners.
When interest rates rise, prepayments often drop, which should increase the
average maturity of the mortgage-backed security. Conversely, when interest
rates fall, prepayments often rise, which should decrease the average maturity
of the mortgage-backed security.
GNMA Certificates. Government National Mortgage Association
("GNMA") certificates ("GNMA Certificates") are mortgage-backed securities,
which evidence an undivided interest in a pool of mortgage loans. GNMA
Certificates differ from bonds in that principal is paid back monthly by the
borrower over the term of the loan rather than returned in a lump sum at
maturity. GNMA Certificates that the Fund purchase are the "modified
pass-through" type. "Modified pass-through" GNMA Certificates entitle the holder
to receive a share of all interest and principal payments paid and owed on the
mortgage pool net of fees paid to the "issuer" and GNMA, regardless of whether
or not the mortgagor actually makes the payment.
GNMA Guarantee. The National Housing Act authorizes GNMA to
guarantee the timely payment of principal and interest on securities backed by a
pool of mortgages insured by the Federal Housing Administration ("FHA") or the
Farmers' Home Administration ("FMHA"), or guaranteed by the Department of
Veteran Affairs ("VA"). The GNMA guarantee is backed by the full faith and
credit of the U.S. Government. GNMA also is empowered to borrow without
limitation from the U.S. Treasury if necessary to make any payments required
under its guarantee.
Life of GNMA Certificates. The average life of a GNMA
Certificate is likely to be substantially less than the original maturity of the
mortgage pools underlying the securities. Prepayments of principal by mortgagors
and mortgage foreclosures will usually result in the return of the greater part
of principal investment long before maturity of the mortgages in the pool. A
Fund normally will not distribute principal payments (whether regular or
prepaid) to its shareholders. Rather, it will invest such payments in additional
mortgage-backed securities of the types described above. Interest received by
the Fund will, however, be distributed to shareholders. Foreclosures impose no
risk to principal investment because of the GNMA guarantee. As prepayment rates
of the individual mortgage pools vary widely, it is not possible to predict
accurately the average life of a particular issue of GNMA Certificates.
Yield Characteristics of GNMA Certificates. The coupon rate of
interest on GNMA Certificates is lower than the interest rate paid on the
VA-guaranteed or FHA-insured mortgages underlying the Certificates by the amount
of the fees paid to GNMA and the issuer. The coupon rate by itself, however,
does not indicate the yield which will be earned on GNMA Certificates. First,
Certificates may trade in the secondary market at a premium or discount. Second,
interest is earned monthly, rather than semi-annually as with traditional bonds;
monthly compounding raises the effective yield earned. Finally, the actual yield
of a GNMA Certificate is influenced by the prepayment experience of the mortgage
pool underlying it. For example, if the higher-yielding mortgages from the pool
are prepaid, the yield on the remaining pool will be reduced.
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FHLMC Securities. The Federal Home Loan Mortgage Corporation
("FHLMC") issues two types of mortgage pass-through securities, mortgage
participation certificates ("PCs") and guaranteed mortgage certificates
("GMCs"). PCs resemble GNMA Certificates in that each PC represents a pro rata
share of all interest and principal payments made and owed on the underlying
pool.
FNMA Securities. The Federal National Mortgage Association
("FNMA") issues guaranteed mortgage pass-through certificates ("FNMA
Certificates"). FNMA Certificates resemble GNMA Certificates in that each FNMA
Certificate represents a pro rata share of all interest and principal payments
made and owed on the underlying pool. FNMA guarantees timely payment of interest
on FNMA Certificates and the full return of principal.
Risk of foreclosure of the underlying mortgages is greater with FHLMC
and FNMA securities because, unlike GNMA Certificates, FHLMC and FNMA securities
are not guaranteed by the full faith and credit of the U.S. Government.
Portfolio Turnover. Although each Fund generally will not invest for
short-term trading purposes, portfolio securities may be sold from time to time
without regard to the length of time they have been held when, in the opinion of
the Adviser or the Subadviser 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 generally leads to transaction costs and may result in a
greater number of taxable transactions. See "Allocation of Portfolio Brokerage."
For the fiscal year ended October 31, 1994, the portfolio turnover rate
for Growth & Income Fund, Made In The U.S.A. Fund and Utilities Income Fund was
6%, 29% and 58%, respectively. For the fiscal year ended October 31, 1995, the
portfolio turnover rate for Growth & Income Fund and Utilities Income Fund was
19% and 16%, respectively. See the Prospectus for the portfolio turnover rate
for Made In The U.S.A. Fund.
Repurchase Agreements. Although each Fund may enter into repurchase
agreements with banks which are members of the Federal Reserve System or
securities dealers who are members of a national securities exchange or are
market makers in government securities, Made In The U.S.A. Fund and Utilities
Income Fund do not currently intend to do so. The period of these repurchase
agreements will usually be short, from overnight to one week, and at no time
will a Fund invest in repurchase agreements with more than one year in time to
maturity. The securities which are subject to repurchase agreements, however,
may have maturity dates in excess of one year from the effective date of the
repurchase agreement. Each Fund will always receive, as collateral, securities
whose market value, including accrued interest, 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 Fund's custodian. If the
seller defaults, a Fund might incur a loss if the value of the collateral
securing the repurchase agreement declines, and might incur disposition costs in
connection with liquidating the collateral. In addition, if bankruptcy or
similar proceedings are commenced with respect to the seller of the security,
realization upon the collateral by a Fund may be delayed or limited. Repurchase
agreements maturing in more than seven days are considered illiquid.
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Restricted and Illiquid Securities. No Fund will purchase or otherwise
acquire any security if, as a result, more than 15% of its net assets (taken at
current value) would be invested in securities that are illiquid by virtue of
the absence of a readily available market or legal or contractual restrictions
on resale. This policy includes foreign issuers' unlisted securities with a
limited trading market and repurchase agreements maturing in more than seven
days. This policy does not include restricted securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933, as amended ("1933 Act"),
which the Board of Directors or the Adviser or the Subadviser has determined
under Boardapproved guidelines are liquid. As a result of undertakings to
certain state securities commissions, Made In The U.S.A. Fund and Utilities
Income Fund each will not invest more than 5% of its total assets in restricted
securities (excluding Rule 144A securities) or more than 10% of its total assets
in Rule 144A securities and Growth & Income Fund will not invest more than 5% of
its total assets in restricted securities (excluding Rule 144A securities).
Restricted securities which are illiquid may be sold only in privately
negotiated transactions or in public offerings with respect to which a
registration statement is in effect under the 1933 Act. Such securities include
those that are subject to restrictions contained in the securities laws of other
countries. Securities that are freely marketable in the country where they are
principally traded, but would not be freely marketable in the United States,
will not be subject to this 15% limit. Where registration is required, a Fund
may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, a Fund might obtain a less favorable price than prevailed when it
decided to sell.
In recent years, a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including private
placements, repurchase agreements, commercial paper, foreign securities and
corporate bonds and notes. These instruments are often restricted securities
because the securities are either themselves exempt from registration or sold in
transactions not requiring registration. Institutional investors generally will
not seek to sell these instruments to the general public, but instead will often
depend on an efficient institutional market in which such unregistered
securities can be readily resold or on an issuer's ability to honor a demand for
repayment. Therefore, the fact that there are contractual or legal restrictions
on resale to the general public or certain institutions is not dispositive of
the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
that might develop as a result of Rule 144A could provide both readily
ascertainable values for restricted securities and the ability to liquidate an
investment in order to satisfy share redemption orders. An insufficient number
of qualified institutional buyers interested in purchasing Rule 144A-eligible
securities held by a Fund, however, could affect adversely the marketability of
such portfolio securities and a Fund might be unable to dispose of such
securities promptly or at reasonable prices.
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Risk Factors of High Yield Securities. High yield, high risk securities
(commonly referred to as "junk bonds"), are subject to certain risks that may
not be present with investments of higher grade securities. These risks also
apply to lower-rated and certain unrated convertible securities.
Effect of Interest Rate and Economic Changes. The prices of
High Yield Securities tend to be less sensitive to interest rate changes than
higher-rated investments, but may be more sensitive to adverse economic changes
or individual corporate developments. Periods of economic uncertainty and
changes generally result in increased volatility in the market prices and yields
of High Yield Securities and thus in a Fund's net asset value. A strong economic
downturn or a substantial period of rising interest rates could severely affect
the market for High Yield Securities. In these circumstances, highly leveraged
companies might have greater difficulty in making principal and interest
payments, meeting projected business goals, and obtaining additional financing.
Thus, there could be a higher incidence of default. This would affect the value
of such securities and thus a Fund's net asset value. Further, if the issuer of
a security owned by a Fund defaults, that Fund might incur additional expenses
to seek recovery.
Generally, when interest rates rise, the value of fixed rate debt
obligations, including High Yield Securities, tends to decrease; when interest
rates fall, the value of fixed rate debt obligations tends to increase. If an
issuer of a High Yield Security containing a redemption or call provision
exercises either provision in a declining interest rate market, a Fund would
have to replace the security, which could result in a decreased return for
shareholders. Conversely, if a Fund experiences unexpected net redemptions in a
rising interest rate market, it might be forced to sell certain securities,
regardless of investment merit. This could result in decreasing the assets to
which Fund expenses could be allocated and in a reduced rate of return for that
Fund. While it is impossible to protect entirely against this risk,
diversification of a Fund's portfolio and the Adviser's careful analysis of
prospective portfolio securities should minimize the impact of a decrease in
value of a particular security or group of securities in a Fund's portfolio.
The High Yield Securities Market. The market for below
investment grade bonds expanded rapidly in recent years and its growth
paralleled a long economic expansion. In the past, the prices of many
lower-rated debt securities declined substantially, reflecting an expectation
that many issuers of such securities might experience financial difficulties. As
a result, the yields on lower-rated debt securities rose dramatically. However,
such higher yields did not reflect the value of the income streams that holders
of such securities expected, but rather the risk that holders of such securities
could lose a substantial portion of their value as a result of the issuers'
financial restructuring or default. There can be no assurance that such declines
in the below investment grade market will not reoccur. The market for below
investment grade bonds generally is thinner and less active than that for higher
quality bonds, which may limit a Fund's ability to sell such securities at fair
value in response to changes in the economy or the financial markets. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may also decrease the values and liquidity of lower rated securities,
especially in a thinly traded market.
Liquidity and Valuation. Lower-rated bonds are typically
traded among a smaller number of broker-dealers than in a broad secondary
market. Purchasers of High Yield Securities tend to be institutions, rather than
individuals, which is a factor that further limits the secondary market. To the
extent that no established retail secondary market exists, many High Yield
Securities may not be as liquid as higher-grade bonds. A less active and thinner
market for High Yield Securities than that available for higher quality
securities may result in more volatile valuations of a Fund's holdings and more
difficulty in executing trades at favorable prices during unsettled market
conditions.
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The ability of a Fund to value or sell High Yield Securities will be
adversely affected to the extent that such securities are thinly traded or
illiquid. During such periods, there may be less reliable objective information
available and thus the responsibility of the Board of Directors to value High
Yield Securities becomes more difficult, with judgment playing a greater role.
Further, adverse publicity about the economy or a particular issuer may
adversely affect the public's perception of the value, and thus liquidity, of a
High Yield Security, whether or not such perceptions are based on a fundamental
analysis. See "Determination of Net Asset Value."
Legislation. Provisions of the Revenue Reconciliation Act of
1989 limit a corporate issuer's deduction for a portion of the original issue
discount on "high yield discount" obligations (including certain pay-in-kind
securities). This limitation could have a materially adverse impact on the
market for certain High Yield Securities. From time to time, legislators and
regulators have proposed other legislation that would limit the use of high
yield debt securities in leveraged buyouts, mergers and acquisitions. It is not
certain whether such proposals, which also could adversely affect High Yield
Securities, will be enacted into law.
Short Sales. Although they do not intend to do so in the foreseeable
future, Made In The U.S.A. Fund and Utilities Income Fund may borrow securities
for cash sale to others. This type of transaction is commonly known as a "short
sale." Each Fund will only make short sales "against the box," which occurs when
a Fund enters into a short sale with a security identical to one it already owns
or has the immediate and unconditional right, at no cost, to obtain the
identical security.
Warrants. Each Fund may purchase warrants, which are instruments that
permit a Fund to acquire, by subscription, the capital stock of a corporation at
a set price, regardless of the market price for such stock. Warrants may be
either perpetual or of limited duration. There is a greater risk that warrants
might drop in value at a faster rate than the underlying stock. Each Fund's
investments in warrants and stock rights will be limited to 5% of its total
assets, of which no more than 2% may not be listed on the New York or American
Stock Exchange.
When-Issued Securities. Each Fund may invest up to 10% of its net
assets in securities issued on a when-issued or delayed delivery basis at the
time the purchase is made. A Fund generally would not pay for such securities or
start earning interest on them until they are issued or received. However, when
a Fund purchases debt obligations on a when-issued basis, it assumes the risks
of ownership, including the risk of price fluctuation, at the time of purchase,
not at the time of receipt. Failure of the issuer to deliver a security
purchased by the Fund on a when-issued basis may result in the Fund's incurring
a loss or missing an opportunity to make an alternative investment. When a Fund
enters into a commitment to purchase securities on a when-issued basis, it
establishes a separate account with its custodian consisting of cash or liquid
high-grade debt securities equal to the amount of the Fund's commitment, which
are valued at their fair market value. If on any day the market value of this
segregated account falls below the value of the Fund's commitment, the Fund will
be required to deposit additional cash or qualified securities into the account
until 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
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securities in the segregated account or other securities owned by a Fund and
when-issued securities may cause the realization of a capital gain or loss.
Zero Coupon and Pay-In-Kind Securities. Although there is no intention
to do so in the foreseeable future, Made In The U.S.A. Fund and Utilities Income
Fund may each invest in zero coupon and pay-in-kind securities. Zero coupon
securities are debt obligations that do not entitle the holder to any periodic
payment of interest prior to maturity or a specified date when the securities
begin paying current interest. They are issued and traded at a discount from
their face amount or par value, which discount varies depending on the time
remaining until cash payments begin, prevailing interest rates, liquidity of the
security and the perceived credit quality of the issuer. Pay-in-kind securities
are those that pay interest through the issuance of additional securities. The
market prices of zero coupon and pay-inkind securities generally are more
volatile than the prices of securities that pay interest periodically and in
cash and are likely to respond to changes in interest rates to a greater degree
than do other types of debt securities having similar maturities and credit
quality. Original issue discount earned on zero coupon securities and the
"interest" on pay-in-kind securities must be included in a Fund's income. Thus,
to continue to qualify for tax treatment as a regulated investment company and
to avoid a certain excise tax on undistributed income, a Fund may be required to
distribute as a dividend an amount that is greater than the total amount of cash
it actually receives. See "Taxes." These distributions must be made from a
Fund's cash assets or, if necessary, from the proceeds of sales of portfolio
securities. Each Fund will not be able to purchase additional income-producing
securities with cash used to make such distributions, and its current income
ultimately could be reduced as a result.
HEDGING AND OPTION INCOME STRATEGIES
Although it does not intend to engage in these strategies in the coming
year, Utilities Income Fund may engage in certain options and futures strategies
to hedge its portfolio and in other circumstances permitted by the Commodity
Futures Trading Commission ("CFTC") and may engage in certain options strategies
to enhance income. The instruments described below are sometimes referred to
collectively as "Hedging Instruments" and are defined in Appendix C. Certain
special characteristics of and risks associated with using Hedging Instruments
are discussed below. In addition to the investment guidelines (described below)
adopted by the Board of Directors to govern the 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, the CFTC
and various state regulatory authorities. In addition, the Fund's ability to use
Hedging Instruments will be limited by tax considerations. See "Taxes."
Participation in the options or futures markets involves investment
risks and transaction costs to which the Fund would not be subject absent the
use of these strategies. If the Adviser's prediction of movements in the
direction of the securities and interest rate markets are inaccurate, the
adverse consequences to the Fund may leave the Fund in a worse position than if
such strategies were not used. The Fund might not employ any of the strategies
described below, and there can be no assurance that any strategy will succeed.
The use of these strategies involve certain special risks, including (1)
dependence on the Adviser's ability to predict correctly movements in the
direction of interest rates and securities prices; (2) imperfect correlation
between the price of options, futures contracts and options thereon and
movements in the prices of the securities being hedged; (3) the fact that skills
needed to use these strategies are different from those needed to select
portfolio securities; (4) the possible absence of a liquid
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secondary market for any particular instrument at any time; and (5) the possible
need to defer closing out certain hedged positions to avoid adverse tax
consequences.
The Fund may buy and sell put and call options on stock indices and
securities that are traded on national securities exchanges or in the
over-the-counter ("OTC") market to enhance income or to hedge the Fund's
portfolio. The Fund also may write put and covered call options to generate
additional income through the receipt of premiums, purchase put options in an
effort to protect the value of a security that it owns against a decline in
market value and purchase call options in an effort to protect against an
increase in the price of securities it intends to purchase. The Fund also may
purchase put and call options to offset previously written put and call options
of the same Fund. The Fund also may write put and call options to offset
previously purchased put and call options of the same Fund. Other than to effect
closing transactions, the Fund will write only covered call options, including
options on futures contracts.
The Fund may buy and sell financial futures contracts and options
thereon that are traded on a commodities exchange or board of trade for hedging
purposes. These futures contracts and related options may be on stock indices,
financial indices or debt securities. However, as a non-fundamental policy,
Series Fund II has undertaken to a certain state securities commission that the
Fund will not purchase interest rate futures contracts or options thereon.
Cover for Hedging and Option Income Strategies. The Fund will not use
leverage in its hedging and option income strategies. In the case of each
transaction entered into as a short hedge, the Fund will hold securities, or
other options or futures positions whose values are expected to offset ("cover")
its obligations hereunder. The Fund will not enter into a hedging or option
income strategy that exposes the Fund to an obligation to another party unless
it owns either (1) an offsetting ("covered") position in securities, or other
options or futures contracts or (2) cash, receivables and short-term debt
securities with a value sufficient at all times to cover its potential
obligations. The 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, high-grade debt securities in a
segregated account with its custodian in the prescribed amount. Securities or
other options or futures positions used for cover and securities held in a
segregated account cannot be sold or closed out while the hedging or option
income strategy is outstanding unless they are replaced with similar assets. As
a result, there is a possibility that the use of cover or segregation involving
a large percentage of the Fund's assets could impede portfolio management or the
Fund's ability to meet redemption requests or other current obligations.
Options Strategies. The Fund may purchase call options on securities
that the Adviser intends to include in the Fund's portfolio in order to fix the
cost of a future purchase. Call options also may be used as a means of
participating in an anticipated price increase of a security. In the event of a
decline in the price of the underlying security, use of this strategy would
serve to limit the Fund's potential loss to the option premium paid; conversely,
if the market price of the underlying security increases above the exercise
price and the Fund either sells or exercises the option, any profit eventually
realized will be reduced by the premium. The Fund may purchase put options in
order to hedge against a decline in the market value of securities held in its
portfolio. The put option enables the Fund to sell the underlying security at
the predetermined exercise price; thus the potential for loss to the Fund below
the exercise price is limited to the option premium paid. If the market price of
the underlying security is higher than the exercise price of the put option, any
profit the Fund realizes on the sale of the security will be reduced by the
premium paid for the put option less any amount for which the put option may be
sold.
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The Fund may write covered call options on securities to increase
income in the form of premiums received from the purchasers of the options.
Because it can be expected that a call option will be exercised if the market
value of the underlying security increases to a level greater than the exercise
price, the Fund will write covered call options on securities generally when the
Adviser believes that the premium received by the Fund, plus anticipated
appreciation in the market price of the underlying security up to the exercise
price of the option, will be greater than the total appreciation in the price of
the security. The strategy may be used to provide limited protection against a
decrease in the market price of the security in an amount equal to the premium
received for writing the call option less any transaction costs. Thus, if the
market price of the underlying security held by the Fund declines, the amount of
such decline will be offset wholly or in part by the amount of the premium
received by the Fund. If, however, there is an increase in the market price of
the underlying security and the option is exercised, the Fund will be obligated
to sell the security at less than its market value. The Fund gives up the
ability to sell the portfolio securities used to cover the call option while the
call option is outstanding. Such securities may also be considered illiquid in
the case of OTC options written by the Fund and therefore subject to investment
restrictions. See "Restricted and Illiquid Securities." In addition, the Fund
could lose the ability to participate in an increase in the value of such
securities above the exercise price of the call option because such an increase
would likely be offset by an increase in the cost of closing out the call option
(or could be negated if the buyer chose to exercise the call option at an
exercise price below the securities' current market value).
The Fund may purchase put and call options and write covered call
options on stock indices in much the same manner as the more traditional equity
and debt options discussed above, except that stock index options may serve as a
hedge against overall fluctuations in the securities markets (or a market
sector) rather than anticipated increases or decreases in the value of a
particular security. A stock index assigns relative values to the stock included
in the index and fluctuates with changes in such values. Stock index options
operate in the same way as the more traditional equity options, except that
settlements of stock index options are effected with cash payments and do not
involve delivery of securities. Thus, upon settlement of a stock index option,
the purchaser will realize, and the writer will pay, an amount based on the
difference between the exercise price and the closing price of the stock index.
The effectiveness of hedging techniques using stock index options will depend on
the extent to which price movements in the stock index selected correlate with
price movements of the securities in which the Fund invests.
The Fund may write put options on securities or on a stock index. A put
option on a security 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. A written put option on a
stock index is similar to a written put option on a security except that, on
exercise, the writer pays the buyer a settlement payment in cash equal to the
difference between the exercise price and the value of the index. The operation
of put options in other respects, including their related risks and rewards, is
substantially identical to that of call options. The Fund may write covered put
options in circumstances when the Adviser believes that the market price of the
securities will not decline below the exercise price less the premiums received.
If the put option is not exercised, the Fund will realize income in the amount
of the premium received. This technique could be used to enhance current return
during periods of market uncertainty. The risk in such a transaction would be
that the
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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, many options on equity securities are exchange-traded,
whereas options on debt securities are primarily traded on the OTC market.
Exchange-traded options in the U.S. are issued by a clearing organization
affiliated with the exchange on which the option is listed which, in effect,
guarantees completion of every exchange-traded option transaction. In contrast,
OTC options are contracts between the Fund and the opposite party with no
clearing organization guarantee. Thus, when the Fund purchases an OTC option, it
relies on the dealer from which it has purchased the OTC option to make or take
delivery of the securities underlying the option. Failure by the dealer to do so
would result in the loss of the premium paid by the Fund as well as the loss of
the expected benefit of the transaction.
Options Guidelines. In view of the risks involved in using options, the
Board of Directors has adopted non-fundamental investment guidelines to govern
the Fund's use of options that may be modified by the Board without shareholder
vote: (1) options will be purchased or written only when the Adviser believes
that there exists a liquid secondary market in such options; and (2) the Fund
may not purchase a put or call option if the value of the option's premium, when
aggregated with the premiums on all other options held by the Fund, exceeds 5%
of the Fund's total assets. However, this does not limit the amount of the
Fund's assets at risk to 5%.
Special Characteristics and Risks of Options Trading. The Fund may
effectively terminate its right or obligation under an option by entering into a
closing transaction. If the Fund wishes to terminate its obligation to sell
securities under a call option it has written, the Fund may purchase a call
option of the same series (that is, a call option identical in its terms to the
call option previously written); this is known as a closing purchase
transaction. Conversely, in order to terminate its right to purchase or sell
specified securities under a call or put option it has purchased, the 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 the Fund to
realize profits or limit losses on its options positions prior to the exercise
or expiration of the option.
The value of an option position will reflect, among other things, the
current market price of the underlying security or stock index, the time
remaining until expiration, the relationship of the exercise price to the market
price, the historical price volatility of the underlying security or stock index
and general market conditions. For this reason, the successful use of options
depends upon the Adviser's ability to forecast the direction of price
fluctuations in the underlying securities or, in the case of stock index
options, fluctuations in the market sector represented by the index selected.
Options normally have expiration dates of up to nine months. Unless an
option purchased by the Fund is exercised or unless a closing transaction is
effected with respect to that position, a loss will be realized in the amount of
the premium paid and any transaction costs.
A position in an exchange-listed option may be closed out only on an
exchange that provides a secondary market for identical options. The ability to
establish and close out positions on the exchanges is subject to the maintenance
of a liquid secondary market. Although the Fund intends to purchase or write
only those exchange-traded options for which there appears to be a liquid
secondary market, there is no assurance that a liquid secondary market will
exist for any particular option at any particular time. Closing transactions may
be effected with respect to options traded in the OTC markets (currently the
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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 the 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 the 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, the
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 the Fund would have to exercise those options that it has
purchased in order to realize any profit. With respect to options written by the
Fund, the inability to enter into a closing transaction may result in material
losses to the Fund. For example, because the 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 the Fund's ability to sell a
portfolio security or make an investment at a time when such a sale or
investment might be advantageous.
Stock index options are settled exclusively in cash. If the Fund
purchases an option on a stock index, the option is settled based on the closing
value of the index on the exercise date. Thus, a holder of a stock index option
who exercises it before the closing index value for that day is available runs
the risk that the level of the underlying index may subsequently change. For
example, in the case of a call option, if such a change causes the closing index
value to fall below the exercise price of the option on the index, the
exercising holder will be required to pay the difference between the closing
index value and the exercise price of the option.
The Fund's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs; however, the Fund also
may save on commissions by using options as a hedge rather than buying or
selling individual securities in anticipation or as a result of market
movements.
Futures Strategies. The 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. The Fund may
sell stock index futures contracts in anticipation of a general market or market
sector decline that could adversely affect the market value of the Fund's
portfolio. To the extent that a portion of the Fund's portfolio correlates with
a given stock index, the sale of futures contracts on that index could reduce
the risks associated with a market decline and thus provide an alternative to
the liquidation of securities positions. The Fund may purchase a stock index
futures contract if a significant market or market sector advance is
anticipated. Such a purchase would serve as a temporary substitute for the
purchase of individual stocks, which stocks may then be purchased in an orderly
fashion. This strategy may minimize the effect of all or part of an increase in
the market price of securities that the Fund intends to purchase. A rise in the
price of the securities should be partially or wholly offset by gains in the
futures position.
The Fund may purchase a call option on a stock index future to hedge
against a market advance in equity securities that the Fund plans to purchase at
a future date. The Fund may also write put options on a stock index futures
contract as a partial hedge against a market advance in equity securities the
Fund plans to purchase at a future date. The Fund may write covered call options
on stock index futures as a partial hedge against a decline in the prices of
stocks held in the Fund's portfolio. The Fund also may purchase put options on
stock index futures contracts.
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The Fund may use interest rate futures contracts and options thereon to
hedge the debt portion of its portfolio against changes in the general level of
interest rates. The Fund may purchase an interest rate futures contract when it
intends to purchase debt securities but has not yet done so. This strategy may
minimize the effect of all or part of an increase in the market price of those
securities because a rise in the price of the securities prior to their purchase
may either be offset by an increase in the value of the futures contract
purchased by 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. The Fund may sell an interest rate futures contract in order
to continue to receive the income from a debt security, while endeavoring to
avoid part or all of the decline in the market value of that security that would
accompany an increase in interest rates.
The Fund may purchase a call option on an interest rate futures
contract to hedge against a market advance in debt securities that the Fund
plans to acquire at a future date. The seller may also write a put option on an
interest rate futures contract as a partial hedge against a market advance in
debt securities that the Fund plans to acquire at a future date. The Fund also
may write covered call options on interest rate 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 interest rate futures contracts in order to
hedge against a decline in the value of debt securities held in the Fund's
portfolio. Series Fund II, on behalf of the Fund, has undertaken to a certain
state securities commission that the Fund will not purchase interest rate
futures contracts or options thereon.
Futures Guidelines. In view of the risks involved in using futures
strategies described above, the Board of Directors has adopted non-fundamental
investment guidelines to govern the Fund's use of such investments that may be
modified by the Board without shareholder vote. The Fund will not purchase or
sell futures contracts or related options if, immediately thereafter, the sum of
the amount of initial margin deposits on the Fund's existing futures positions
and initial margin and premiums paid for related options would exceed 5% of the
market value of the Fund's total assets. The value of all futures sold will not
exceed the total market value of the Fund's portfolio.
Special Characteristics and Risks of Futures Trading. No price is paid
upon entering into futures contracts. Instead, upon entering into a futures
contract, the Fund is required to deposit with its custodian in a segregated
account in the name of the futures broker through which the transaction is
effected an amount of cash, U.S. Government securities or other liquid,
high-grade debt instruments generally equal to 10% or less of the contract
value. This amount is known as "initial margin." When writing a call or put
option on a futures contract, margin also must be deposited in accordance with
applicable exchange rules. Initial margin on futures contracts is in the nature
of a performance bond or good-faith deposit that is returned to the Fund upon
termination of the transaction, assuming all obligations have been satisfied.
Under certain circumstances, such as periods of high volatility, the Fund may be
required by an exchange to increase the level of its initial margin payment.
Additionally, initial margin requirements may be increased generally in the
future by regulatory action. Subsequent payments, called "variation margin," to
and from the broker, are made on a daily basis as the value of the futures
position varies, a process known as "marking to market." Variation margin does
not involve borrowing to finance the futures transactions, but rather represents
a daily settlement of the Fund's obligation to or from a clearing organization.
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,
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<PAGE>
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 the Fund to
close a position and, in the event of adverse price movements the Fund would
have to make daily cash payments of variation margin (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 the 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 the Fund has insufficient
cash, it may have to sell assets from its portfolio to meet daily variation
margin requirements. Any such sale of assets may or may not be made at prices
that reflect the rising market. Consequently, the Fund may need to sell assets
at a time when such sales are disadvantageous to the Fund. If the price of the
futures contract or related option moves more than the price of the underlying
securities, the Fund will experience either a loss or a gain on the futures
contract or related option that may or may not be completely offset by movements
in the price of the securities that are the subject of the hedge.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between price movements in the futures
position or related option 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 or related
options over the short term.
Positions in futures contracts and related options 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 the 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, the Fund would continue to be required
to make variation margin payments.
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Like options on securities, options on futures contracts have a limited
life. A purchased option that expires unexercised has no value.
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
the Fund purchases an option is the premium paid for the option and the
transaction costs, there may be circumstances when the purchase of an option on
a futures contract would result in a loss to the Fund when the use of a futures
contract would not, such as when there is no movement in the level of the
underlying stock index or the value of the securities being hedged.
The 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 in anticipation or as a result of market
movements.
Forward Currency Contracts. Although it does not intend to do so in the
foreseeable future, Growth & Income Fund may use forward currency contracts to
protect against uncertainty in the level of future exchange rates. The Fund will
not speculate with forward currency contracts or foreign currency exchange
rates.
The Fund may enter into forward currency contracts with respect to
specific transactions. For example, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when the
Fund anticipates the receipt in a foreign currency of dividend or interest
payments on a security that it holds, the Fund may desire to "lock-in" the U.S.
dollar price of the security or the U.S. dollar equivalent of such payment, as
the case may be, by entering into a forward contract for the purchase or sale,
for a fixed amount of U.S. dollars or foreign currency, of the amount of foreign
currency involved in the underlying transaction. The Fund will thereby be able
to protect itself against a possible loss resulting from an adverse change in
the relationship between the currency exchange rates during the period between
the date on which the security is purchased or sold, or on which the payment is
declared, and the date on which such payments are made or received.
The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible because the future value
of such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. Accordingly, it may be necessary for
the Fund to purchase additional foreign currency on the spot (i.e., cash) market
and bear the expense of such purchase if the market value of the security is
less than the amount of foreign currency the Fund is obligated to deliver and if
a decision is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of the
foreign currency received upon the sale of the portfolio security if its market
value exceeds the amount of foreign currency the Fund is obligated to deliver.
The projection of short-term currency market movements is extremely difficult,
and the successful execution of a short-term hedging strategy is highly
uncertain. Forward contracts involve the risk that anticipated currency
movements will not be accurately predicted, causing the Fund to sustain losses
on these contracts and transactions costs. The Fund may enter into formal
contracts or maintain a net exposure to such contracts only if the Fund
maintains cash, U.S. Government securities or liquid, high-
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<PAGE>
grade debt securities in a segregated account in an amount not less than the
value of the Fund's total assets committed to the consummation of the contract,
as marked to market daily.
At or before the maturity date of a forward contract requiring the Fund
to sell a currency, the Fund may either sell a portfolio security and use the
sale proceeds to make delivery of the currency or retain the security and offset
its contractual obligation to deliver the currency by purchasing a second
contract pursuant to which the Fund will obtain, on the same maturity date, the
same amount of the currency that it is obligated to deliver. Similarly, the Fund
may close out a forward contract requiring it to purchase a specified currency
by entering into a second contract entitling it to sell the same amount of the
same currency on the maturity date of the first contract. The Fund would realize
a gain or loss as a result of entering into an offsetting forward currency
contract under either circumstance to the extent the exchange rate or rates
between the currencies involved moved between the execution dates of the first
contract and the offsetting contract. There can be no assurance that new forward
contracts or offsets always will be available for the Fund. Forward currency
contracts also involve a risk that the other party to the contract may fail to
deliver currency when due, which could result in substantial losses to the Fund.
The cost to the Fund of engaging in forward currency contracts varies with
factors such as the currencies involved, the length of the contract period and
the market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commissions are involved.
INVESTMENT RESTRICTIONS
The investment restrictions set forth below have been adopted by the
respective Fund and, unless identified as non-fundamental policies, may not be
changed without the affirmative vote of a majority of the outstanding voting
securities of that Fund, voting separately from any other series of Series Fund
II. As provided in the Investment Company Act of 1940, as amended ("1940 Act"),
a "vote of a majority of the outstanding voting securities of the Fund" means
the affirmative vote of the lesser of (1) more than 50% of the outstanding
shares of the Fund or (2) 67% or more of the shares of the Fund present at a
meeting, if more than 50% of the outstanding shares are represented at the
meeting in person or by proxy. Changes in values of a particular Fund's assets
or the assets of Series Fund II as a whole will not cause a violation of the
following investment restrictions so long as percentage restrictions are
observed by each Fund at the time it purchases any security.
Growth & Income Fund. Growth & Income Fund will not:
(1) Issue senior securities or borrow money, except that the Fund may
borrow money from a bank for temporary or emergency purposes in amounts not
exceeding 5% (taken at the lower of cost or current value) of its net assets
(not including the amount borrowed).
(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).
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(4) Pledge, mortgage or hypothecate any of its assets, except that the
Fund may pledge its assets to secure borrowings made in accordance with
paragraph (1) above, provided the Fund maintains asset coverage of at least 300%
for all such borrowings.
(5) Buy or sell commodities or commodity contracts, or real estate or
interests in real estate, except that the Fund may purchase and sell securities
that are secured by real estate, securities of companies which invest or deal in
real estate, and interests in real estate investment trusts. As nonfundamental
policies, Series Fund II, on behalf of the Fund, has undertaken to certain state
securities commissions that the Fund will not invest in real estate partnership
interests or invest more than 10% of its net assets in real estate investment
trusts.
(6) Act as an underwriter, except to the extent that, in connection
with the disposition of portfolio securities, it may be deemed to be an
underwriter under certain federal securities laws.
(7) Make loans, except loans of portfolio securities and repurchase
agreements.
The following investment restrictions are not fundamental and may be
changed without shareholder approval. The Fund will not:
(1) Invest more than 15% of its net assets in repurchase agreements
maturing in more than seven days or in other illiquid securities, including
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions as to resale. Securities that have
legal or contractual restrictions as to resale but have a readily available
market and securities eligible for resale under Rule 144A under the 1933 Act,
are not deemed illiquid for purposes of this limitation.
(2) Invest more than 5% of its total assets in securities of companies
(including predecessors) which have been in operation for less than three years.
(3) Invest in securities of other registered investment companies,
except by purchases in the open market involving only customary brokerage
commissions and as a result of which not more than 5% of its total assets would
be invested in such securities, or except as part of a merger, consolidation or
other acquisition.
(4) Purchase oil, gas or other mineral leases. However, the Fund may
purchase and sell the securities of companies engaged in the exploration,
development, production, refining, transporting and marketing of oil, gas or
minerals.
(5) Purchase warrants if as a result the Fund would then have more than
5% of its total assets, valued at the lower of cost or market, invested in
warrants (of which no more than 2% may be warrants not listed on the New York or
American Stock Exchange).
(6) Make short sales of securities.
(7) Make investments for the purpose of exercising control or
management.
(8) Purchase any securities on margin.
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(9) Purchase or sell portfolio securities from or to the Adviser or any
director or officer thereof or of Series Fund II, as principals.
(10) Invest in any securities of any issuer if, to the knowledge of the
Fund, any officer or director of Series Fund II or of the Adviser owns more than
1/2 of 1% of the outstanding securities of such issuer, and such officers or
directors who own more than 1/2 of 1% own in the aggregate more than 5% of the
outstanding securities of such issuer.
Notwithstanding non-fundamental investment restriction (1) above,
Series Fund II, on behalf of the Fund, has undertaken to certain state
securities commissions, that the Fund will not invest more than 5% of its total
assets in restricted securities (excluding Rule 144A securities).
Notwithstanding non-fundamental investment restrictions (1) and (2)
above, Series Fund II, on behalf of the Fund, has undertaken to a certain state
securities commission that the Fund will invest no more than 15% of its total
assets in the securities of issuers which together with any predecessors have a
record of less than three years continuous operation or securities of issuers
which are restricted as to disposition, including Rule 144A securities.
Made In The U.S.A. Fund. Made In The U.S.A. Fund will not:
(1) Issue senior securities or borrow money, except that the Fund may
borrow money from a bank for temporary or emergency purposes in amounts not
exceeding 5% (taken at the lower of cost or current value) of its net assets
(not including the amount borrowed).
(2) Purchase any security (other than obligations of the U.S.
Government, its agencies or instrumentalities) if as a result: (a) as to 75% of
the Fund's total assets more than 5% of such assets would then be invested in
securities of a single issuer, or (b) 25% or more of the Fund's total assets
would be invested in a single industry.
(3) Purchase more than 10% of the outstanding voting securities of any
one issuer or more than 10% of any class of securities of one issuer (all debt
and all preferred stock of an issuer are each considered a single class for this
purpose).
(4) Pledge, mortgage or hypothecate any of its assets, except that the
Fund may pledge its assets to secure borrowings made in accordance with
paragraph (1) above, provided the Fund maintains asset coverage of at least 300%
for all such borrowings.
(5) Buy or sell commodities or commodity contracts, including futures
contracts, or real estate or interests in real estate, although it may purchase
and sell securities which are secured by real estate, securities of companies
which invest or deal in real estate, and interests in real estate investment
trusts. As a non-fundamental policy, Series Fund II, on behalf of the Fund, has
undertaken to certain state securities commissions that the Fund will not invest
in real estate limited partnership interests or in real estate investment trusts
that are not readily marketable.
(6) Act as an underwriter, except to the extent that, in connection
with the disposition of portfolio securities, it may be deemed to be an
underwriter under certain Federal securities laws.
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(7) Make investments for the purpose of exercising control or
management.
(8) Purchase any securities on margin.
(9) Make loans, except through repurchase agreements.
(10) Purchase or sell portfolio securities from or to the Adviser or
any director or officer thereof or of Series Fund II, as principals.
(11) Invest in any securities of any issuer if, to the knowledge of the
Fund, any officer or director of Series Fund II or of the Adviser owns more than
1/2 of 1% of the outstanding securities of such issuer, and such officers or
directors who own more than 1/2 of 1% own in the aggregate more than 5% of the
outstanding securities of such issuer.
The following investment restrictions are not fundamental and may be
changed without shareholder approval. The Fund will not:
(1) Invest more than 15% of its net assets in repurchase agreements
maturing in more than seven days or in other illiquid securities, including
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions as to resale. Securities that have
legal or contractual restrictions as to resale but have a readily available
market and securities eligible for resale under Rule 144A under the Securities
Act of 1933, as amended, are not deemed illiquid for purposes of this
limitation; the Adviser will monitor the liquidity of such restricted securities
under the supervision of the Board of Directors.
(2) Purchase any security if as a result the Fund would then have more
than 5% of its total assets invested in securities of companies (including
predecessors) less than three years old.
(3) Invest in securities of other registered investment companies,
except by purchases in the open market involving only customary brokerage
commissions and as a result of which not more than 5% of its total assets would
be invested in such securities, or except as part of a merger, consolidation or
other acquisition.
(4) Purchase oil, gas or other mineral leases. However, the Fund may
purchase and sell the securities of companies engaged in the exploration,
development, production, refining, transporting and marketing of oil, gas or
minerals.
(5) Write, purchase or sell options (puts, calls or combinations
thereof).
(6) Purchase warrants if as a result the Fund would then have more than
5% of its total assets, valued at the lower of cost or market, invested in
warrants (of which no more than 2% may be warrants not listed on the New York or
American Stock Exchange).
(7) Make short sales of securities, except short sales "against the
box."
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Notwithstanding non-fundamental investment restriction (1) above, as a
result of undertakings to certain state securities commissions, the Fund will
not invest more than 5% of its total assets in restricted securities (excluding
Rule 144A securities) or more than 10% of its total assets in Rule 144A
securities.
Notwithstanding non-fundamental restrictions (1) and (2) above, Series
Fund II, on behalf of the Fund, has undertaken to a certain state securities
commission that the Fund will not invest more than 15% of its total assets in
the securities of issuers which together with any predecessor have a record of
less than three years continuous operation or securities of issuers which are
restricted as to disposition, including Rule 144A securities.
Utilities Income Fund. Utilities Income Fund will not:
(1) Issue senior securities or borrow money, except that the Fund may
borrow money from a bank for temporary or emergency purposes in amounts not
exceeding 5% (taken at the lower of cost or current value) of its net assets
(not including the amount borrowed).
(2) Purchase any security (other than obligations of the U.S.
Government, its agencies or instrumentalities) if as a result as to 75% of the
Fund's total assets more than 5% of such assets would then be invested in
securities of a single issuer.
(3) Purchase more than 10% of the outstanding voting securities of any
one issuer or more than 10% of any class of securities of one issuer (all debt
and all preferred stock of an issuer are each considered a single class for this
purpose).
(4) Pledge, mortgage or hypothecate any of its assets, except that the
Fund may pledge its assets to secure borrowings made in accordance with
paragraph (1) above, provided the Fund maintains asset coverage of at least 300%
for all such borrowings.
(5) Buy or sell commodities or commodity contracts, or real estate or
interests in real estate, except that the Fund may purchase and sell futures
contracts, options on futures contracts, securities that are secured by real
estate, securities of companies which invest or deal in real estate, and
interests in real estate investment trusts.
(6) Act as an underwriter, except to the extent that, in connection
with the disposition of portfolio securities, it may be deemed to be an
underwriter under certain federal securities laws.
(7) Make investments for the purpose of exercising control or
management.
(8) Purchase any securities on margin, except the Fund may make
deposits of margin in connection with futures contracts and options.
(9) Make loans, except loans of portfolio securities and repurchase
agreements.
(10) Purchase or sell portfolio securities from or to the Adviser or
any director or officer thereof or of Series Fund II, as principals.
21
<PAGE>
(11) Invest in any securities of any issuer if, to the knowledge of the
Fund, any officer or director of Series Fund II or of the Adviser owns more than
1/2 of 1% of the outstanding securities of such issuer, and such officers or
directors who own more than 1/2 of 1% own in the aggregate more than 5% of the
outstanding securities of such issuer.
The following investment restrictions are not fundamental and may be
changed without shareholder approval. The Fund will not:
(1) Invest more than 15% of its net assets in repurchase agreements
maturing in more than seven days or in other illiquid securities, including
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions as to resale. Securities that have
legal or contractual restrictions as to resale but have a readily available
market and securities eligible for resale under Rule 144A under the 1933 Act,
are not deemed illiquid for purposes of this limitation.
(2) Invest more than 5% of its total assets in securities of companies
(including predecessors) which have been in operation for less than three years.
(3) Invest in securities of other registered investment companies,
except by purchases in the open market involving only customary brokerage
commissions and as a result of which not more than 5% of its total assets would
be invested in such securities, or except as part of a merger, consolidation or
other acquisition.
(4) Purchase oil, gas or other mineral leases. However, the Fund may
purchase and sell the securities of companies engaged in the exploration,
development, production, refining, transporting and marketing of oil, gas or
minerals.
(5) Purchase warrants if as a result the Fund would then have more than
5% of its total assets, valued at the lower of cost or market, invested in
warrants (of which no more than 2% may be warrants not listed on the New York or
American Stock Exchange).
(6) Make short sales of securities, except short sales "against the
box."
As non-fundamental policies, Series Fund II, on behalf of the Fund, has
filed the following undertakings with various state securities commissions,
which may be changed without shareholder approval:
(1) The Fund will not invest in small emerging growth companies.
(2) The Fund will not purchase interest rate futures contracts or
options thereon.
(3) The Fund will not purchase puts, calls, straddles, spreads or any
combination thereof, if by reason of that purchase, the value of the Fund's
investments in all such securities exceeds 5% of the Fund's total assets.
(4) The Fund will not invest in real estate limited partnership
interests or in real estate investment trusts that are not readily marketable.
22
<PAGE>
(5) The Fund will not invest more than 5% of its total assets in
restricted securities (excluding Rule 144A securities) or more than 10% of its
total assets in Rule 144A securities.
(6) The Fund will not invest more than 15% of its total assets in the
securities of issuers which together with any predecessor have a record of less
than three years continuous operation or securities of issuers which are
restricted as to disposition, including Rule 144A securities.
DIRECTORS AND OFFICERS
The following table lists the Directors and executive officers of
Series Fund II, their business address and principal occupations during the past
five years. Unless otherwise noted, an individual's business address is 95 Wall
Street, New York, New York 10005.
Glenn O. Head*+ (70), President and Director. Chairman of the Board, Director
and Treasurer, Administrative Data Management Corp. ("ADM"); Chairman of the
Board and Director, FIMCO, Executive Investors Management Company, Inc.
("EIMCO"), First Investors Corporation ("FIC"), Executive Investors Corporation
("EIC") and First Investors Consolidated Corporation ("FICC").
James J. Coy (81), Director, 90 Buell Lane, East Hampton, NY 11937. Retired;
formerly Senior Vice President, James Talcott, Inc. (financial institution).
Roger L. Grayson* (39), Director. Director, FIC and FICC; President and
Director, First Investors Resources, Inc.; Commodities Portfolio Manager.
Kathryn S. Head*+ (40), Director, 581 Main Street, Woodbridge, NJ 07095.
President, FICC, EIMCO and FIMCO; President, ADM; Vice President, Chief
Financial Officer and Director, FIC and EIC; President and Director, First
Financial Savings Bank, S.L.A.
Rex R. Reed (83), Director, 76 Keats Way, Morristown, NJ 07960. Retired;
formerly Senior Vice President, American Telephone & Telegraph Company.
Herbert Rubinstein (84), Director, 145 Elm Drive, Roslyn, NY 11576. Retired;
formerly President, Belvac International Industries, Ltd. and President, Central
Dental Supply.
James M. Srygley (63), Director, 33 Hampton Road, Chatham, NJ 07982. Principal,
Hampton Properties, Inc., property investment company.
John T. Sullivan* (63), Director and Chairman of the Board; Director, FIMCO,
FIC, FICC and ADM; Of Counsel, Hawkins, Delafield & Wood, Attorneys.
Robert F. Wentworth (66), Director, RR1, Box 2554, Upland Downs Road, Manchester
Center, VT 05255. Retired; formerly, financial and planning executive with
American Telephone & Telegraph Company.
Joseph I. Benedek (38), Treasurer, 581 Main Street, Woodbridge, NJ 07095.
Treasurer, FIC FIMCO, EIMCO and EIC; Comptroller and Treasurer, FICC.
23
<PAGE>
Concetta Durso (61), Vice President and Secretary. Vice President, FIMCO, EIMCO
and ADM; Assistant Vice President and Assistant Secretary, FIC and EIC.
Patricia D. Poitra (40), Vice President. Vice President, First Investors Series
Fund, First Investors U.S. Government Plus Fund and Executive Investors Trust;
Director of Equities, FIMCO.
Margaret Haggerty (30), Vice President. Portfolio Manager since November 1993;
Analyst from 1990 to 1993.
Carol R. Lerner (41), Assistant Secretary. Secretary, FIMCO, EIMCO, FICC, EIC
and ADM; Assistant Secretary, FIC.
* These Directors may be deemed to be "interested persons," as defined in the
1940 Act.
+ Mr. Glenn O. Head and Ms. Kathryn S. Head are father and daughter.
All of the officers and Directors, except for Ms. Haggerty and Ms.
Poitra, hold identical or similar positions with Executive Investors Trust and
13 other registered investment companies in the First Investors Family of Funds.
Mr. Head is also an officer and/or Director of First Investors Asset Management
Company, Inc., First Investors Credit Funding Corporation, First Investors
Leverage Corporation, First Investors Realty Company, Inc., First Investors
Resources, Inc., N.A.K. Realty Corporation, Real Property Development
Corporation, Route 33 Realty Corporation, First Investors Life Insurance
Company, First Financial Savings Bank, S.L.A., First Investors Credit
Corporation and School Financial Management Services, Inc. Ms. Head is also an
officer and/or Director of First Investors Life Insurance Company, First
Investors Credit Corporation, School Financial Management Services, Inc., First
Investors Credit Funding Corporation, N.A.K. Realty Corporation, Real Property
Development Corporation, First Investors Leverage Corporation and Route 33
Realty Corporation.
The following table lists compensation paid to the Series Fund II
Directors for the fiscal year ended October 31, 1995.
<TABLE>
<CAPTION>
Total
Compensation
Pension or Estimated From First
Aggregate Retirement Benefits Annual Benefits Investors Family
Compensation Accrued as Part of Upon of Funds
Director From Fund Fund Expenses Retirement Paid to Directors
- -------- ------------- -------------------- ----------------- -----------------
<S> <C> <C> <C> <C>
James J. Coy $-0- $-0- $-0- $-0-
Roger L. Grayson -0- -0- -0- -0-
Glenn O. Head -0- -0- -0- -0-
Kathryn S. Head -0- -0- -0- -0-
Rex R. Reed -0- -0- -0- -0-
Herbert Rubinstein -0- -0- -0- -0-
James M. Srygley -0- -0- -0- -0-
John T. Sullivan -0- -0- -0- -0-
Robert F. Wentworth -0- -0- -0- -0-
</TABLE>
24
<PAGE>
Compensation to officers and interested Directors of Series Fund II is
paid by the Adviser. In addition, compensation to non-interested Directors of
Series Fund II is currently voluntarily paid by the Adviser.
MANAGEMENT
Adviser. Investment advisory services to each Fund are provided by
First Investors Management Company, Inc. pursuant to an Investment Advisory
Agreement ("Advisory Agreement") dated June 13, 1994. The Advisory Agreement was
approved by the Board of Directors, including a majority of the Directors who
are not parties to the Funds' Advisory Agreement or "interested persons" (as
defined in the 1940 Act) of any such party ("Independent Directors"), in person
at a meeting called for such purpose and by a majority of the public
shareholders of each Fund.
Pursuant to the Advisory Agreement, FIMCO shall supervise and manage
each Fund's investments, determine each Fund's portfolio transactions and
supervise all aspects of each Fund's operations, subject to review by the
Directors. However, with respect to Growth & Income Fund, FIMCO has delegated
these duties to Wellington Management Company. See "Subadviser." The Advisory
Agreement also provides that FIMCO shall provide the Funds with certain
executive, administrative and clerical personnel, office facilities and
supplies, conduct the business and details of the operation of Series Fund II
and each Fund and assume certain expenses thereof, other than obligations or
liabilities of the Funds. The Advisory Agreement may be terminated at any time,
with respect to a Fund, without penalty by the Directors or by a majority of the
outstanding voting securities of such Fund, or by FIMCO, in each instance on not
less than 60 days' written notice, and shall automatically terminate in the
event of its assignment (as defined in the 1940 Act). The Advisory Agreement
also provides that it will continue in effect, with respect to a Fund, for a
period of over two years only if such continuance is approved annually either by
the Directors or by a majority of the outstanding voting securities of such
Fund, and, in either case, by a vote of a majority of the Independent Directors
voting in person at a meeting called for the purpose of voting on such approval.
Under the Advisory Agreement, each Fund pays the Adviser an annual fee,
paid monthly, according to the following schedules:
Made In The U.S.A. Fund
Annual
Average Daily Net Assets Rate
- ------------------------ -----
Up to $200 million...................................................... 1.00%
In excess of $200 million up to $500 million............................ 0.75
In excess of $500 million up to $750 million............................ 0.72
In excess of $750 million up to $1.0 billion............................ 0.69
Over $1.0 billion....................................................... 0.66
25
<PAGE>
Growth & Income Fund, Utilities Income Fund
Annual
Average Daily Net Assets Rate
- ------------------------ -----
Up to $300 million.................................................. 0.75%
In excess of $300 million up to $500 million........................ 0.72
In excess of $500 million up to $750 million........................ 0.69
Over $750 million................................................... 0.66
The SEC staff takes the position that annual advisory fees of 0.75% or greater
are higher than those paid by most investment companies.
For the fiscal year ended October 31, 1993, Made In The U.S.A. Fund
paid $42,072 in advisory fees. For the same period, the Adviser voluntarily
waived an additional $115,451 in advisory fees. In addition, for the same
period, expenses in the amount of $36,570 were voluntarily assumed or reimbursed
by the Adviser. For the period August 24, 1993 (commencement of operations)
through October 31, 1993, Utilities Income Fund paid $44,554 in advisory fees.
For the same period, the Adviser voluntarily waived an additional $113,242 in
advisory fees. In addition, for the same period, expenses in the amount of
$14,518 were voluntarily assumed or reimbursed by the Adviser. For the period
October 4, 1993 (commencement of operations) through October 31, 1993, Growth &
Income Fund's advisory fees amounted to $540, all of which were voluntarily
waived by the Adviser. In addition, for the same period, expenses in the amount
of $559 were voluntarily assumed or reimbursed by the Adviser.
For the fiscal year ended October 31, 1994, Made In The U.S.A. Fund
paid $31,266 in advisory fees. For the same period, the Adviser voluntarily
waived an additional $72,955 in advisory fees. For the fiscal year ended October
31, 1994, Growth & Income Fund paid $61,035 in advisory fees. For the same
period, the Adviser voluntarily waived an additional $95,778 in advisory fees.
For the fiscal year ended October 31, 1994, Utilities Income Fund paid $194,914
in advisory fees. For the same period, the Adviser voluntarily waived an
additional $266,649 in advisory fees. In addition, for the fiscal year ended
October 31, 1994, the Adviser voluntarily assumed or reimbursed expenses for
Growth & Income Fund, Made In The U.S.A. Fund and Utilities Income Fund in the
amounts of $10,831, $73,772 and $140,086, respectively.
For the fiscal year ended October 31, 1995, Made In The U.S.A. Fund
paid $46,846 in advisory fees. For the same period, the Adviser voluntarily
waived an additional $33,991 in advisory fees. For the fiscal year ended October
31, 1995, Growth & Income Fund paid $261,607 in advisory fees. For the same
period, the Adviser voluntarily waived an additional $105,515 in advisory fees.
For the fiscal year ended October 31, 1995, Utilities Income Fund paid $334,586
in advisory fees. For the same period, the Adviser voluntarily waived an
additional $207,605 in advisory fees. In addition, for the fiscal year ended
October 31, 1995, the Adviser voluntarily assumed or reimbursed expenses for
Growth & Income Fund, Made In The U.S.A. Fund and Utilities Income Fund in the
amounts of $114,393, $46,369 and $105,954, respectively.
Pursuant to certain state regulations, the Adviser has agreed to
reimburse a Fund if and to the extent that Fund's aggregate operating and
management expenses, including advisory fees but generally excluding interest,
taxes, brokerage commissions and extraordinary expenses, exceed any limitation
on expenses applicable to that Fund for any full fiscal year (unless a waiver of
such expense limitation is
26
<PAGE>
obtained). The amount of any such reimbursement is limited to the amount of the
advisory fees paid or accrued to the Adviser for the fiscal year. For the fiscal
year ended October 31, 1995, no reimbursement to any Fund was required pursuant
to these regulations.
The Adviser has an Investment Committee composed of George V. Ganter,
Margaret Haggerty, Glenn O. Head, Nancy W. Jones, Patricia D. Poitra, Michael
O'Keefe, Clark D. Wagner and Richard Guinnessey. The Committee usually meets
weekly to discuss the composition of the portfolio of each Fund and to review
additions to and deletions from the portfolios.
Subadviser. Wellington Management Company has been retained by the
Adviser and Series Fund II as the investment subadviser to Growth & Income Fund
under a subadvisory agreement dated June 13, 1994 ("Subadvisory Agreement"). The
Subadvisory Agreement was approved by the Board of Directors, including a
majority of Independent Directors in person at a meeting called for such purpose
and by a majority of the shareholders of the Growth & Income Fund.
The Subadvisory Agreement provides that it will continue for a period
of more than two years from the date of execution only so long as such
continuance is approved annually by either the Board of Directors or a majority
of the outstanding voting securities of the Growth & Income Fund and, in either
case, by a vote of a majority of the Independent Directors voting in person at a
meeting called for the purpose of voting on such approval. The Subadvisory
Agreement provides that it will terminate automatically if assigned or upon the
termination of the Advisory Agreement, and that it may be terminated at any time
without penalty by the Board of Directors or a vote of a majority of the
outstanding voting securities of the Growth & Income Fund or by the Subadviser
upon not more than 60 days' nor less than 30 days' written notice. The
Subadvisory Agreement provides that WMC will not be liable for any error of
judgment or for any loss suffered by the Growth & Income Fund in connection with
the matters to which the Subadvisory Agreement relates, except a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation or
from willful misfeasance, bad faith, gross negligence or reckless disregard of
its obligations and duties.
Under the Subadvisory Agreement, the Adviser will pay to the Subadviser
a fee at an annual rate of 0.325% of the average daily net assets of Growth &
Income Fund up to and including $50 million; 0.275% of the average daily net
assets in excess of $50 million up to and including $150 million; 0.225% of the
average daily net assets in excess of $150 million up to and including $500
million; and 0.200% of the average daily net assets in excess of $500 million.
For the fiscal year ended October 31, 1995 the Adviser paid the Subadviser fees
of $157,067.
UNDERWRITER
Series Fund II 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 the Underwriting Agreement, the Underwriter shall bear
all expenses of sales material or literature, including prospectuses and proxy
materials, to the extent such materials are used in connection with the sale of
the Funds' shares, unless the Funds have agreed to bear such costs pursuant to a
plan of distribution. See "Distribution Plans." The Underwriting Agreement was
approved by the Board of Directors, including a majority of the Independent
Directors. The Underwriting Agreement provides that it will continue in effect
from year to year, with respect to a Fund, only so long
27
<PAGE>
as such continuance is specifically approved at least annually by the Board of
Directors or by a vote of a majority of the outstanding voting securities of
such Fund, and in either case by the vote of a majority of the Independent
Directors, voting in person at a meeting called for the purpose of voting on
such approval. The Underwriting Agreement will terminate automatically in the
event of its assignment.
For the fiscal year ended October 31, 1993, FIC received underwriting
commissions with respect to Made In The U.S.A. Fund of $485,701. For the same
period, FIC allowed an additional $7,653, to unaffiliated dealers. For the
period February 22, 1993 (commencement of operations) through October 31, 1993,
FIC received underwriting commissions with respect to Utilities Income Fund of
$2,518,361. For the same period, FIC allowed an additional $23,008 to
unaffiliated dealers. For the period October 4, l993 (commencement of
operations) through October 31, 1993, FIC received underwriting commissions with
respect to Growth & Income Fund of $187,995, none of which was allowed to
unaffiliated dealers.
For the fiscal year ended October 31, 1994, FIC received underwriting
commissions with respect to Growth & Income Fund, Made In The U.S.A. Fund and
Utilities Income Fund of $1,187,272, $32,881 and $1,045,980, respectively. For
the same period, FIC allowed an additional $257 with respect to Growth & Income
Fund and $588 with respect to Made In The U.S.A. Fund to unaffiliated dealers.
For the fiscal year ended October 31, 1995, FIC received underwriting
commissions with respect to Growth & Income Fund, Made In The U.S.A. Fund and
Utilities Income Fund of $1,958,002, $88,203 and $1,614,848, respectively. For
the same period, FIC allowed to unaffiliated dealers an additional $7,252 with
respect to Growth & Income Fund, $5,486 with respect to Made In The U.S.A.
Fund and $7,080 with respect to Utilities Income Fund.
DISTRIBUTION PLANS
As stated in the Funds' Prospectus, pursuant to a separate plan of
distribution for each class of shares adopted by Series Fund II pursuant to Rule
12b-1 under the 1940 Act ("Class A Plan" and "Class B Plan" and, collectively,
"Plans"), each Fund is authorized to compensate the Underwriter for certain
expenses incurred in the distribution of that Fund's shares and the servicing or
maintenance of existing Fund shareholder accounts.
Each Plan was approved by the Board of Directors, including a majority
of the Independent Directors, and by a majority of the outstanding voting
securities of the relevant class of each Fund. Each Plan will continue in effect
from year to year, with respect to a Fund, as long as its continuance is
approved annually be either the Board of Directors or by a vote of a majority of
the outstanding voting securities of the relevant class of shares of such Fund.
In either case, to continue, each Plan must be approved by the vote of a
majority of the Independent Directors. The Board reviews quarterly and annually
a written report provided by the Treasurer of the amounts expended under the
applicable Plan and the purposes for which such expenditures were made. While
each Plan is in effect, the selection and nomination of the Independent
Directors will be committed to the discretion of such Independent Directors then
in office.
Each Plan can be terminated at any time, with respect to a Fund, by a
vote of a majority of the Independent Directors or by a vote of a majority of
the outstanding voting securities of the relevant class of shares of that Fund.
Any change to the Class B Plan that would materially increase the costs to that
28
<PAGE>
class of shares of a Fund or any material change to the 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 Independent Directors.
In reporting amounts expended under the Plans to the Directors, 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.
In approving each Fund's overall system of distribution, the Board of
Directors considered several factors, including that implementation of the
system would (1) enable investors to choose the purchasing option better suited
to their individual situation, thereby encouraging current shareholders to make
additional investments in a Fund and attracting new investors and assets to that
Fund to the benefit of the Fund and its shareholders; (2) facilitate
distribution of each Fund's shares; and (3) maintain the competitive position of
each Fund in relation to other funds that have implemented or are seeking to
implement similar distribution arrangements.
In adopting the Class B Plan, the Board of Directors considered all the
features of the distribution system, including (1) the conditions under which a
contingent differed sales charge ("CDSC") would be imposed and the amount of
such charge, (2) the advantage to investors in having no initial sales charges
deducted from a Fund's purchase payments and instead having the entire amount of
their purchase payments immediately invested in Fund shares, (3) the
Underwriter's belief that the ability to receive sales commissions and service
fees under the Class B Plan would prove attractive to Representatives, resulting
in greater growth of each Fund than might otherwise be the case, (4) the
advantages to the shareholders of a Fund of economies of scale resulting from
growth in such Fund's assets, and (5) the Underwriter's shareholder service and
distribution-related expenses and costs.
In adopting the Class A Plan, the Board of Directors considered all
relevant information and determined that there is a reasonable likelihood that
the Class A Plan will benefit each Fund and their shareholders. The Board
believes that the amounts spent pursuant to the Fund's Class A 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.
For the fiscal year ended October 31, 1995, Growth & Income Fund, Made
In The U.S.A. Fund and Utilities Income Fund accrued $143,005, $23,924 and
$213,442, respectively, in fees pursuant to the Class A Plan. Of such amounts,
$79,348, $3,061 and $26,822, respectively, was voluntarily waived by the
Underwriter. For the fiscal year ended October 31, 1995, Growth & Income Fund,
Made In The U.S.A. Fund and Utilities Income Fund accrued $12,812, $1,096 and
$11,449, respectively, in fees pursuant to the Class B Plan.
The Underwriter incurred the following Class A Plan-related expenses
for the fiscal year ended October 31, 1995:
29
<PAGE>
<TABLE>
<CAPTION>
Compensation Compensation to
Fund Advertising to sales personnel* Underwriter**
<S> <C> <C> <C>
Made In The U.S.A. Fund $-0- $ 7,151 $ 16,773
Growth & Income Fund -0- 45,644 97,361
Utilities Income Fund -0- 67,049 146,393
</TABLE>
* Represents service fees.
** Represents distribution fees.
The Underwriter incurred the following Class B Plan-related expenses
for the period January 12, 1995 (commencement of offering of Class B shares) to
October 31, 1995:
<TABLE>
<CAPTION>
Compensation Compensation to
Fund Advertising to sales personnel* Underwriter**
<S> <C> <C> <C>
Made In The U.S.A. Fund $-0- $-0- $ 1,096
Growth & Income Fund -0- -0- 12,812
Utilities Income Fund -0- -0- 11,449
</TABLE>
* Represents service fees.
** Represents distribution fees.
DETERMINATION OF NET ASSET VALUE
Except as provided herein, a security listed or traded on an exchange
or the NASDAQ national market system is valued at its last sale price on the
exchange or market system where the security is primarily traded, and lacking
any sales on a particular day, the security is valued at the mean between the
closing bid and asked prices on that day. Each security traded in the market
(including securities listed on exchanges whose primary market is believed to be
OTC) is valued at the mean between the last bid and asked prices based upon
quotes furnished by a market maker for such securities. In the absence of market
quotations, a Fund will determine the value of bonds based upon quotes furnished
by market makers, if available, or in accordance with the procedures described
herein. In that connection, the Board of Directors has determined that a Fund
may use an outside pricing service. The pricing service uses quotations obtained
from investment dealers or brokers for the particular securities being
evaluated, information with respect to market transactions in comparable
securities and other available information in determining value. This service is
furnished by Interactive Data Corporation. Short-term debt securities that
mature in 60 days or less are valued at amortized cost if their original term to
maturity from the date of purchase was 60 days or less, or by amortizing their
value on the 61st day prior to maturity if their term to maturity from the date
of purchase exceeded 60 days, unless the Board of Directors determines that such
valuation does not represent fair value. Securities for which market quotations
are not readily available are valued at fair value as determined in good faith
by or under the direction of the Series Fund II's officers in a manner
specifically authorized by the Board of Directors.
With respect to each Fund, "when-issued securities" are reflected in
the assets of the Fund as of the date the securities are purchased. Such
investments are valued thereafter at the mean between the most recent bid and
asked prices obtained from recognized dealers in such securities. For valuation
purposes,
30
<PAGE>
with respect to Growth & Income Fund, quotations of foreign securities in
foreign currencies are converted into U.S. dollar equivalents using the foreign
exchange equivalents in effect.
The Board of Directors may suspend the determination of a Fund's net
asset value per share separately for each class of shares for the whole or any
part of any period (1) during which trading on the New York Stock Exchange
("NYSE") is restricted as determined by the SEC or the NYSE is closed for other
than weekend and holiday closings, (2) during which an emergency, as defined by
rules of the SEC in respect to the U.S. market, exists as a result of which
disposal by a Fund of securities owned by it is not reasonably practicable for
the Fund fairly to determine the value of its net assets, or (3) for such other
period as the SEC has by order permitted.
ALLOCATION OF PORTFOLIO BROKERAGE
Purchases and sales of portfolio securities by the Fund may be
principal transactions. In principal transactions, portfolio securities are
normally purchased directly from the issuer or from an underwriter or market
maker for the securities. There will usually be no brokerage commissions paid by
a Fund for such purchases. Purchases from underwriters will include the
underwriter's commission or concession and purchases from dealers serving as
market makers will include the spread between the bid and asked price. Certain
money market instruments may be purchased by a Fund directly from an issuer, in
which no commission or discounts are paid. Each Fund may purchase fixed income
securities on a "net" basis with dealers acting as principal for their own
accounts without a stated commission, although the price of the security usually
includes a profit to the dealer.
Each Fund may deal in securities which are not listed on a national
securities exchange or the Nasdaq national market system but are traded in the
OTC market. Each Fund also may purchase listed securities through the "third
market." When transactions are executed in the OTC market, a Fund seeks to deal
with the primary market makers, but when advantageous it utilizes the services
of brokers.
In effecting portfolio transactions, the Adviser or the Subadviser
seeks best execution of trades either (1) at the most favorable and competitive
rate of commission charged by any broker or member of an exchange, or (2) with
respect to agency transactions, at a higher rate of commission if reasonable in
relation to brokerage and research services provided to a Fund or the Adviser or
the Subadviser by such member or broker. Such services may include, but are not
limited to, any one or more of the following: information as to the availability
of securities for purchase or sale and statistical or factual information or
opinions pertaining to investments. The Adviser or Subadviser may use research
and services provided to it by brokers in servicing all the funds in the First
Investors Group of Funds; however, not all such services may be used by the
Adviser or the Subadviser in connection with a Fund. No portfolio orders are
placed with an affiliated broker, nor does any affiliated broker-dealer
participate in these commissions.
The Adviser or Subadviser may combine transaction orders placed on
behalf of a Fund and any other fund in the First Investors Group of Funds, any
Fund of Executive Investors Trust and First Investors Life Insurance Company,
affiliates of the Funds for the purpose of negotiating brokerage commissions or
obtaining a more favorable transaction price; and where appropriate, securities
purchased or sold may be allocated, in terms of price and amount, to a Fund
according to the proportion that the size of the transaction order actually
placed by a Fund bears to the aggregate size of the transaction orders
simultaneously made by other participants in the transaction.
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For the fiscal year ended October 31, 1993, Made In The U.S.A. Fund
paid $51,648 in brokerage commissions. For the period February 22, 1993
(commencement of operations) through October 31, 1993, Utilities Income Fund
paid $139,950 in brokerage commissions. Of that amount, $600 was paid in
brokerage commissions to brokers who furnished research services on portfolio
transactions in the amount of $200,850. For the period October 4, 1993
(commencement of operations) through October 31, 1993, Growth & Income Fund did
not pay any brokerage commissions.
For the fiscal year ended October 31, 1994, Made In The U.S.A. Fund and
Utilities Income Fund paid $24,767 and $236,585, respectively, in brokerage
commissions. For the fiscal year ended October 31, 1994, Growth & Income Fund
paid $23,249 in brokerage commissions. Of that amount $6,732 was paid in
brokerage commissions to brokers who furnished research services on portfolio
transactions in the amount of $4,704,802.
For the fiscal year ended October 31, 1995 Growth & Income Fund paid
$40,513 in brokerage commissions. Of that amount, $4,973 was paid in brokerage
commissions to brokers who furnished research services on portfolio transactions
in the amount of $3,545,732. For the fiscal year ended October 31, 1995, Made In
The U.S.A. Fund paid $16,178 in brokerage commissions. Of that amount, $2,345
was paid in brokerage commissions to brokers who furnished research services on
portfolio transactions in the amount of $1,387,834. For the fiscal year ended
October 31, 1995, Utilities Income Fund paid $76,984 in brokerage commissions.
Of that amount, $20,160 was paid in brokerage commissions to brokers who
furnished research services on portfolio transactions in the amount of
$8,245,784.
REDUCED SALES CHARGES, ADDITIONAL EXCHANGE AND
REDEMPTION INFORMATION AND OTHER SERVICES
Reduced Sales Charges--Class A Shares
Reduced sales charges are applicable to purchases made at one time of
Class A shares of any one or more of the Funds or of any one or more of the
Eligible Funds, as defined in the Prospectus, by "any person," which term shall
include an individual, or an individual, his or her spouse and children under
the age of 21, or a trustee or other fiduciary of a single trust, estate or
fiduciary account (including a pension, profit-sharing or other employee benefit
trust created pursuant to a plan qualified under section 401 of the Internal
Revenue Code of 1986, as amended (the "Code")), although more than one
beneficiary is involved; provided, however, that the term "any person" shall not
include a group of individuals whose funds are combined, directly or indirectly,
for the purchase of redeemable securities of a registered investment company,
nor shall it include a trustee, agent, custodian or other representative of such
a group of individuals.
Ownership of Class A and Class B shares of any Eligible Fund, except as
noted below, qualify for a reduced sales charge on the purchase of Class A
shares. Class A shares purchased at net asset value, Class A shares of the Money
Market Funds, or shares owned under a Contractual Plan are not eligible for the
purchase of Class A shares of a Fund at a reduced sales charge through a Letter
of Intent or the Cumulative Purchase Privilege.
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Letter of Intent. Any of the eligible persons described above may,
within 90 days of their investment, sign a statement of intent ("Letter of
Intent") in the form provided by the Underwriter, covering purchases of Class A
shares of any one or more of the Funds and of the other Eligible Funds to be
made within a period of thirteen months, provided said shares are currently
being offered to the general public and only in those states where such shares
may be legally sold, and thereby become eligible for the reduced sales charge
applicable to the total amount purchased. A Letter of Intent filed after the
date of investment is considered retroactive to the date of investment for
determination of the thirteen-month period. The Letter of Intent is not a
binding obligation on either the investor or the Fund. During the term of a
Letter of Intent, Administrative Data Management Corp. ("Transfer Agent") will
hold Class A shares representing 5% of each purchase in escrow, which shares
will be released upon completion of the intended investment.
Purchases of Class A Shares made under a Letter of Intent are made at
the sales charge applicable to the purchase of the aggregate amount of shares
covered by the Letter of Intent as if they were purchased in a single
transaction. The applicable quantity discount will be based on the sum of the
then current value at public offering price (i.e., net asset value plus
applicable sales charge) of all Class A shares and the net asset value of all
Class B shares of a Fund and of the other Eligible Funds, including Class B
shares of the Money Market Funds, currently owned, together with the aggregate
offering price of purchases to be made under the Letter of Intent. If all such
shares are not so purchased, a price adjustment is made, depending upon the
actual amount invested within such period, by the redemption of sufficient Class
A shares held in escrow in the name of the investor (or by the investor paying
the commission differential). A Letter of Intent can be amended (1) during the
thirteen-month period if the purchaser files an amended Letter of Intent with
the same expiration date as the original Letter of Intent, or (2) automatically
after the end of the period, if total purchases credited to the Letter of Intent
qualify for an additional reduction in the sales charge. The Letter of Intent
privilege may be modified or terminated at any time by the Underwriter.
Cumulative Purchase Privilege. Upon written notice to FIC, Class A
shares of a Fund are also available at a quantity discount on new purchases if
the then current value at the current public offering price (i.e., net asset
value plus applicable sales charge) of all Class A shares and the net asset
value of all Class B shares of a Fund and of the other Eligible Funds, including
Class B shares of the Money Market Funds, previously purchased and then owned,
plus the value of Class A shares being purchased at the current public offering
price, amount to $25,000 or more. Such quantity discounts may be modified or
terminated at any time by the Underwriter.
Purchase of Shares. When you open a Fund account, you must specify
which class of shares you wish to purchase. If not, your order will be processed
as follows: (1) if you are opening an account with a new registration with First
Investors your order will not be processed until the Fund receives notification
of which class of shares to purchase; (2) if you have existing First Investors
accounts solely in either Class A shares or Class B shares with the identical
registration, your investment in the Fund will be made in the same class of
shares as your existing account(s); (3) if you are an existing First Investors
shareholder and own a combination of Class A and Class B shares with an
identical registration, your investment in the Fund will be made in Class B
shares; and (4) if you own in the aggregate at least $250,000 in any combination
of classes, your investment will be made in Class A shares.
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Systematic Investing
First Investors Money Line. This service allows you to invest in a Fund
through automatic deductions from your bank checking account. Scheduled
investments may be made on a bi-weekly, semi-monthly, monthly, quarterly,
semi-annual or annual basis provided a minimum total of $600 is invested per
year. Shares of the Fund are purchased at the public offering price determined
at the close of business on the day your designated bank account is debited and
a confirmation will be sent to you after every transaction. You may decrease the
amount or discontinue this service at any time by calling Shareholder Services
or writing to Administrative Data Management Corp., 581 Main Street, Woodbridge,
NJ 07095- 1198, Attn: Control Dept. To increase the amount, send a written
request to the Transfer Agent at the address noted above, which may take up to
five days to process. Money Line application forms are available from your
Representative or by calling Shareholder Services at 1-800-423-4026.
Automatic Payroll Investment. You also may arrange for automatic
investments into a Fund on a systematic basis through salary deductions,
provided your employer has direct deposit capabilities. Shares of the Fund are
purchased at the public offering price determined as of the close of business on
the day the electronic fund transfer is received by the Fund, and a confirmation
will be sent to you after every transaction. You may change the amount or
discontinue the service by contacting your employer. An application is available
from your Representative or by calling Shareholder Services at 1-800-423- 4026.
Arrangements must also be made with your employer's payroll department.
Cross-Investment of Cash Distributions. You may elect to invest in
Class A shares of a Fund at net asset value all the cash distributions from the
same class of shares of another Eligible Fund. The investment will be made at
the net asset value per share of the Fund, generally determined as of the close
of business, on the business day immediately following the record date of any
such distribution. You may also elect to invest cash distributions of a Fund's
Class A shares into the same class of another Eligible Fund, including the Money
Market Funds. If your distributions are to be invested in a new account, you
must invest a minimum of $600 per year. See "Dividends and Other Distributions"
in the Prospectus. To arrange for cross-investing, call Shareholder Services at
1-800-423-4026.
Investment of Systematic Withdrawal Plan Payments. You may elect to
invest in Class A shares of a Fund at net asset value through payments from a
Systematic Withdrawal Plan you maintain with any other Eligible Fund. Scheduled
investments may be made on a monthly, quarterly, semi-annual or annual basis.
You may also elect to invest Systematic Withdrawal Plan payments of Class A
shares from a Fund into the same class of another Eligible Fund, including the
Money Market Funds. If your Systematic Withdrawal Payments are to be invested in
a new account, you must invest a minimum of $600 per year. See "Systematic
Withdrawal Plan," below. To arrange for Systematic Withdrawal Plan investments,
call Shareholder Services at 1-800-423-4026.
Systematic Withdrawal Plan. Shareholders who own noncertificated shares
may establish a Systematic Withdrawal Plan ("Withdrawal Plan"). If you have a
Fund account with a net asset value of at least $5,000, you may elect to receive
monthly, quarterly, semi-annual or annual checks for any designated amount
(minimum $25). You may have the payments sent directly to you or persons you
designate. Regardless of the amount of your Fund account, you may also elect to
the have the Systematic Plan payments automatically (i) invested at net asset
value in shares of the same class of any other Eligible Fund, including the
Money Market Funds, or (ii) paid to First Investors Life Insurance Company for
the purchase of a life insurance policy or a variable annuity. If your
Systematic Plan payments are to be
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invested in a new Eligible Fund account, you must invest a minimum of $600 per
year. If you own Class B shares in a retirement account and qualify to receive
distributions under the Code, you may elect to receive redemptions at regular
intervals. The redemption proceeds, less any applicable CDSC, will be
automatically sent to you directly. Dividends and other distributions, if any,
are reinvested in additional shares of the same class of the Fund. Shareholders
may add shares to the Withdrawal Plan or terminate the Withdrawal Plan at any
time. Withdrawal Plan payments will be suspended when a distributing Fund has
received notice of a shareholder's death on an individual account. Payments may
recommence upon receipt of written alternate payment instructions and other
necessary documents from the deceased's legal representative. Withdrawal
payments will also be suspended when a payment check is returned to the Transfer
Agent marked as undeliverable by the U.S. Postal Service after two consecutive
mailings.
Class B shareholders who may establish a Plan may elect to receive up
to 8% of the net asset value of their account (calculated as set forth below)
each year without incurring any CDSC. Shares not subject to a CDSC (such as
shares representing reinvestment of distributions) will be redeemed first and
will count toward the 8% limitation. If the shares not subject to a CDSC are
insufficient for this purpose, then shares subject to the lowest CDSC will be
redeemed next until the 8% limit is reached. The 8% figure is calculated on a
pro rata basis at the time of the first payment made pursuant to the Plan and
recalculated thereafter on a pro rata basis at the time of each Plan payment.
Therefore, shareholders who have chosen the Plan based on a percentage of the
net asset value of their account of up to 8% will be able to receive Plan
payments without incurring a CDSC. However, shareholders who have chosen a
specific dollar amount (for example, $100 per month from a fund that pays income
distributions monthly) for their periodic Plan payment should be aware that the
amount of that payment not subject to a CDSC may vary over time depending on the
net asset value of their account. For example, if the net asset value of the
account is $10,000 at the time of payment, the shareholder will receive $100
free of the CDSC (8% of $10,000 divided by 12 monthly payments). However, if at
the time of a future payment the net asset value of the account has fallen to
$9,400, the shareholder will receive $94 free of any CDSC (8% of $9,400 divided
by 12 monthly payments) and $6 subject to the lowest applicable CDSC. This
privilege may be revised or terminated at any time.
The withdrawal payments derived from the redemption of sufficient
shares in the account to meet designated payments in excess of dividends and
other distributions may deplete or possibly extinguish the initial investment,
particularly in the event of a market decline, and may result in a capital gain
or loss depending on the shareholder's cost. Purchases of additional shares of a
Fund concurrent with withdrawals are ordinarily disadvantageous to shareholders
because of tax liabilities and sales charges. To establish a Withdrawal Plan,
call Shareholder Services at 1-800-423-4026.
Conversion of Class B Shares. Class B Shares of a Fund will
automatically convert to Class A shares of that Fund, based on the relative net
asset values per share of the two classes, as of the close of business on the
first business day of the month in which the eighth anniversary of the initial
purchase of such Class B shares occurs. For these purposes, the date of initial
purchase shall mean (1) the first business day of the month in which such Class
B shares were issued, or (2) for Class B shares obtained through an exchange or
a series of exchanges, the first business day of the month in which the original
Class B shares were issued. For conversion purposes, Class B shares purchased
through the reinvestment of dividends and other distributions paid in respect of
Class B shares will be held in a separate sub-account. Each time any Class B
shares in the shareholder's regular account (other than those in the
sub-account) convert to Class A shares, a pro rata portion of the Class B shares
in the sub-account also will convert to Class A shares. The portion will be
determined by the ratio that the shareholder's Class B
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shares converting to Class A shares bears to the shareholder's total Class B
shares not acquired through dividends and other distributions.
The availability of the conversion feature is subject to the continuing
applicability of a ruling of the Internal Revenue Service ("IRS"), or an opinion
of counsel, that: (1) the dividends and other distributions paid on Class A and
Class B shares will not result in "preferential dividends" under the Code; and
(2) the conversion of shares does not constitute a taxable event. If the
conversion feature ceased to be available, the Class B shares of the Fund would
not be converted and would continue to be subject to the higher ongoing expenses
of the Class B shares beyond eight years from the date of purchase. FIMCO has no
reason to believe that these conditions for the availability of the conversion
feature will not continue to be met.
If a Fund implements any amendments to its Class A Plan that would
increase materially the costs that may be borne under such Plan by Class A
shareholders, Class B shares will stop converting into Class A shares unless a
majority of Class B shareholders, voting separately as a class, approve the
proposal.
Waivers of CDSC on Class B Shares. The CDSC imposed on Class B shares
does not apply to: (a) any redemption pursuant to the tax-free return of an
excess contribution to an IRA or other qualified retirement plan if the Fund is
notified at the time of such request; (b) any redemption of a lump-sum or other
distribution from qualified retirement plans or accounts provided the
shareholder has attained the minimum age of 70 1/2 years and has held the Class
B shares for a minimum period of three years; (c) any redemption by advisory
accounts managed by the Adviser or any of its affiliates or for shares held by
the Adviser or any of its affiliates; (d) any redemption by a tax-exempt
employee benefit plan if continuance of the investment would be improper under
applicable laws or regulations; (e) any redemption or transfer of ownership of
Class B shares following the death or disability, as defined in Section 72(m)(7)
of the Code, of a shareholder if the Fund is provided with proof of death or
disability and with all documents required by the Transfer Agent within one year
after the death or disability; and (f) any redemption of shares which were
purchased with the proceeds from a redemption of shares of a fund in another
fund group for which no sales charge was paid. For more information on what
specific documents are required, call Shareholder Services at 1-800-423-4026.
Signature Guarantees. The words "Signature Guaranteed" must appear in
direct association with the signature of the guarantor. Although each Fund
reserves the right to require signature guarantees at any other time, signature
guarantees are required whenever: (1) the amount of the redemption is $50,000 or
more, (2) an exchange in the amount of $50,000 or more is made into the Money
Market Funds, (3) a redemption check is to be made payable to someone other than
the registered accountholder, other than institutions on behalf of the
shareholder, (4) a redemption check is to be mailed to an address other than the
address of record, other than to another financial institution for the benefit
of a shareholder, (5) an account registration is being transferred to another
owner, (6) an account, other than an individual, joint, UGMA or UTMA
nonretirement account or a trustee-to-trustee transfer of a retirement account,
is being exchanged or redeemed, (7) the redemption request is for certificated
shares, or (8) your address of record has changed within 60 days prior to a
redemption request.
Reinvestment after Redemption. If you redeem Class A or Class B shares
in your Fund account, you can reinvest within ninety days from the date of
redemption all or any part of the proceeds in shares of the same class of the
same Fund or any other Eligible Fund (including the Money Market Funds), at net
asset value, on the date the Transfer Agent receives your purchase request. If
you reinvest the entire
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proceeds of a redemption of Class B shares for which a CDSC has been paid, you
will be credited for the amount of the CDSC. If you reinvest less than the
entire proceeds, you will be credited with a pro rata portion of the CDSC. All
credits will be paid in Class B shares of the fund into which the reinvestment
is being made. The period you owned the original Class B shares prior to
redemption will be added to the period of time you own Class B shares acquired
through reinvestment for purposes of determining (a) the applicable CDSC upon a
subsequent redemption and (b) the date on which Class B shares automatically
convert to class A shares. If your reinvestment is into a new account, other
than the Money Market Funds, it must meet the minimum investment and other
requirements of the fund into which the reinvestment is being made. If you
reinvest into a new Money Market Fund within one year from the date of
redemption, the minimum investment is $500. To take advantage of this option,
send your reinvestment check along with a written request to the Transfer Agent
within 90 days from the date of your redemption. Include your account number and
a statement that you are taking advantage of the "Reinvestment Privilege."
Telephone Transactions. To exchange or redeem noncertificated Fund
shares by telephone, you must select this option on your original Account
Application or complete the telephone privileges authorization section on the
Special Services Application. You may use the privilege five days after the
Transfer Agent has processed your Account Application or Special Services
Application. Telephone exchanges are available between nonretirement accounts
and between IRA accounts of the same class of shares registered in the same
name. Telephone exchanges are also available from an individually registered
nonretirement account to an IRA account of the same class of shares in the same
name (provided an IRA application is on file). Telephone exchanges are not
available for exchanges of Fund shares for plan units.
As stated in the Fund's Prospectus, Series Fund II, the Adviser, the
Underwriter and their officers, directors and employees will not be liable for
any loss, damage, cost or expense arising out of any instruction (or any
interpretation of such instruction) received by telephone which they reasonably
believe to be authentic. In acting upon telephone instructions, these parties
use procedures which are reasonably designed to ensure that such instructions
are genuine, such as (1) obtaining some or all of the following information:
account number; name(s) and social security number registered to the account;
and personal identification; (2) recording all telephone transactions; and (3)
sending written confirmation of each transaction to the registered owner.
Retirement Plans
Profit-Sharing/Money Purchase Pension Plans. FIC offers prototype
Profit-Sharing, Money Purchase Pension and 401(k) Retirement Plans ("Retirement
Plans") approved by the Internal Revenue Service ("IRS") for corporations, sole
proprietorships and partnerships. The Custodial Agreement for the above
captioned Money Purchase Pension and Profit Sharing Plan provides that First
Financial Savings Bank, S.L.A. ("First Financial Savings"), an affiliate of FIC,
will furnish all required custodial services.
FIC offers additional versions of prototype qualified retirement plans
for eligible employers, including 401(k), money purchase, profit sharing and
target benefit plans.
Currently, there are no annual service fees chargeable to participants
in connection with a Retirement Plan account. Participants are, however, charged
$5.00 for opening a Retirement Plan account, other than a 401(k) Retirement Plan
account. Each Fund currently pays the annual $10.00 custodian fee
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for each Retirement Plan account, if applicable, maintained with such Fund. This
policy may be changed at any time by a Fund on 45 days' written notice. First
Financial Savings has reserved the right to waive its fees at any time or to
change the fees on 45 days' prior written notice.
The Retirement Plan documents contain further specific information
about the Retirement Plans and may be obtained from your First Investors
Representative. Prior to establishing a Retirement Plan, you are advised to
consult with your legal and tax advisers.
Individual Retirement Accounts. A qualified individual may purchase
shares of a Fund through an individual retirement account ("IRA") or, as an
employee of a qualified employer, through a Simplified Employee Pension-IRA
("SEP-IRA") or a Salary Reduction Simplified Employee Pension-IRA ("SARSEPIRA")
furnished by FIC. Under the related Custodial Agreements, First Financial
Savings acts as custodian of each of these retirement plans.
The Funds offer IRA accounts with specific provisions tailored to meet
the needs of certain groups of investors. The custodian fees are disclosed in
the IRA documents provided to investors in such accounts.
A taxpayer generally may make an annual IRA contribution no greater
than the lesser of: (a) 100% of his or her compensation, or (b) $2,000 (or
$2,250 when also contributing to a spousal IRA). However, contributions are
deductible only under certain conditions. The requirements as to SEP-IRAs and
SARSEP-IRAs are described in IRS Form 5305-SEP and 5305A-SEP, respectively,
which is provided to employers. Employers are required to provide copies of
Forms 5305-SEP and 5305A-SEP to their eligible employees. A disclosure statement
setting forth complete details of the IRA is given to each participant before
the contribution is invested.
Currently, there are no annual service fees chargeable to a participant
in connection with an IRA, SEP-IRA or SARSEP-IRA. Each 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 or SARSEP-IRA. First Financial Savings has reserved
the right to waive its fees at any time or to change the fees on 45 days' prior
written notice to the holder of any IRA.
An application and other documents necessary to establish an IRA,
SEP-IRA or SARSEP-IRA, are available from your Representative. Prior to
establishing an IRA, SEP-IRA or SARSEP-IRA, you are advised to consult with your
legal and tax advisers.
Retirement Benefit Plans for Employees of Eligible Organizations. FIC
makes available model custodial accounts under Section 403(b)(7) of the Code
("Custodial Accounts") to provide retirement benefits for employees of certain
eligible public educational institutions and other eligible non-profit
charitable, religious and humane organizations. The Custodial Accounts are
designed to permit contributions (up to a "maximum exclusion allowance") by
employees through salary reduction. First Financial Savings acts as custodian of
these accounts.
Contributions may be made to a Custodial Account under the Optional
Retirement Program for Employees of Texas Institutions of Higher Education
("ORP"), either by salary reduction agreement or
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otherwise, in accordance with the terms and conditions of the ORP, and under the
Texas Deferred Compensation Plan Program for eligible state employees by salary
reduction agreement.
Currently, there are no annual service fees chargeable to participants
in connection with a Custodial Account. Each Fund currently pays the annual
$10.00 custodian fee for each Custodial Account maintained with such Fund. This
policy may be changed at any time by a Fund on 45 days' written notice to a
Custodial Account participant. First Financial Savings has reserved the right to
waive its fees at any time or to change the fees on 45 days' prior written
notice to a Custodial Account participant.
An application and other documents necessary to establish a Custodial
Account are available from your First Investors Representative. Persons desiring
to create a Custodial Account are advised to confer with their legal and tax
advisers concerning the specifics of this type of retirement benefit plan.
Mandatory income tax withholding, at the rate of 20%, may be required
for Federal income tax purposes on "eligible rollover" distributions made from
any of the foregoing retirement plans (other than IRAs, including SEP-IRAs and
SARSEP-IRAs). If the recipient elects to directly transfer an eligible rollover
distribution to an "eligible retirement plan" that permits acceptance of such
distributions, no withholding will apply. For distributions that are not
"eligible rollover" distributions, the recipient can elect, in writing, not to
require any withholding. This election must be submitted immediately before, or
must accompany, the distribution request. The amount, if any, of any such
optional withholding depends on the amount and type of the distribution.
Appropriate election forms are available from the Custodian or Shareholder
Services. Other types of withholding nonetheless may apply.
Distribution Fees. A participant/shareholder's account under any of the
foregoing retirement plans (including IRAs) may be charged a distribution fee
(at the time of withdrawal) of $7.00 for a single distribution of the entire
account and $1.00 for each periodic distribution therefrom.
TAXES
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Code, a Fund -- each Fund being treated as a separate
corporation for these purposes -- must distribute to its shareholders for each
taxable year at least 90% of its investment company taxable income (consisting
generally of net investment income, net short-term capital gain and, for Growth
& Income Fund, net gains from certain foreign currency transactions)
("Distribution Requirement") and must meet several additional requirements. For
each Fund these requirements include the following: (1) the Fund must derive at
least 90% of its gross income each taxable year from dividends, interest,
payments with respect to securities loans and gains from the sale or other
disposition of securities or, for Growth & Income Fund, foreign currencies, or
other income (including gains from options, futures or forward contracts)
derived with respect to its business of investing in securities or, for Growth &
Income Fund, those currencies ("Income Requirement"); (2) the Fund must derive
less than 30% of its gross income each taxable year from the sale or other
disposition of securities, or any of the following, that were held for less than
three months -- options or futures, or foreign currencies (or forward contracts)
that are not directly related to the Fund's principal business of investing in
securities (or options and futures with respect thereto) ("Short-Short
Limitation"); (3) 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
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any one issuer, to an amount that does not exceed 5% of the value of the Fund's
total assets and that does not represent more than 10% of the issuer's
outstanding voting securities; and (4) at the close of each quarter of the
Fund's taxable year, not more than 25% of the value of its total assets may be
invested in securities (other than U.S. Government securities or the securities
of other RICs) of any one issuer.
Dividends and other distributions declared by a Fund in October,
November or December of any year and payable to shareholders of record on a date
in any of those months are deemed to have been paid by the Fund and received by
the shareholders on December 31 of that year if the distributions are paid by
the Fund during the following January. Accordingly, those distributions will be
taxed to shareholders for the year in which that December 31 falls.
A portion of the dividends from a Fund's investment company taxable
income may be eligible for the dividends-received deduction allowed to
corporations. The eligible portion may not exceed the aggregate dividends
received by the Fund from U.S. corporations. However, dividends received by a
corporate shareholder and deducted by it pursuant to the dividends-received
deduction are subject indirectly to the alternative minimum tax.
If shares of a Fund are sold at a loss after being held for six months
or less, the loss will be treated as long-term, instead of short-term, capital
loss to the extent of any capital gain distributions received on those shares.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts.
Dividends and interest received by Growth & Income Fund may be subject
to income, withholding or other taxes imposed by foreign countries that would
reduce the yield on its securities. Tax conventions between certain countries
and the United States may reduce or eliminate these foreign taxes, however, and
many foreign countries do not impose taxes on capital gains in respect of
investments by foreign investors.
Growth & Income Fund may invest in the stock of "passive foreign
investment companies" ("PFICs"). A PFIC is a foreign corporation that, in
general, meets either of the following tests: (1) at least 75% of its gross
income is passive or (2) an average of at least 50% of its assets produce, or
are held for the production of, passive income. Under certain circumstances, if
the Fund holds stock of a PFIC, it will be subject to Federal income tax on a
portion of any "excess distribution" received on the stock or of any gain on
disposition of the stock (collectively "PFIC income"), plus interest thereon,
even if the Fund distributes the PFIC income as a taxable dividend to its
shareholders. The balance of the PFIC income will be included in the Fund's
investment company taxable income and, accordingly, will not be taxable to it to
the extent that income is distributed to its shareholders.
If Growth & Income Fund invests in a PFIC and elects to treat the PFIC
as a "qualified electing fund," then in lieu of the foregoing tax and interest
obligation, the Fund would be required to include in income each year its pro
rata share of the qualified electing fund's annual ordinary earnings and net
capital gain (the excess of net long-term capital gain over net short-term
capital loss) -- which would have to be distributed to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax -- even if those
40
<PAGE>
earnings and gain were not received by the Fund. In most instances it will be
very difficult, if not impossible, to make this election because of certain
requirements thereof.
Proposed regulations have been published pursuant to which open-end
RICs, such as Growth & Income Fund, would be entitled to elect to
"mark-to-market" their stock in certain PFICs. "Marking-tomarket," in this
context, means recognizing as gain for each taxable year the excess, as of the
end of that year, of the fair market value of such a PFIC's stock over the
adjusted basis in that stock (including mark-to-market gain for each prior year
for which an election was in effect).
For Growth & Income Fund, income from foreign currencies (except
certain gains therefrom that may be excluded by future regulations) will qualify
as permissible income under the Income Requirement. Income from the Fund's
disposition of foreign currencies that are not directly related to its principal
business of investing in securities also will be subject to the Short-Short
Limitation if they are held for less than three months.
Made In The U.S.A. Fund and Utilities Income Fund may acquire zero
coupon securities issued with original issue discount. As the holder of those
securities, each such Fund must include in its income the original issue
discount that accrues on the securities during the taxable year, even if the
Fund receives no corresponding payment on the securities during the year.
Similarly, each such Fund must include in its gross income securities it
receives as "interest" on pay-in-kind securities. Because each Fund annually
must distribute substantially all of its investment company taxable income,
including any original issue discount, in order to satisfy the Distribution
Requirement and to avoid imposition of the Excise Tax, the 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. In addition, any such gains may be realized on the disposition
of securities held for less than three months. Because of the Short-Short
Limitation, any such gains would reduce a Fund's ability to sell other
securities, or options or certain forward contracts held for less than three
months that it might wish to sell in the ordinary course of its portfolio
management.
The use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts and entering into forward contracts, involves
complex rules that will determine for income tax purposes the character and
timing of recognition of the gains and losses Utilities Income Fund and Growth &
Income Fund realize in connection therewith. Income from foreign currencies
(except certain gains therefrom that may be excluded by future regulations), and
income from transactions in options, futures and forward contracts derived by a
Fund with respect to its business of investing in securities or foreign
currencies, will qualify as permissible income under the Income Requirement.
However, income from Utilities Income Fund's disposition of options and futures
contracts will be subject to the ShortShort Limitation if they are held for less
than three months. Income from Growth & Income Fund's disposition of foreign
currencies and forward contracts that are not directly related to its principal
business of investing in securities also will be subject to the Short-Short
Limitation if they are held for less than three months.
If a Fund satisfies certain requirements, then any increase in value of
a position that is part of a "designated hedge" will be offset by any decrease
in value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies
41
<PAGE>
the Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. Each
Fund intends that, when it engages in hedging strategies, it will qualify for
this treatment, but at the present time it is not clear whether this treatment
will be available for all of the Fund's hedging transactions. To the extent this
treatment is not available, a Fund may be forced to defer the closing out of
options, futures or certain forward contracts beyond the time when it otherwise
would be advantageous to do so, in order for the Fund to continue to qualify as
a RIC.
PERFORMANCE INFORMATION
A Fund may advertise its performance of each of its classes in various
ways.
The "average annual total return" ("T") of each class is an average
annual compounded rate of return. The calculation produces an average annual
total return for the number of years measured. It is the rate of return based on
factors which include a hypothetical initial investment of $1,000 ("P") over a
number of years ("n") with an Ending Redeemable Value ("ERV") of that
investment, according to the following formula:
T=[(ERV/P)1/n]-1
The "total return" uses the same factors, but does not average the rate
of return on an annual basis. Total return is determined as follows:
[ERV-P]/P = TOTAL RETURN
Total return is calculated by finding the average annual change in the
value of an initial $1,000 investment over the period. In calculating the ending
redeemable value for Class A shares, each Fund will deduct the maximum sales
charge of 6.25% (as a percentage of the offering price) from the initial $1,000
payment and, for Class B shares, the applicable CDSC imposed on a redemption of
Class B shares held for the period is deducted. All dividends and other
distributions are assumed to have been reinvested at net asset value on the
initial investment ("P"). Average annual total return and total return may also
be based on investment at reduced sales charge levels or at net asset value. Any
quotation of return not reflecting the maximum sales charge will be greater than
if the maximum sales charge were used.
Return information may be useful to investors in reviewing a 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.
42
<PAGE>
AVERAGE ANNUAL TOTAL RETURN
Class A Shares
Year Inception1
Ended to
October 31, 1995 October 31, 1995
---------------- ----------------
Made In The U.S.A. Fund 16.76% 5.91%
Utilities Income Fund 13.74 3.70
Growth & Income Fund 11.98 7.51
TOTAL RETURN
Class B Shares
Inception2
to
October 31, 1995
Made In The U.S.A. Fund 15.80%
Utilities Income Fund 17.02
Growth & Income Fund 17.78
Each Fund may include in advertisements and sales literature,
information, examples and statistics to illustrate the effect of compounding
income at a fixed rate of return to demonstrate the growth of an investment over
a stated period of time resulting from the payment of dividends and capital gain
distributions in additional shares. These examples may also include hypothetical
returns comparing taxable versus tax-deferred growth which would pertain to an
IRA, section 403(b)(7) Custodial Account or other qualified retirement program.
The examples used will be for illustrative purposes only and are not
representations by the Funds of past or future yield or return.
From time to time, in reports and promotional literature, the Funds may
compare their performance to, or cite the historical performance of, Overnight
Government repurchase agreements, U.S. Treasury bills, notes and bonds,
certificates of deposit, and six-month money market certificates or indices of
broad groups of unmanaged securities considered to be representative of, or
similar to, the Funds' portfolio holdings, such as:
Lipper Analytical Services, Inc. ("Lipper") is a widely-recognized
independent service that monitors and ranks the performance of
regulated investment companies. The Lipper performance analysis
includes the reinvestment of capital gain distributions and income
dividends but does not take sales charges into consideration. The
method of calculating total return data on indices utilizes actual
dividends on ex-dividend dates accumulated for the quarter and
reinvested at quarter
- --------
1 The inception dates for Class A shares of the Funds are as follows: Made In
The U.S.A. Fund August 24, 1992; Utilities Income Fund - February 22, 1993; and
Growth & Income Fund October 4, 1993.
2 The commencement date for the offering of Class B shares is January 12,
1995.
43
<PAGE>
end. This calculation is at variance with SEC release 327 of August 8,
1972, which utilizes latest 12 month dividends. The latter method is
the one used by S&P.
Morningstar Mutual Funds ("Morningstar"), a semi-monthly publication of
Morningstar, Inc. Morningstar proprietary ratings reflect historical
risk-adjusted performance and are subject to change every month. Funds
with at least three years of performance history are assigned ratings
from one star (lowest) to five stars (highest). Morningstar ratings are
calculated from the funds' three-, five-, and ten-year average annual
returns (when available) and a risk factor that reflects fund
performance relative to three-month Treasury bill monthly returns.
Fund's returns are adjusted for fees and sales loads. Ten percent of
the funds in an investment category receive five stars, 22.5% receive
four stars, 35% receive three stars, 22.5% receive two stars, and the
bottom 10% receive one star.
Salomon Brothers Inc., "Market Performance," a monthly publication
which tracks principal return, total return and yield on the Salomon
Brothers Broad Investment-Grade Bond Index and the components of the
Index.
Telerate Systems, Inc., a computer system to which the Adviser
subscribes which daily tracks the rates on money market instruments,
public corporate debt obligations and public obligations of the U.S.
Treasury and agencies of the U.S. Government.
The Wall Street Journal, a daily newspaper publication which lists the
yields and current market values on money market instruments, public
corporate debt obligations, public obligations of the U.S. Treasury and
agencies of the U.S. Government as well as common stocks, preferred
stocks, convertible preferred stocks, options and commodities; in
addition to indices prepared by the research departments of such
financial organizations as Lehman Bros., Merrill Lynch, Pierce, Fenner
and Smith, Inc., First Boston, Salomon Brothers, Morgan Stanley,
Goldman, Sachs & Co., Donaldson, Lufkin & Jenrette, Value Line,
Datastream International, James Capel, S.G. Warburg Securities, County
Natwest and UBS UK Limited, including information provided by the
Federal Reserve Board, Moody's, and the Federal Reserve Bank.
Merrill Lynch, Pierce, Fenner & Smith, Inc., "Taxable Bond Indices," a
monthly corporate government index publication which lists principal,
coupon and total return on over 100 different taxable bond indices
which Merrill Lynch tracks. They also list the par weighted
characteristics of each Index.
Lehman Brothers, Inc., "The Bond Market Report," a monthly publication
which tracks principal, coupon and total return on the Lehman
Govt./Corp. Index and Lehman Aggregate Bond Index, as well as all the
components of these Indices.
Standard & Poor's 500 Composite Stock Price Index and the Dow Jones
Industrial Average of 30 stocks are unmanaged lists of common stocks
frequently used as general measures of stock market performance. Their
performance figures reflect changes of market prices and quarterly
reinvestment of all distributions but are not adjusted for commissions
or other costs.
44
<PAGE>
The Consumer Price Index, prepared by the U.S. Bureau of Labor
Statistics, is a commonly used measure of inflation. The Index shows
changes in the cost of selected consumer goods and does not represent a
return on an investment vehicle.
The NYSE composite of component indices--unmanaged indices of all
industrial, utilities, transportation, and finance stocks listed on the
NYSE.
The Russell 2500 Index, prepared by the Frank Russell Company, consists
of U.S. publicly traded stocks of domestic companies that rank from 500
to 3000 by market capitalization. The Russell 2500 tracks the return on
these stocks based on price appreciation or depreciation and does not
include dividends and income or changes in market values caused by
other kinds of corporate changes.
The Russell 2000 Index, prepared by the Frank Russell Company, consists
of U.S. publicly traded stocks of domestic companies that rank from
1000 to 3000 by market capitalization. The Russell 2000 tracks the
return on these stocks based on price appreciation or depreciation and
does not include dividends and income or changes in market values
caused by other kinds of corporate changes.
Reuters, a wire service that frequently reports on global business.
Standard & Poor's Utilities Index is an unmanaged capitalization
weighted index comprising common stock in approximately 40 electric,
natural gas distributors and pipelines, and telephone companies. The
Index assumes the reinvestment of dividends.
Moody's Stock Index, an unmanaged index of utility stock performance.
From time to time, in reports and promotional literature, performance
rankings and ratings reported periodically in national financial publications
such as MONEY, FORBES, BUSINESS WEEK, BARRON'S, FINANCIAL TIMES and FORTUNE may
also be used. In addition, quotations from articles and performance ratings and
ratings appearing in daily newspaper publications such as THE WALL STREET
JOURNAL, THE NEW YORK TIMES and NEW YORK DAILY NEWS may be cited.
GENERAL INFORMATION
Audits And Reports. The accounts of the Funds are audited twice a year
by Tait, Weller & Baker, independent certified public accountants, Two Penn
Center Plaza, Philadelphia, PA, 19102-1707. Shareholders of each Fund receive
semi-annual and annual reports, including audited financial statements, and a
list of securities owned.
Transfer Agent. Administrative Data Management Corp., 10 Woodbridge
Center Drive, Woodbridge, NJ 07095-1198, an affiliate of FIMCO and FIC, acts as
transfer agent for the Funds and as redemption agent for regular redemptions.
The fees charged to each Fund by the Transfer Agent are $5.00 to open an
account; $3.00 for each certificate issued; $.65 per account per month; $10.00
for each legal transfer of shares; $.45 per account per dividend declared; $5.00
for each exchange of shares into a Fund; $5.00 for each partial withdrawal or
complete liquidation; and $1.00 per account per report required by
45
<PAGE>
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. The $5 administrative fee for
exchange transactions into a Fund, which is generally to be charged to the
shareholder, is being borne on a voluntary basis by the Fund for an indefinite
period. Upon request from shareholders, the Transfer Agent will provide an
account history. For account histories covering the most recent three year
period, there is no charge. The Transfer Agent charges a $5.00 administrative
fee for each account history covering the period 1983 through 1990 and $10.00
per year for each account history covering the period 1974 through 1982. Account
histories prior to 1974 will not be provided. For the fiscal year ended October
31, 1995, Growth & Income Fund, Made In The U.S.A. Fund and Utilities Income
Fund paid $134,247, $30,814 and $186,056, respectively, in transfer agent fees.
The Transfer Agent's telephone number is 1-800-423-4026.
5% Shareholders. As of December 26, 1995, the following beneficially
owned more than 5% of the outstanding Class B shares of Made In The U.S.A.
Fund:
Shareholder % of Shares
Leslie Dunbar 7.8%
3400 Cynder Avenue
Brooklyn, NY 11203
Rocco Luongo 7.4
44 Pullaski Drive
N. Arlington, NJ 07031
Brian K. Holloway 15.2
9 Hartman Drive
Hamilton Square, NJ 08690
Diane R. Napoli 14.9
1114 Gilham Street
Philadelphia, PA 191
Joann E. Taylor 5.8
14660 F. Pearthshire
Houston, TX 77079
Trading by Portfolio Managers and Other Access Persons. Pursuant to
Section 17(j) of the 1940 Act and Rule 17j-1 thereunder, Series Fund II and the
Adviser have adopted Codes of Ethics restricting personal securities trading by
portfolio managers and other access persons of the Fund. Among other things,
access persons, other than the disinterested Directors of Series Fund II: (a)
must have all trades pre-cleared by the Adviser; (b) are restricted from
short-term trading; (c) must have duplicate statements and transactions
confirmations reviewed by a compliance officer; and (d) are prohibited from
purchasing securities of initial public offerings.
46
<PAGE>
APPENDIX A
DESCRIPTION OF CORPORATE BOND AND
CONVERTIBLE SECURITY RATINGS
STANDARD & POOR'S RATINGS GROUP
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
any audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default-capacity and willingness of the obligor
as to the timely payment of interest and repayment of
principal in accordance with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization, or
other arrangement under the laws of bankruptcy and other laws
affecting creditors' rights.
AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C Debt rated "BB," "B," "CCC," "CC" and "C" is
regarded, on balance, as predominantly speculative with respect to capacity to
pay interest and repay principal. "BB" indicates the least degree of speculation
and "C" the highest. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
BB Debt rated "BB" has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic
47
<PAGE>
conditions which could lead to inadequate capacity to meet timely interest and
principal payments. The "BB" rating category is also used for debt subordinated
to senior debt that is assigned an actual or implied "BBB-" rating.
B Debt rated "B" has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"BB" or "BB-" rating.
CCC Debt rated "CCC" has a currently identifiable vulnerability to
default and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The "CCC" rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
CC The rating "CC" typically is applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
C The rating "C" typically is applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
CI The rating "CI" is reserved for income bonds on which no interest is
being paid.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The "D" rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified
by the addition of a plus or minus sign to show relative standing within the
major categories.
MOODY'S INVESTORS SERVICE, INC.
Aaa Bonds which are rated "Aaa" are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat greater than the Aaa securities.
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<PAGE>
A Bonds which are rated "A" possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in the
future.
Baa Bonds which are rated "Baa" are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba Bonds which are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B Bonds which are rated "B" generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa Bonds which are rated "Caa" are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds which are rated "Ca" represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C Bonds which are rated "C" are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
APPENDIX B
DESCRIPTION OF COMMERCIAL PAPER RATINGS
STANDARD & POOR'S RATINGS GROUP
S&P's commercial paper rating is a current assessment of the likelihood
of timely payment of debt considered short-term in the relevant market. Ratings
are graded into several categories, ranging from "A-1" for the highest quality
obligations to "D" for the lowest.
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) designation.
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<PAGE>
MOODY'S INVESTORS SERVICE, INC.
Moody's short-term debt ratings are opinions of the ability of issuers
to repay punctually senior debt obligations which have an original maturity not
exceeding one year. Obligations relying upon support mechanisms such as
letters-of-credit and bonds of indemnity are excluded unless explicitly rated.
Prime-1 Issuers (or supporting institutions) rated Prime-1 (P-1) have a
superior ability for repayment of senior short-term debt obligations. P-1
repayment ability will often be evidenced by many of the following
characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance
on debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
APPENDIX C
Although it does not presently intend to engage in these strategies in coming
year, Utilities Income Fund may use some or all of the following hedging
instruments:
Options on Equity and Debt Securities--A call option is a short-term
contract pursuant to which the purchaser of the option, in return for a premium,
has the right to buy the security underlying the option at a specified price at
any time during the term of the option. The writer of the call option, who
receives the premium, has the obligation, upon exercise of the option during the
option term, to deliver the underlying security against payment of the exercise
price. A put option is a similar contract that gives its purchaser, in return
for a premium, the right to sell the underlying security at a specified price
during the option term. The writer of the put option, who receives the premium,
has the obligation, upon exercise of the option during the option term, to buy
the underlying security at the exercise price.
Options on Stock Indexes--A stock index assigns relative values to the
stocks included in the index and fluctuates with changes in the market values of
those stocks. A stock index option operates in the same way as a more
traditional stock option, except that exercise of a stock index option is
effected with cash payment and does not involve delivery of securities. Thus,
upon exercise of a stock index option, the purchaser will realize, and the
writer will pay, an amount based on the difference between the exercise price
and the closing price of the stock index.
Stock Index Futures Contracts--A stock index futures contract is a
bilateral agreement pursuant to which one party agrees to accept, and the other
party agrees to make, delivery of an amount of cash equal to a specified dollar
amount times the difference between the stock index value at the close of
trading of the contract and the price at which the futures contract is
originally struck. No physical
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<PAGE>
delivery of the stocks comprising the index is made. Generally, contracts are
closed out prior to the expiration date of the contract.
Interest Rate Futures Contracts--Interest rate futures contracts are
bilateral agreements pursuant to which one party agrees to make, and the other
party agrees to accept, delivery of a specified type of debt security at a
specified future time and at a specified price. Although such futures contracts
by their terms call for actual delivery or acceptance of debt securities, in
most cases the contracts are closed out before the settlement date without the
making or taking of delivery.
Options on Futures Contracts--Options on futures contracts are similar
to options on securities, except that an option on a futures contract gives the
purchaser the right, in return for the premium, to assume a position in a
futures contract (a long position if the option is a call and a short position
if the option is a put), rather than to purchase or sell a security, at a
specified price at any time during the option term. Upon exercise of the option,
the delivery of the futures position to the holder of the option will be
accompanied by delivery of the accumulated balance that represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
future. The writer of an option, upon exercise, will assume a short position in
the case of a call and a long position in the case of a put.
51
<PAGE>
Financial Statements
as of October 31, 1995
52
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments
FIRST INVESTORS GROWTH & INCOME FUND
(A Series of First Investors Series Fund II, Inc.)
October 31, 1995
- -------------------------------------------------------------------------------------
Amount
Invested
For Each
$10,000 of
Shares Security Value Net Assets
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--83.4%
Automotive--.8%
19,592 Ford Motor Company $ 563,270 $ 84
- -------------------------------------------------------------------------------------
Banks--8.7%
20,000 Crestar Financial Corporation 1,140,000 170
25,000 First Bank System, Inc. 1,243,750 185
12,000 First Fidelity Bancorp. 784,500 117
11,500 J.P. Morgan & Company 886,937 132
12,000 Republic New York Corporation 703,500 105
25,000 Wachovia Corporation 1,103,125 165
- -------------------------------------------------------------------------------------
5,861,812 874
- -------------------------------------------------------------------------------------
Business Services--.8%
17,000 Sysco Corporation 516,375 77
- -------------------------------------------------------------------------------------
Chemicals--5.7%
19,000 Air Products and Chemicals, Inc. 980,875 146
10,000 Du Pont (E.I.) de Nemours & Company 623,750 93
45,000 Engelhard Corporation 1,119,375 167
15,000 Loctite Corporation 708,750 106
15,000 Witco Chemical Corporation 423,750 63
- -------------------------------------------------------------------------------------
3,856,500 575
- -------------------------------------------------------------------------------------
Computers & Office Equipment--1.4%
10,000 Hewlett-Packard Company 926,250 138
- -------------------------------------------------------------------------------------
Drugs--8.2%
9,500 American Home Products Corporation 841,938 125
12,000 Bristol-Myers Squibb Company 915,000 136
12,000 Johnson & Johnson 978,000 146
21,000 Pfizer, Inc. 1,204,875 180
12,000 Smithkline Beecham PLC (ADR) 622,500 93
16,238 Zeneca Group PLC (ADR) 915,417 136
- -------------------------------------------------------------------------------------
5,477,730 816
- -------------------------------------------------------------------------------------
Electric Utilities--3.0%
30,000 Baltimore Gas & Electric Company 802,500 120
15,000 DQE, Inc. 412,500 61
27,000 Pacific Gas & Electric Company 793,125 119
- -------------------------------------------------------------------------------------
2,008,125 300
- -------------------------------------------------------------------------------------
Electrical Equipment--3.2%
15,000 General Electric Company 948,750 141
27,000 York International Corporation 1,181,250 176
- -------------------------------------------------------------------------------------
2,130,000 317
- -------------------------------------------------------------------------------------
Electronics--.8%
13,000 AMP, Inc. 510,250 76
- -------------------------------------------------------------------------------------
Energy Services--2.2%
35,000 Dresser Industries, Inc. 726,250 108
12,000 Schlumberger, Ltd. 747,000 112
- -------------------------------------------------------------------------------------
1,473,250 220
- -------------------------------------------------------------------------------------
Energy Sources--4.8%
17,500 Amoco Corporation 1,117,813 167
15,000 Exxon Corporation 1,145,624 171
35,000 Unocal Corporation 918,750 137
- -------------------------------------------------------------------------------------
3,182,187 475
- -------------------------------------------------------------------------------------
Financial Services--1.6%
27,000 American Express Company 1,096,875 163
- -------------------------------------------------------------------------------------
Food/Beverage/Tobacco--1.0%
20,000 Cadbury Schweppes PLC (ADR) 667,500 99
- -------------------------------------------------------------------------------------
Household Products--5.6%
15,000 Avon Products, Inc. 1,066,875 159
12,000 Colgate-Palmolive Company 831,000 124
20,000 Dial Corporation 487,500 73
19,000 Kimberly-Clark Corporation 1,379,875 206
- -------------------------------------------------------------------------------------
3,765,250 562
- -------------------------------------------------------------------------------------
Insurance--3.8%
21,000 Ace Ltd. 714,000 106
15,000 American International Group, Inc. 1,265,625 190
7,000 Marsh & McLennan Companies, Inc. 573,125 85
- -------------------------------------------------------------------------------------
2,552,750 381
- -------------------------------------------------------------------------------------
Machinery & Manufacturing--3.1%
10,000 Illinois Tool Works, Inc. 581,250 87
12,000 Ingersoll-Rand Company 424,500 63
19,000 Minnesota Mining & Manufacturing Company 1,080,625 161
- -------------------------------------------------------------------------------------
2,086,375 311
- -------------------------------------------------------------------------------------
Media--6.4%
18,000 Gannett Company 978,750 146
16,000 Knight-Ridder, Inc. 888,000 132
10,000 *Scholastic Corporation 617,500 92
24,000 *Viacom, Inc.- Class "B" 1,200,000 179
15,000 Vodafone Group PLC (ADR) 613,125 91
- -------------------------------------------------------------------------------------
4,297,375 640
- -------------------------------------------------------------------------------------
Medical Products--1.8%
30,000 Abbott Laboratories 1,192,500 178
- -------------------------------------------------------------------------------------
Paper & Forest Products--1.8%
6,600 Georgia-Pacific Corporation 544,500 81
18,000 International Paper Company 666,000 99
- -------------------------------------------------------------------------------------
1,210,500 180
- -------------------------------------------------------------------------------------
Real Estate Investment Trusts--1.1%
30,000 Mark Centers Trust 322,500 48
13,300 Storage USA, Inc. 389,025 58
- -------------------------------------------------------------------------------------
711,525 106
- -------------------------------------------------------------------------------------
Retail--5.9%
12,800 Intimate Brands, Inc. 214,400 32
20,000 J.C. Penney Company 842,500 126
27,000 May Department Stores Company 1,059,750 158
35,000 Talbots, Inc. 848,750 126
46,000 Wal-Mart Stores, Inc. 994,750 148
- -------------------------------------------------------------------------------------
3,960,150 590
- -------------------------------------------------------------------------------------
Software & Services--2.4%
10,000 Automatic Data Processing, Inc. 715,000 106
25,000 *BMC Software, Inc. 890,625 133
- -------------------------------------------------------------------------------------
1,605,625 239
- -------------------------------------------------------------------------------------
Telephone--6.7%
22,000 A T & T Corp. 1,408,000 210
10,000 BCE, Inc. 336,250 50
15,000 NYNEX Corporation 705,000 105
16,000 SBC Communications, Inc. 894,000 133
24,500 US West Communications Group 1,166,813 174
- -------------------------------------------------------------------------------------
4,510,063 672
- -------------------------------------------------------------------------------------
Transportation--1.9%
40,000 Canadian Pacific Ltd. 640,000 95
10,000 Union Pacific Corporation 653,750 98
- -------------------------------------------------------------------------------------
1,293,750 193
- -------------------------------------------------------------------------------------
Travel & Leisure--.7%
12,000 McDonald's Corporation 492,000 73
- -------------------------------------------------------------------------------------
Total Value of Common Stocks
(cost $47,435,152) 55,947,987 8,339
- -------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------
Amount
Invested
Shares or For Each
Principal $10,000 of
Amount Security Value Net Assets
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONVERTIBLE PREFERRED STOCKS--1.9%
Energy Sources--1.3%
5,000 Unocal Corporation 7% (Note 5) $ 256,250 $ 37
12,000 Valero Energy Corporation 6 1/4% 609,000 91
- -------------------------------------------------------------------------------------
865,250 128
- -------------------------------------------------------------------------------------
Real Estate Investment Trusts--.6%
18,000 Security Capital Pacific Trust "A" 7% 427,500 64
- -------------------------------------------------------------------------------------
Total Value of Convertible
Preferred Stocks (cost $1,315,959) 1,292,750 192
- -------------------------------------------------------------------------------------
CONVERTIBLE BONDS--4.2%
Communications Equipment--.9%
$ 600M General Instrument Corporation,
5%, 6/15/00 603,000 90
- -------------------------------------------------------------------------------------
Energy Sources--1.4%
1,000M Noble Affiliates, 4 1/4%, 11/1/03 947,500 141
- -------------------------------------------------------------------------------------
Household Products--.6%
485M McKesson Corporation, 4 1/2%, 3/1/04 431,650 64
- -------------------------------------------------------------------------------------
Travel & Leisure--1.3%
900M AMR Corporation, 61/8%, 11/1/24 868,500 130
- -------------------------------------------------------------------------------------
Total Value of Convertible Bonds
(cost $3,091,138) 2,850,650 425
- -------------------------------------------------------------------------------------
EQUITY-LINKED SECURITIES--.2%
Computers & Office Equipment
1,000 Salomon Inc. (Hewlett-Packard)
5 1/4%, 1/1/97 (cost $76,375) 100,500 15
- -------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--9.0%
$ 6,054M Swiss Bank Capital Markets, Inc.,
5.87%, 11/1/95 (collateralized by
$6,140M U.S. Treasury Note,
5 3/4%, 9/30/97) (cost $6,054,000) 6,054,000 902
- -------------------------------------------------------------------------------------
Total Value of Investments (cost $57,972,624) 98.7% 66,245,887 9,873
Other Assets, Less Liabilities 1.3 849,239 127
- -------------------------------------------------------------------------------------
Net Assets 100.0% $67,095,126 $10,000
=====================================================================================
*Non-income producing
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Portfolio of Investments
FIRST INVESTORS MADE IN THE U.S.A. FUND
(A Series of First Investors Series Fund II, Inc.)
October 31, 1995
- -------------------------------------------------------------------------------------
Amount
Invested
For Each
$10,000 of
Shares Security Value Net Assets
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--72.3%
Basic Industry--2.5%
9,200 *Interpool, Inc. $ 147,200 $ 161
4,400 Schulman (A), Inc. 82,500 91
- -------------------------------------------------------------------------------------
229,700 252
- -------------------------------------------------------------------------------------
Capital Goods--3.0%
4,600 Case Corporation 175,375 192
2,800 *Varity Corporation 101,500 112
- -------------------------------------------------------------------------------------
276,875 304
- -------------------------------------------------------------------------------------
Consumer Durables--3.0%
5,600 Harley-Davidson, Inc. 149,800 164
4,300 Masco Corporation 120,937 133
- -------------------------------------------------------------------------------------
270,737 297
- -------------------------------------------------------------------------------------
Consumer Non-Durables--2.6%
2,000 Eastman Kodak Company 125,250 137
4,800 Newell Company 115,800 127
- -------------------------------------------------------------------------------------
241,050 264
- -------------------------------------------------------------------------------------
Consumer Services--18.2%
2,300 Advo, Inc. 58,650 65
2,700 *Barnes & Noble, Inc. 98,550 108
7,200 *Cannondale Corporation 115,200 126
11,600 *Cinar Films, Inc. - Class "B" 139,200 153
1,300 Dayton Hudson Corporation 89,375 98
4,100 *Franklin Electronic Publishers, Inc. 169,637 186
4,400 *Fred Meyer, Inc. 81,950 90
8,500 *Home Shopping Network, Inc. 69,062 76
9,700 *La Quinta Inns, Inc. 249,775 274
4,600 *Tele-Comm. Liberty Media Group Series "A" 113,275 124
3,200 Time Warner, Inc. 116,800 128
8,100 *US Office Products Company 138,713 152
2,500 *Viacom Inc.-Class "B" 125,000 137
3,300 Walgreen Company 94,050 103
- -------------------------------------------------------------------------------------
1,659,237 1,820
- -------------------------------------------------------------------------------------
Financial--3.7%
5,000 *American Travellers Corporation 111,875 122
1,300 Federal National Mortgage Association 136,337 150
5,500 *Penn Treaty American Corporation 86,625 95
- -------------------------------------------------------------------------------------
334,837 367
- -------------------------------------------------------------------------------------
Health Care/Miscellaneous--8.8%
4,200 Dentsply International, Inc. 144,900 158
4,200 *Living Centers of America, Inc. 108,675 119
6,100 *Mid Atlantic Medical Services, Inc. 121,238 133
6,700 *Pacific Physicians Services, Inc. 106,363 117
5,200 *Quantum Health Resources, Inc. 55,250 61
2,900 Stryker Corporation 130,863 144
3,400 Teva Pharmaceutical Industries Ltd. (ADR) 133,450 146
- -------------------------------------------------------------------------------------
800,739 878
- -------------------------------------------------------------------------------------
Technology--29.6%
2,300 A T & T Corp. 147,200 162
3,800 *Adaptec, Inc. 169,100 185
5,400 *Atmel Corporation 168,750 185
2,000 Autodesk, Inc. 68,000 75
1,900 Automatic Data Processing, Inc. 135,850 149
1,900 *Avid Technology, Inc. 83,125 91
1,800 *Cisco Systems, Inc. 139,500 153
3,000 Computer Associates International, Inc. 165,000 181
2,700 *Concentra Corporation 25,650 28
5,000 *EMC Corporation 77,500 85
3,950 *Filenet Corporation 179,231 197
2,800 *IMNET Systems, Inc. 71,050 78
- -------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------
Amount
Invested
Shares or For Each
Principal $10,000 of
Amount Security Value Net Assets
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Technology (continued)
4,800 *Intersolv $ 75,600 $ 83
2,400 *LSI Logic Corporation 113,100 124
2,000 *Microsoft Corporation 200,000 219
5,000 National Semiconductor Corporation 121,875 134
1,700 *NETCOM On-Line Communication Services, Inc. 99,025 109
2,800 Nokia Corp. AB 156,100 171
6,800 *Quantum Corporation 118,150 130
2,900 *Symantec Corporation 70,506 77
4,100 U.S. West Communications Group 195,263 214
5,000 *VLSI Technology, Inc. 117,500 129
- -------------------------------------------------------------------------------------
2,697,075 2,959
- -------------------------------------------------------------------------------------
Telecommunications--.9%
1,200 *Ascend Communications, Inc. 78,000 86
- -------------------------------------------------------------------------------------
Total Value of Common Stocks
(cost $5,615,721) 6,588,250 7,227
- -------------------------------------------------------------------------------------
SHORT-TERM CORPORATE NOTES--25.3%
$ 300M A T & T Corp., 5.65%, 11/14/95 299,388 328
460M A T & T Corp., 5.73%, 11/21/95 458,535 503
450M BellSouth Telecommunications Inc.,
5.70%, 11/3/95 449,858 493
250M Chevron Oil, Inc., 5.68%, 11/16/95 249,408 274
150M Chevron Oil, Inc., 5.65%, 11/30/95 149,318 164
300M GTE North, 5.75%, 11/7/95 299,712 329
400M Nestles Capital, 5.69%, 11/9/95 399,495 438
- -------------------------------------------------------------------------------------
Total Value of Short-Term
Corporate Notes (cost $2,305,714) 2,305,714 2,529
- -------------------------------------------------------------------------------------
Total Value of Investments (cost $7,921,435) 97.6% 8,893,964 9,756
Other Assets, Less Liabilities 2.4 222,132 244
- -------------------------------------------------------------------------------------
Net Assets 100.0% $9,116,096 $10,000
=====================================================================================
*Non-income producing
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Portfolio of Investments
FIRST INVESTORS UTILITIES INCOME FUND
(A Series of First Investors Series Fund II, Inc.)
October 31, 1995
- -------------------------------------------------------------------------------------
Amount
Invested
For Each
$10,000 of
Shares Security Value Net Assets
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--88.5%
Electric Power--43.8%
35,000 American Electric Power Company $ 1,334,375 $ 154
50,000 Baltimore Gas & Electric Company 1,337,500 154
25,000 Boston Edison Company 684,375 78
35,000 Carolina Power & Light Company 1,146,250 132
55,000 Cinergy Corporation 1,560,625 180
40,000 Detroit Edison Company 1,350,000 155
65,000 DPL, Inc. 1,543,750 177
55,000 DQE, Inc. 1,512,500 174
40,000 Duke Power Company 1,790,000 206
10,000 Empresa Nacional De Electricidad (ADR) 502,500 58
50,000 FPL Group, Inc. 2,093,750 241
45,000 General Public Utilities Corporation 1,406,250 162
40,000 Houston Industries, Inc. 1,855,000 213
40,000 Illinova Corporation 1,135,000 131
30,000 New England Electric System 1,170,000 135
30,000 NIPSCO Industries, Inc. 1,095,000 125
40,000 Northeast Utilities 990,000 114
30,000 Northern States Power Company 1,417,500 163
35,000 Ohio Edison Company 800,625 92
70,000 PacifiCorp 1,321,250 152
30,000 Peco Energy Company 877,500 101
40,000 Pinnacle West Capital Corporation 1,100,000 127
40,000 Portland General Corporation 1,085,000 125
50,000 Public Service Company of Colorado 1,706,250 196
50,000 Public Service Enterprise Group, Inc. 1,468,750 169
45,000 SCE Corporation 765,000 88
60,000 Southern Company 1,432,500 165
55,000 Teco Energy, Inc. 1,299,375 150
30,000 Texas Utilities Company 1,102,500 127
40,000 Wisconsin Energy Corporation 1,180,000 136
- -------------------------------------------------------------------------------------
38,063,125 4,380
- -------------------------------------------------------------------------------------
Energy--4.8%
35,000 Enron Corporation 1,203,125 138
30,000 NICOR, Inc. 806,250 93
55,000 Pacific Enterprises 1,361,250 157
30,000 Panhandle Eastern Corporation 757,500 87
- -------------------------------------------------------------------------------------
4,128,125 475
- -------------------------------------------------------------------------------------
Natural Gas--17.9%
30,000 Atlanta Gas Light Company 1,158,750 133
22,000 Atmos Energy Corporation 401,500 46
20,000 Bangor Hydro-Electric Company 235,000 27
30,000 Brooklyn Union Gas Company 753,750 87
30,000 El Paso Natural Gas Company 810,000 93
25,000 Kansas City Power & Light Company 621,875 72
45,000 MCN Corporation 978,750 113
30,000 National Fuel Gas Company 892,500 103
40,000 New Jersey Resources Corporation 1,000,000 115
35,000 Piedmont Natural Gas Company 770,000 89
35,000 Questar Corporation 1,054,375 121
20,000 Scana Corporation 507,500 58
30,000 Sonat, Inc. 862,500 99
20,000 Tenneco, Inc. 877,500 101
20,000 TNP Enterprises, Inc 362,500 42
45,000 UGI Corporation 945,000 109
35,000 Unicom Corporation 1,146,250 132
35,000 Washington Energy Company 643,125 74
20,000 Wicor, Inc. 592,500 68
25,000 Williams Companies, Inc. 965,625 111
- -------------------------------------------------------------------------------------
15,579,000 1,793
- -------------------------------------------------------------------------------------
Technology--1.2%
2,000 Motorola, Inc. 131,250 15
25,000 Sprint Corporation 962,500 111
- -------------------------------------------------------------------------------------
1,093,750 126
- -------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------
Amount
Invested
Shares or For Each
Principal $10,000 of
Amount Security Value Net Assets
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Telephone/Utilities--19.3%
40,000 Ameritech Corporation $ 2,160,000 $ 249
40,000 Bell Atlantic Corporation 2,545,000 293
35,000 BellSouth Corporation 2,677,500 308
30,000 Frontier Corporation 810,000 93
65,000 GTE Corporation 2,681,250 309
25,000 NYNEX Corporation 1,175,000 135
40,000 SBC Communications, Inc. 2,235,000 257
15,000 Telefonica De Espana (ADR) 564,375 65
40,000 US West Communications Group 1,905,000 219
- -------------------------------------------------------------------------------------
16,753,125 1,928
- -------------------------------------------------------------------------------------
Telecommunications/Long Distance--1.5%
20,000 A T & T Corp. 1,280,000 147
- -------------------------------------------------------------------------------------
Total Value of Common Stocks
(cost $68,280,382) 76,897,125 8,849
- -------------------------------------------------------------------------------------
PREFERRED STOCKS--.1%
Financial Services
5,000 US West Financing 7.96% (cost $125,000) 126,875 15
- -------------------------------------------------------------------------------------
CORPORATE BONDS--6.4%
Electric & Gas Utilities--4.3%
$ 500M Baltimore Gas & Electric Co.,
7.52%, 2000 521,845 60
500M Consolidated Edison Co. of New York,
6 5/8%, 2002 505,599 58
500M Duke Power Co., 5 7/8%, 2003 478,709 55
500M Idaho Power Co., 6.4%, 2003 492,620 57
700M Pennsylvania Power & Light Co.,
6 7/8%, 2003 711,931 82
500M SCE Capital Corp., 7 3/8%, 2003 517,339 60
500M Union Electric Co., 6 3/4%, 2008 506,285 58
- -------------------------------------------------------------------------------------
3,734,328 430
- -------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Telephone--1.5%
$ 500M BellSouth Telecommunications Inc.,
6 3/8%, 2004 $ 499,546 $ 56
250M Southern Bell Telephone &
Telegraph Co., Inc., 8 1/8%, 2017 259,561 30
500M United Telephone of Florida,
6 1/4%, 2003 491,305 57
- -------------------------------------------------------------------------------------
1,250,412 143
- -------------------------------------------------------------------------------------
Telecommunications/Long Distance--.6%
500M A T & T Corp., 7 1/2%, 2006 536,368 62
- -------------------------------------------------------------------------------------
Total Value of Corporate Bonds
(cost $5,544,603) 5,521,108 635
- -------------------------------------------------------------------------------------
SHORT-TERM CORPORATE NOTES--4.1%
500M Appalachian Power Company,
5 3/4%, 11/7/95 499,521 58
1,500M GTE South, Inc., 5 3/4%, 11/9/95 1,498,083 172
1,600M Nestle Capital Corporation,
5.7%, 11/2/95 1,599,747 184
- -------------------------------------------------------------------------------------
Total Value of Short-Term
Corporate Notes (cost $3,597,351) 3,597,351 414
- -------------------------------------------------------------------------------------
Total Value of Investments (cost $77,547,336) 99.1% 86,142,459 9,913
Other Assets, Less Liabilities .9 757,536 87
- -------------------------------------------------------------------------------------
Net Assets 100.0% $86,899,995 $10,000
=====================================================================================
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
First Investors SERIES Fund II, Inc.
October 31, 1995
- -------------------------------------------------------------------------------------
FIRST INVESTORS
------------------------------------------
GROWTH & MADE IN THE UTILITIES
INCOME FUND U.S.A. FUND INCOME FUND
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Investments in securities:
At identified cost $57,972,624 $7,921,435 $77,547,336
=========== ========== ===========
At value (Note 1A) $66,245,887 $8,893,964 $86,142,459
Cash 188,838 182,162 246,870
Receivables:
Capital shares sold 643,339 56,428 356,231
Dividends and interest 175,294 5,027 496,695
Deferred organization expenses (Note 1E) 9,250 -- 7,250
----------- ---------- -----------
Total Assets 67,262,608 9,137,581 87,249,505
----------- ---------- -----------
Liabilities
Payable for capital shares redeemed 94,360 4,107 255,521
Accrued expenses 40,003 11,739 58,167
Accrued advisory fee 33,119 5,639 35,822
----------- ---------- -----------
Total Liabilities 167,482 21,485 349,510
----------- ---------- -----------
Net Assets $67,095,126 $9,116,096 $86,899,995
=========== =========== ===========
Net Assets Consist of:
Capital paid in $58,808,093 $7,586,506 $82,784,809
Undistributed net investment income 125,227 35,596 322,202
Accumulated net realized gain (loss)
on investment transactions (111,457) 521,465 (4,802,139)
Net unrealized appreciation
in value of investments 8,273,263 972,529 8,595,123
----------- ----------- -----------
Total $67,095,126 $9,116,096 $86,899,995
=========== =========== ===========
Capital shares outstanding (Note 4):
Class A 8,127,781 604,898 14,173,985
Class B 463,153 20,535 547,115
Net asset value and redemption
price per share--Class A $ 7.81 $14.58 $ 5.90
Maximum offering price per share--Class A
(Net asset value/.9375)* $ 8.33 $15.55 $ 6.29
Net asset value and offering
price per share--Class B $ 7.78 $14.51 $ 5.86
*On purchases of $25,000 or more, the sales charge is reduced.
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
FIRST INVESTORS SERIES FUND II, INC.
Year Ended October 31, 1995
- ---------------------------------------------------------------------------------------
FIRST INVESTORS
- ---------------------------------------------------------------------------------------
GROWTH & MADE IN THE UTILITIES
INCOME FUND U.S.A. FUND INCOME FUND
------------ ----------- -----------
<S> <C> <C> <C>
Investment Income
Income:
Dividends $1,311,468 $ 54,841 $ 3,365,225
Interest 324,373 92,192 562,837
---------- ---------- -----------
Total income 1,635,841 147,033 3,928,062
---------- ---------- -----------
Expenses (Notes 1E and 3):
Advisory fee 367,122 80,837 542,191
Shareholder servicing costs 180,916 41,186 260,465
Distribution plan expenses-Class A 143,005 23,924 213,442
Distribution plan expenses-Class B 12,812 1,096 11,449
Professional fees 27,000 19,388 38,457
Reports and notices to shareholders 30,500 8,413 37,278
Custodian fees 13,655 5,790 12,064
Amortization of organization expenses 3,000 4,055 3,000
Other expenses 11,227 7,838 28,550
---------- ---------- -----------
Total expenses 789,237 192,527 1,146,896
Less: Expenses waived or assumed (299,256) (83,421) (385,381)
Custodian fees paid indirectly (5,055) (5,454) (11,984)
---------- ---------- -----------
Net expenses 484,926 103,652 749,531
---------- ---------- -----------
Net investment income 1,150,915 43,381 3,178,531
---------- ---------- -----------
Realized and Unrealized Gain (Loss)
on Investments (Note 2):
Net realized gain (loss)
on investments 59,975 1,220,064 (725,427)
Net unrealized appreciation
of investments 7,741,415 460,706 12,245,737
---------- ---------- -----------
Net gain on investments 7,801,390 1,680,770 11,520,310
---------- ---------- -----------
Net Increase in Net Assets
Resulting from Operations $8,952,305 $1,724,151 $14,698,841
========== ========== ===========
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
FIRST INVESTORS SERIES FUND II, INC.
- ------------------------------------------------------------------------
FIRST INVESTORS
- ------------------------------------------------------------------------
GROWTH &
INCOME FUND
--------------------------
Year Ended October 31, 1995 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
from Operations
Net investment income $ 1,150,915 $ 472,794
Net realized gain (loss)
on investments 59,975 (171,432)
Net unrealized appreciation
(depreciation) of investments 7,741,415 531,848
----------- -----------
Net increase (decrease) in net
assets resulting from operations 8,952,305 833,210
----------- -----------
Distributions to Shareholders from:
Net investment income--Class A (1,115,624) (363,271)
Net investment income--Class B (25,337) --
Net realized gains--Class A -- --
----------- -----------
Total distributions (1,140,961) (363,271)
----------- -----------
Capital Share Transactions(a)
Class A:
Proceeds from shares sold 27,027,606 32,133,753
Value of distributions reinvested 1,092,153 356,387
Cost of shares redeemed (6,745,463) (1,877,923)
----------- -----------
21,374,296 30,612,217
----------- -----------
Class B:
Proceeds from shares sold 3,403,974 --
Value of distributions reinvested 25,204 --
Cost of shares redeemed (9,090) --
----------- -----------
3,420,088 --
----------- -----------
Net increase (decrease)
from capital share transactions 24,794,384 30,612,217
----------- -----------
Net increase (decrease)
in net assets 32,605,728 31,082,156
Net Assets
Beginning of year 34,489,398 3,407,242
----------- -----------
End of year+ $67,095,126 $34,489,398
=========== ===========
+Includes undistributed
net investment income of $ 125,227 $ 112,273
=========== ===========
(a) Capital Shares Issued
and Redeemed
Class A:
Sold 3,750,649 4,869,140
Issued for distributions
reinvested 151,589 54,795
Redeemed (932,605) (285,184)
----------- -----------
Net increase (decrease)
in Class A capital shares
outstanding 2,969,633 4,638,751
=========== ===========
Class B:
Sold 461,042 --
Issued for distributions
reinvested 3,305 --
Redeemed (1,194) --
----------- -----------
Net increase in Class B
capital shares outstanding 463,153 --
=========== ===========
<CAPTION>
Statement of Changes in Net Assets (cont.)
- ------------------------------------------------------------------------------------------
FIRST INVESTORS
- ------------------------------------------------------------------------------------------
MADE IN THE UTILITIES
U.S.A. FUND INCOME FUND
--------------------------------------------------------
Year Ended October 31 1995 1994 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
from Operations
Net investment income $ 43,381 $ 47,052 $ 3,178,531 $ 2,822,358
Net realized gain (loss)
on investments 1,220,064 78,601 (725,427) (4,076,712)
Net unrealized appreciation
(depreciation) of investments 460,706 (529,046) 12,245,737 (5,288,144)
---------- ----------- ----------- -----------
Net increase (decrease) in net
assets resulting
from operations 1,724,151 (403,393) 14,698,841 (6,542,498)
---------- ----------- ----------- -----------
Distributions to Shareholders from:
Net investment income--Class A (47,512) (133,361) (3,123,462) (2,645,975)
Net investment income--Class B -- -- (49,998) --
Net realized gains--Class A -- -- -- (144,159)
---------- ----------- ----------- -----------
Total distributions (47,512) (133,361) (3,173,460) (2,790,134)
---------- ----------- ----------- -----------
Capital Share Transactions(a)
Class A:
Proceeds from shares sold 1,771,094 690,866 19,911,865 23,969,216
Value of distributions
reinvested 47,031 132,333 2,975,959 2,643,337
Cost of shares redeemed (2,312,636) (8,221,415 (13,152,876) (12,981,948)
---------- ----------- ----------- -----------
(494,511) (7,398,216) 9,734,948 13,630,605
---------- ----------- ----------- -----------
Class B:
Proceeds from shares sold 297,505 -- 2,987,201 --
Value of distributions reinvested -- -- 48,361 --
Cost of shares redeemed (15,000) -- (66,853) --
---------- ----------- ----------- -----------
282,505 -- 2,968,709 --
---------- ----------- ----------- -----------
Net increase (decrease)
from capital share transactions (212,006) (7,398,216) 12,703,657 13,630,605
------------ ------------ ------------ ------------
Net increase (decrease)
in net assets 1,464,633 (7,934,970) 24,229,038 4,297,973
Net Assets
Beginning of year 7,651,463 15,586,433 62,670,957 58,372,984
---------- ----------- ----------- -----------
End of year+ $9,116,096 $ 7,651,463 $86,899,995 $62,670,957
========== =========== =========== ===========
+Includes undistributed
net investment income of $ 35,596 $ 35,672 $ 322,202 $ 314,131
========== =========== =========== ===========
(a) Capital Shares Issued
and Redeemed
Class A:
Sold 130,597 59,608 3,733,022 4,434,791
Issued for distributions
reinvested 3,962 11,130 557,233 509,896
Redeemed (179,150) (703,703) (2,460,412) (2,454,714)
---------- ----------- ----------- -----------
Net increase (decrease)
in Class A capital shares
outstanding (44,591) (632,965) 1,829,843 2,489,973
========== =========== =========== ===========
Class B:
Sold 21,568 -- 550,886 --
Issued for distributions
reinvested -- -- 8,714 --
Redeemed (1,033) -- (12,485) --
---------- ----------- ----------- -----------
Net increase in Class B
capital shares outstanding 20,535 -- 547,115 --
========== =========== =========== ===========
See notes to financial statements
</TABLE>
Notes to Financial Statements
FIRST INVESTORS SERIES FUND II, INC.
1. Significant Accounting Policies--First Investors Series Fund II, Inc.
(the "Fund"), a Maryland corporation, is registered under the Investment
Company Act of 1940 (the "1940 Act") as a diversified, open-end
management investment company. The Fund consists of three Series, First
Investors Growth & Income Fund, First Investors Made In The U.S.A. Fund
and First Investors Utilities Income Fund, and accounts separately for
the assets, liabilities and operations of each Series. The objective of
each Series is as follows:
Growth & Income Fund seeks long-term growth of capital and current
income. This Series seeks to achieve its objective by investing at least
65% of its total assets in securities that provide the potential for
growth and offer income, such as dividend-paying stocks and securities
convertible into common stocks.
Made In The U.S.A. Fund seeks long-term capital growth. This Series
seeks to achieve its objective by investing at least 75% of its total
assets in common and preferred stocks of companies that its investment
adviser considers to have potential for capital growth. In addition, at
least 65% of the Series' total assets normally will be invested in
securities of issuers that (1) have at least two-thirds of their
employees located in the United States, or (2) produce in the United
States at least two-thirds of the value of the parts constituting the
products sold by the issuer, or (3) provide in the United States at
least two-thirds of the value of the services provided by the issuer.
Utilities Income Fund primarily seeks high current income. Long-term
capital appreciation is a secondary objective. This Series seeks to
achieve its objectives by investing at least 65% of its total assets in
equity and debt securities issued by companies primarily engaged in the
public utilities industry.
A. Security Valuation--Except as provided below, a security listed or
traded on an exchange or the NASDAQ National Market System is valued at
its last sale price on the exchange or system where the security is
principally traded, and lacking any sales, the security is valued at the
mean between the closing bid and asked prices. Each security traded in
the over-the-counter market (including securities listed on exchanges
whose primary market is believed to be over-the- counter) is valued at
the mean between the last bid and asked prices based upon quotes
furnished by a market maker for such securities. Securities may also be
priced by a pricing service. The pricing service uses quotations
obtained from investment dealers or brokers, information with respect to
market transactions in comparable securities and other available
information in determining value. Short-term corporate notes which are
purchased at a discount are valued at amortized cost. Securities for
which market quotations are not readily available and other assets are
valued on a consistent basis at fair value as determined in good faith
by or under the supervision of the Fund's officers in a manner
specifically authorized by the Board of Directors.
B. Federal Income Taxes--No provision has been made for federal income
taxes on net income or capital gains, since it is the policy of each
Series to continue to comply with the special provisions of the Internal
Revenue Code applicable to investment companies and to make sufficient
distributions of income and capital gains (in excess of any available
capital loss carryovers) to relieve it from all, or substantially all,
such taxes.
At October 31, 1995, capital loss carryovers were as follows:
Year Capital
Loss Carryovers Expire
----------------------
Total 2002 2003
---------- ---------- ---------
GROWTH &
INCOME FUND $ 111,457 $ 111,457 $ --
UTILITIES
INCOME FUND 4,727,380 3,991,114 736,266
C. Distributions to Shareholders--Dividends from net investment income
of the Growth & Income Fund and Utilities Income Fund are declared and
paid quarterly and dividends from net investment income of the Made In
The U.S.A. Fund are declared and paid annually. Distributions from net
realized capital gains of all Series are normally declared and paid
annually. Income dividends and capital gain distributions are determined
in accordance with income tax regulations, which may differ from
generally accepted accounting principles. These differences are
primarily due to differing treatments for capital loss carryforwards,
deferral of wash sales and amortization of deferred organization
expenses.
D. Expense Allocation--Expenses directly charged or
attributable to a Series are paid from the assets of that Series.
General expenses of the Fund are allocated among and charged to the
assets of each Series on a fair and equitable basis, which may be based
on the relative assets of each Series or the nature of the services
performed and relative applicability to each Series.
E. Deferred Organization Expenses--The organization expenses of each
Series are being amortized over a five year period. Investors purchasing
shares of a Series bear such expenses only as they are amortized against
the investment income of that Series.
First Investors Management Company,Inc. ("FIMCO"), the Fund's investment
adviser, has agreed that in the event any of the initial Class A shares
of a Series purchased by FIMCO are redeemed during the amortization
period, the redemption proceeds will be reduced by a pro rata portion
of any unamortized organization expenses in the same proportion as the
number of initial Class A shares of the Series being redeemed bears to
the number of initial Class A shares of the Series outstanding at the
time of redemption.
F. Other--Security transactions are accounted for on the date the
securities are purchased or sold. Cost is determined, and gains and
losses are based, on the identified cost basis for both financial
statement and federal income tax purposes. Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
Interest income and estimated expenses are accrued daily.
2. Purchases
and Sales of Securities--For the year ended October 31, 1995, purchases
and sales of securities, excluding U.S. Treasury Bills and short-term
corporate notes, were as follows:
Cost of Proceeds
Purchases of Sales
----------- -----------
GROWTH & INCOME FUND $29,152,887 $ 8,569,978
MADE IN THE U.S.A. FUND 6,735,922 9,162,458
UTILITIES INCOME FUND 23,335,212 11,079,946
<TABLE>
<CAPTION>
At October 31, 1995, aggregate cost and net unrealized appreciation of
securities for federal income tax purposes were as follows:
Gross Gross Net
Aggregate Unrealized Unrealized Unrealized
Cost Appreciation Depreciation Appreciation
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
GROWTH & INCOME FUND $57,972,624 $9,228,364 $955,101 $8,273,263
MADE IN THE U.S.A. FUND 7,921,435 1,409,673 437,144 972,529
UTILITIES INCOME FUND 77,622,095 9,154,206 633,842 8,520,364
</TABLE>
3. Advisory Fee and Other Transactions With Affiliates--Certain officers
and directors of the Fund are officers and directors of its investment
adviser, FIMCO, its underwriter, First Investors Corporation ("FIC"),
its transfer agent, Administrative Data Management Corp. ("ADM") and/or
First Financial Savings Bank, S.L.A. ("FFS"), custodian of the Fund's
Individual Retirement Accounts. Officers and directors of the Fund
received no remuneration from the Fund for serving in such capacities.
Their remuneration (together with certain other expenses of the Fund) is
paid by FIMCO or FIC.
The Investment Advisory Agreement provides as compensation to FIMCO for
each Series other than the Made In The U.S.A. Fund, an annual fee,
payable monthly, at the rate of .75% on the first $300 million of each
Series' average daily net assets, .72% on the next $200 million, .69% on
the next $250 million and .66% on average daily net assets over $750
million. The annual fee for the Made In The U.S.A. Fund is payable
monthly, at the rate of 1.00% on the first $200 million of the Series'
average daily net assets, .75% on the next $300 million, declining by
.03% on each $250 million thereafter, down to .66% on average daily net
assets over $1 billion. For the year ended October 31, 1995, total
advisory fees accrued to FIMCO were $990,150 of which $347,111 was
waived. In addition, expenses of $311,716 were assumed by FIMCO.
Pursuant to certain state regulations, FIMCO has agreed to reimburse
each Series if and to the extent that the Series' aggregate operating
expenses, including advisory fees but generally excluding interest,
taxes, brokerage commissions and extraordinary expenses, exceed any
limitation on expenses applicable to that Series in those states (unless
waivers of such limitations have been obtained). The amount of any such
reimbursement is limited to the Series' yearly advisory fee. For the
year ended October 31, 1995, no reimbursement was required pursuant to
these provisions.
For the year ended October 31, 1995, FIC, as underwriter, received
$3,661,053 in commissions from the sale of Fund shares, after allowing
$19,818 to other dealers. Shareholder servicing costs included $351,117
in transfer agent fees and out of pocket expenses accrued to ADM and
$131,450 in custodian fees paid to FFS.
Pursuant to a Distribution Plan adopted under Rule 12b-1 of the 1940
Act, each Series is authorized to pay FIC a fee equal to .30% of the
average net assets of the Class A shares and 1% of the average net
assets of the Class B shares on an annualized basis each fiscal year,
payable monthly. The fee consists of a distribution fee and a service
fee. The service fee is paid for the ongoing servicing of clients who
are shareholders of that Series. For the year ended October 31, 1995,
these fees on the Class A shares amounted to $380,371 (of which $109,231
was waived by FIC) and $25,357 on the Class B shares.
Wellington Management Company serves as an investment sub-adviser to the
Growth & Income Fund. The subadviser is paid by FIMCO and not by the
Series.
The Fund's Custodian has provided credits in the amount of $22,493
against custodian charges based on the uninvested cash balances of the
Fund. The Fund could possibly have used these cash balances to produce
income for the Fund if they were not used to offset custodian charges of
the Fund.
4. Capital--Each Series sells two classes of shares, Class A and Class
B, each with a public offering price that reflects different sales
charges and expense levels. Class A shares are sold with an initial
sales charge of up to 6.25% of the amount invested and together with the
Class B shares are subject to 12b-1 fees as described in Note 3. Class B
shares are sold without an initial sales charge, but are generally
subject to a contingent deferred sales charge which declines in steps
from 4% to 0% during a six-year period. Class B shares automatically
convert into Class A shares after eight years. Realized and unrealized
gains or losses, investment income and expenses (other than 12b-1 fees
and certain other class expenses) are allocated daily to each class of
shares based upon the relative proportion of net assets of each class.
Of the 100,000,000 shares originally designated, the Fund has classified
50,000,000 shares as Class A and 50,000,000 shares as Class B.
5. Rule 144A Securities--Rule 144A provides a non-exclusive safe harbor
exemption from the registration requirements of the Securities Act of
1933 for specified resales of restricted securities to qualified
investors. At October 31, 1995, the Growth & Income Fund held one 144A
security with a value of $256,250, representing less than 1% of the
Series' net assets. This security is valued as disclosed in Note 1A.
Independent Auditor's Report
To the Shareholders and Board of Directors of
First Investors Series Fund II, Inc.
We have audited the accompanying statement of assets and liabilities,
including the portfolios of investments, of First Investors Growth &
Income Fund, First Investors Made In The U.S.A. Fund and First Investors
Utilities Income Fund (comprising First Investors Series Fund II, Inc.),
as of October 31, 1995, the related statement of operations for the year
then ended, the statement of changes in net assets for each of the two
years in the period then ended, and financial highlights for each of the
periods indicated thereon. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements
and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of October 31, 1995, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of First Investors Growth & Income Fund, First
Investors Made In The U.S.A. Fund and First Investors Utilities Income
Fund as of October 31, 1995, and the results of their operations,
changes in their net assets and financial highlights for the periods
presented, in conformity with generally accepted accounting principles.
Tait, Weller & Baker
Philadelphia, Pennsylvania
November 30, 1995
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements: Financial Statements are set forth in Part
B, Statement of Additional Information
(b) Exhibits:
(1) a.8 Articles of Incorporation
b.8 Articles Supplementary
(2)8 By-laws
(3) Not Applicable
(4)3,4,7 Specimen Certificates
(5)a.8 Investment Advisory Agreement
between Registrant and First
Investors Management Company, Inc.
b.8 Subadvisory Agreement between
Registrant and Wellington
Management Company
(6) Underwriting Agreement
(7) Not Applicable
(8) Custodian Agreement between
Registrant and The Bank
of New York
(9)a. Administration Agreement between
Registrant, First Investors
Management Company, Inc., First
Investors Corporation and
Administrative Data Management Corp.
b.5 Organization Expense Reimbursement
Agreement
(10)a.6 Opinion of counsel
b. Consent of Accountants
(11)8 Powers of Attorney
(12) Not Applicable
(13)1,2,5 Letters of investment intent
<PAGE>
(14)a.1 First Investors Profit Sharing/Money
Purchase Pension Retirement Plan for
Sole Proprietorships, Partnerships
and Corporations
b.3 First Investors Individual Retirement
Account
c.1 First Investors 403(b) Custodial
Account
d.3 First Investors SEP-IRA and
SARSEP-IRA
(15)a. Class A Distribution Plan
b. Class B Distribution Plan
(16) Performance Calculations
(17) Financial Data Schedule (filed as
Exhibit 27 for electronic filing
purposes)
(18)8 Rule 18f-3 Plan
1 Incorporated by reference from Pre-Effective Amendment No. 1 to
Registrant's Registration Statement (File No. 33-46924) filed on June 17,
1992.
2 Incorporated by reference from Post-Effective Amendment No. 1 to
Registrant's Registration Statement (File No. 33-46924) filed on November 20,
1992.
3 Incorporated by reference from Post-Effective Amendment No. 2 to
Registrant's Registration Statement (File No. 33-46924) filed on February 10,
1993.
4 Incorporated by reference from Post-Effective Amendment No. 3 to
Registrant's Registration Statement (File No. 33-46924) filed on June 30,
1993.
5 Incorporated by reference from Post-Effective Amendment No. 4 to
Registrant's Registration Statement (File No. 33-46924) filed on July 26,
1993.
6 Incorporated by reference from Registrant's Rule 24f-2 Notice for its
fiscal year ended October 31, 1995 filed on November 14, 1995.
7 Incorporated by reference from Post-Effective Amendment No. 5 to
Registrant's Registration Statement (File No. 33-46924) filed on February 28,
1994.
8 Incorporated by reference from Post-Effective Amendment No. 9 to
Registrant's Registration Statement (File No. 33-46924) filed on November 13,
1995.
Item 25. Persons Controlled by or under common control with Registrant
<PAGE>
There are no persons controlled by or under common control
with the Registrant.
Item 26. Number of Holders of Securities
Number of Record
Holders as of
Title of Class November 30, 1995
Class A Class B
Made In The U.S.A. Fund 2,363 49
Utilities Income Fund 13,111 508
Growth & Income Fund 9,892 665
Item 27. Indemnification
Article X of the By-Laws of Registrant provides as follows:
Section 10.01. Indemnification of Officers, Directors, Employees and
Agents: The Corporation shall indemnify each person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
("Proceeding"), by reason of the fact that he or she is or was a director,
officer, employee, or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee, partner, trustee or
agent of another corporation, partnership, joint venture, trust, or other
enterprise, against all reasonable expenses (including attorneys' fees) actually
incurred, and judgments, fines, penalties and amounts paid in settlement in
connection with such Proceeding to the maximum extent permitted by law, now
existing or hereafter adopted. Notwithstanding the foregoing, the following
provisions shall apply with respect to indemnification of the Corporation's
directors, officers, and investment adviser (as defined in the 1940 Act):
(a) Whether or not there is an adjudication of liability in such
Proceeding, the Corporation shall not indemnify any such
person for any liability arising by reason of such person's
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his or her
office or under any contract or agreement with the Corporation
("disabling conduct").
(b) The Corporation shall not indemnify any such person unless:
(1) the court or other body before which the Proceeding was
brought (a) dismisses the Proceeding for insufficiency of
evidence of any disabling conduct, or (b) reaches a final
<PAGE>
decision on the merits that such person was not liable by
reason of disabling conduct; or
(2) absent such a decision, a reasonable determination is
made, based upon a review of the facts, by (a) the
vote of a majority of a quorum of the directors of
the Corporation who are neither interested persons of
the Corporation as defined in the 1940 Act, nor
parties to the Proceeding, or (b) if a majority of a
quorum of directors described above so directs, or if
such quorum is not obtainable, based upon a written
opinion by independent legal counsel, that such
person was not liable by reason of disabling conduct.
(c) Reasonable expenses (including attorney's fees) incurred in
defending a Proceeding involving any such person will be paid by the Corporation
in advance of the final disposition thereof upon an undertaking by such person
to repay such expenses unless it is ultimately determined that he or she is
entitled to indemnification, if:
(1) such person shall provide adequate security for his or her
undertaking;
(2) the Corporation shall be insured against losses arising by
reason of such advance; or
(3) a majority of a quorum of the directors of the
Corporation who are neither interested persons of the
Corporation as defined in the 1940 Act nor parties to
the Proceeding, or independent legal counsel in a
written opinion, shall determine, based on a review
of readily available facts, that there is reason to
believe that such person will be found to be entitled
to indemnification.
Section 10.02. Insurance of Officers, Directors, Employees and Agents:
The Corporation may purchase and maintain insurance or other sources of
reimbursement to the extent permitted by law on behalf of any person who is or
was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee,
partner, trustee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against him or her and
incurred by him or her in or arising out of his position.
Section 10.03. Non-exclusivity: The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article X shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under the Articles of Incorporation,
these By-Laws, any agreement, vote of stockholders or directors, or otherwise,
both as to action in his or her official capacity and as to action in another
capacity while holding such office.
<PAGE>
The Registrant's Investment Advisory Agreement provides as follows:
The Manager shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Company or any Series in connection with the
matters to which this Agreement relate except a loss resulting from the willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement. Any person, even though also an officer, partner, employee, or agent
of the Manager, who may be or become an officer, Board member, employee or agent
of the Company shall be deemed, when rendering services to the Company or acting
in any business of the Company, to be rendering such services to or acting
solely for the Company and not as an officer, partner, employee, or agent or one
under the control or direction of the Manager even though paid by it.
The Registrant's Underwriting Agreement provides as follows:
The Underwriter agrees to use its best efforts in effecting the sale
and public distribution of the Shares through dealers and in performing its
duties in redeeming and repurchasing the Shares, but nothing contained in this
Agreement shall make the Underwriter or any of its officers, directors or
shareholders liable for any loss sustained by the Fund or any of its officers,
directors 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 contained herein 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, 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 it may
have under the Securities Act of 1933, as amended ("1933 Act"), or the 1940 Act.
Reference is hereby made to the Maryland Corporations and Associations
Annotated Code, Sections 2-417, 2-418 (1986).
The general effect of this Indemnification will be to indemnify the
officers and directors 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 director 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 director's or officer's office.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the Registrant has been
informed that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable. See Item 32 herein.
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
First Investors Management Company, Inc., the Registrant's Investment
Adviser, also serves as Investment Adviser to:
First Investors Global Fund, Inc.
First Investors Cash Management Fund, Inc.
First Investors Series Fund
First Investors Fund For Income, Inc.
First Investors Government Fund, Inc.
First Investors High Yield Fund, Inc.
First Investors Insured Tax Exempt Fund, Inc.
First Investors Life Series Fund
First Investors Multi-State Insured Tax Free Fund
First Investors New York Insured Tax Free Fund, Inc.
First Investors Special Bond Fund, Inc.
First Investors Tax-Exempt Money Market Fund, Inc.
First Investors U.S. Government Plus Fund
Affiliations of the officers and directors of the Investment Adviser
are set forth in Part B, Statement of Additional Information, under "Directors
and Officers."
Item 29. Principal Underwriters
(a) First Investors Corporation, Underwriter of the Registrant,
is also underwriter for:
First Investors Global Fund, Inc.
First Investors Cash Management Fund, Inc.
First Investors Series Fund
First Investors Fund For Income, Inc.
First Investors Government Fund, Inc.
First Investors High Yield Fund, Inc.
First Investors Insured Tax Exempt Fund, Inc.
First Investors Life Series Fund
First Investors Multi-State Insured Tax Free Fund
First Investors New York Insured Tax Free Fund, Inc.
First Investors Tax-Exempt Money Market Fund, Inc.
First Investors U.S. Government Plus Fund
<PAGE>
(b) The following persons are the officers and directors of the
Underwriter:
Position and Position and
Name and Principal Office with First Office with
Business Address Investors Corporation Registrant
Glenn O. Head Chairman President
95 Wall Street and Director and Director
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 Directors
New York, NY 10005
Roger L. Grayson Director Director
95 Wall Street
New York, NY 10005
Joseph I. Benedek Treasurer Treasurer
581 Main Street
Woodbridge, NJ 07095
Robert Murphy Comptroller None
581 Main Street
Woodbridge, NJ 07095
Lawrence A. Fauci Senior Vice President None
95 Wall Street and Director
New York, NY 10005
Kathryn S. Head Vice President, Director
581 Main Street Chief Financial
Woodbridge, NJ 07095 Officer and Director
Louis Rinaldi Senior Vice None
581 Main Street President
Woodbridge, NJ 07095
Frederick Miller Vice President None
581 Main Street
Woodbridge, NJ 07095
Jane W. Kruzan Director None
15 Norwood Avenue
Summit, NJ 07901
<PAGE>
Position and Position and
Name and Principal Office with First Office with
Business Address Investors Corporation Registrant
Larry R. Lavoie Secretary and None
95 Wall Street General Counsel
New York, NY 10005
Matthew Smith Vice President None
581 Main Street
Woodbridge, NJ 07095
Jeremiah J. Lyons Director None
56 Weston Avenue
Chatham, NJ 07928
Kellen M. Carson Vice President None
95 Wall Street
New York, NY 10005
Anne Condon Vice President None
581 Main Street
Woodbridge, NJ 07095
Howard M. Factor Vice President None
95 Wall Street
New York, NY 10005
(c) Not applicable
Item 30. Location of Accounts and Records
Physical possession of the books, accounts and records of the
Registrant are held by First Investors Management Company, Inc. and its
affiliated companies, First Investors Corporation and Administrative Data
Management Corp., at their corporate headquarters, 95 Wall Street, New York, NY
10005 and administrative offices, 581 Main Street, Woodbridge, NJ 07095, except
for those maintained by the Registrant's Custodian, The Bank of New York, 48
Wall Street, New York, NY 10286.
Item 31. Management Services
Inapplicable
Item 32. Undertakings
<PAGE>
The Registrant undertakes to carry out all indemnification
provisions of its Articles of Incorporation, Advisory Agreement, Subadvisory
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, as amended (the "1933 Act"), may be permitted to
directors, 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 1933 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 director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, 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>
INDEX TO EXHIBITS
Exhibit
Number Description
99.B6 Underwriting Agreement
99.B8 Custody Agreement
99.B9 Administration Agreement
99.B10 Consent of Accountants
99.B15.1 Class A Distribution Plan
99.B15.2 Class B Distribution Plan
99.B16 Performance Calculations
27.011 FDS - Made In The U.S.A. Fund - Class A
27.012 FDS - Made In The U.S.A. Fund - Class B
27.021 FDS - Utilities Income Fund - Class A
27.022 FDS - Utilities Income Fund - Class B
27.031 FDS - Growth & Income Fund - Class A
27.032 FDS - Growth & Income Fund - Class B
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant represents that this Amendment
meets all the requirements for effectiveness pursuant to Rule 485(b) under the
Securities Act of 1933, and has duly caused this PostEffective Amendment to this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on the 4th day of
January, 1996.
FIRST INVESTORS SERIES
FUND II, INC.
(Registrant)
By:/s/Glenn O. Head
Glenn O. Head
President and Director
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, this Amendment to this Registration Statement
has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/Glenn O. Head Principal Executive January 4, 1996
- --------------------------------------------
Glenn O. Head Officer and Director
/s/Joseph I. Benedek Principal Financial January 4, 1996
- --------------------------------------------
Joseph I. Benedek and Accounting Officer
* Director January 4, 1996
- --------------------------------------------
Kathryn S. Head
* Director January 4, 1996
- --------------------------------------------
James J. Coy
* Director January 4, 1996
- --------------------------------------------
Roger L. Grayson
<PAGE>
* Director January 4, 1996
- --------------------------------------------
Herbert Rubinstein
* Director January 4, 1996
- --------------------------------------------
James M. Srygley
* Director January 4, 1996
- --------------------------------------------
John T. Sullivan
* Director January 4, 1996
- --------------------------------------------
Rex R. Reed
* Director January 4, 1996
- --------------------------------------------
Robert F. Wentworth
</TABLE>
*By: /s/Larry R. Lavoie
Larry R. Lavoie
Attorney-in-fact
<PAGE>
UNDERWRITING AGREEMENT
BETWEEN
FIRST INVESTORS SERIES FUND II, INC.
AND
FIRST INVESTORS CORPORATION
This AGREEMENT entered into the 17th day of March, 1994, by and between
FIRST INVESTORS SERIES FUND II, Inc., a Maryland Corporation, with an office
located at 95 Wall Street, New York, New York 10005 (the "Fund"), on behalf of
each of its separate designated Series (singularly and collectively, "Series"),
and FIRST INVESTORS CORPORATION, a New York corporation with its principal
office located at 95 Wall Street, New York, New York 10005 (the "Underwriter").
In consideration of the mutual covenants and agreements of the parties
hereto, the parties mutually covenant and agree with each other as follows:
1. Appointment. The Fund hereby appoints the Underwriter as agent of
the Fund to effect the sale and public distribution of shares of each Series and
each class of common stock of the Fund as now exists or is hereafter established
("Shares"). This appointment is made by the Fund and accepted by the Underwriter
upon the understanding that (a) upon the request of the Underwriter, the Fund
will prepare, execute and file such applications for registration and
qualification of the Shares as are required by federal and state law in such
amounts as the Underwriter reasonably may determine, (b) the distribution of the
Shares to the public be effected by the Underwriter or through various
securities dealers, and (c) the distribution of the Shares shall be done in such
manner that the Fund shall be under no responsibility or liability to any person
whatsoever on account of the acts and statements of any such person or their
agents or employees. The Underwriter shall have the sole right to select the
security dealers to whom the Shares will be offered by it and, subject to
express provisions of this Agreement, the Articles of Incorporation, By-Laws and
the Fund's then current Registration Statement, to determine the terms and
prices in any contract for the sale of Shares to any dealer made by it as such
agent for the Fund.
2. Underwriter as Exclusive Agent. The Underwriter shall be the
exclusive agent for the Fund for the sale of the Shares and the Fund agrees that
it will not sell any Shares to any person except to fill orders for the Shares
received through the Underwriter, provided, however, that the foregoing
exclusive right shall not apply to: (a) Shares issued or sold in connection with
the merger or consolidation of any other investment company with the Fund or the
acquisition by purchase or otherwise of all or substantially all the outstanding
shares of any such company by the Fund, (b) Shares which may be offered by each
Series to its shareholders for reinvestment of cash distributed from capital
gains or net investment income of such Series, or such gains or income paid in
<PAGE>
the form of Shares, or (c) Shares which may be issued to shareholders of other
investment companies who exercise the exchange and/or cross-investment
privileges set forth in the Fund's then current Registration Statement.
3. Sales to Dealers. The Underwriter shall have the right to sell the
Shares to dealers, as needed (making reasonable allowance for clerical errors
and errors of transmission), but not more than the Shares needed to fill
unconditional orders for Shares placed with the Underwriter by dealers. In every
case the Fund shall receive the net asset value for the Shares sold, determined
as provided in Paragraph 4 hereof. The Underwriter shall notify the Fund at the
close of each business day of the number of Shares sold during each day.
4. Determination of Net Asset Value. The net asset value of each Series
or class of Shares shall be determined by the Fund or the Fund's custodian, or
such officer or officers or other persons as the Board of Directors of the Fund
may designate. The determinations shall be made once a day on each day that the
New York Stock Exchange is open for a full business day and in accordance with
the method set forth in the Fund's then current Registration Statement.
5. Public Offering Price. The public offering price of each Series or
class of Shares shall be the net asset value per Share (as determined by the
Fund) of the outstanding Shares of such Series or class, plus any applicable
sales charge as described in the Fund's then current Registration Statement. The
Fund shall furnish (or arrange for another person to furnish) the Underwriter
with quotations of public offering prices on each business day.
6. Repurchase and Redemption of Shares.
(a) The Fund appoints and designates the Underwriter as agent of the
Fund, and the Underwriter accepts such appointment as such agent, to redeem or
repurchase for retirement the Shares in accordance with the provisions of the
Articles of Incorporation and By-Laws of the Fund.
(b) In connection with such redemptions or repurchases the Fund
authorizes and designates the Underwriter to take any action, to make any
adjustments in net asset value (including the deduction of a contingent deferred
sales charge, if applicable, as provided in Paragraph 8 hereof) and to make any
arrangements for the payment of the redemption or repurchase price authorized or
permitted to be taken or made as set forth in the By-Laws and the Fund's then
current Registration Statement.
(c) The authority of the Underwriter under this Paragraph 6 may, with
the consent of the Fund, be re-delegated in whole or in part to another person
or firm.
(d) To the extent permitted by law and applicable regulations, the
authority granted in this Paragraph 6 may be suspended by the Fund at any time
or from time to time until further notice to the Underwriter.
- 2 -
<PAGE>
7. Allocation of Expenses. The Underwriter (or one of its
non-investment company affiliates) shall bear the cost of preparing and
disseminating sales material or literature, as well as the costs of preparing
and disseminating prospectuses, proxy material and shareholder reports used in
connection with the sale of the Shares except, as discussed below, to the extent
that such materials are being sent to existing shareholders or such Series has
agreed to bear the cost of such expenses under a Plan (as defined in Paragraph 8
hereof). Each Series shall bear all fees and expenses incident to the
registration and qualification of the Shares, all expenses related to
communications with its existing shareholders, including the costs of preparing,
printing and mailing prospectuses, statements of additional information, proxy
materials and other materials sent to such shareholders.
8. Compensation. As compensation for providing services under this
Agreement, the Underwriter shall retain the sales charge, if any (including a
contingent deferred sales shares, if applicable), on purchases or, if
applicable, on redemptions of Shares as set forth in the Fund's then current
Registration Statement. With regard to purchases, the Underwriter is authorized
to collect the gross proceeds derived from the sale of the Shares, remit the net
asset value thereof to the Fund upon receipt of the proceeds and retain the
sales charge, if any. With regard to redemptions, the Underwriter is authorized
to retain the contingent deferred sales charge, if any, imposed on the
redemption of Shares as may be authorized by the Board of Directors and set
forth in the Fund's then current Registration Statement. The Underwriter may
reallow any or all of such sales charges to such dealers as it may from time to
time determine. Whether a sales charge shall be retained by the Underwriter
shall be determined in accordance with the Fund's then current Registration
Statement and applicable law. The Underwriter may also receive from each Series
a distribution and/or service fee at the rate and under the terms and conditions
of any plan or plans of distribution (collectively and singularly, "Plan") as
have been or may be adopted by the Fund, subject to any further limitations on
such fee as the Board of Directors may impose.
9. Effectiveness of Agreement. This Agreement shall become effective
upon the date hereabove written, provided that, with respect to any Series or
class of Shares created after the date of this Agreement, this Agreement shall
not take effect unless such action has first been approved by vote of a majority
of the Board of Directors and by vote of a majority of those directors of the
Fund who are not interested persons of the Fund and have no direct or indirect
financial interest in the operation of the Plan or in any agreements related
thereto (all such directors collectively being referred to herein as the
"Independent Directors"), cast in person at a meeting called for the purpose of
voting on such action.
10. Termination of Agreement. This Agreement shall continue in effect
with respect to a Series for a period of more than one year from its effective
date only as long as such continuance is approved, at least annually, by the
Board of Directors of the Fund, including a majority of the Independent
Directors, voting in person
- 3 -
<PAGE>
at a meeting called for the purpose of voting on such approval. With respect to
any Series, this Agreement may be terminated at any time, without the payment of
any penalty, by vote of the Board of Directors, by vote of a majority of the
Independent Directors or by vote of a majority of the outstanding voting
securities of such Series on 30 days' written notice by the Underwriter to the
Series or upon 30 days' written notice by the Series to the Underwriter.
Termination of this Agreement with respect to any given Series shall in no way
affect the continued validity of this Agreement or the performance thereunder
with respect to any other Series. This Agreement shall automatically terminate
in the event of its assignment by the Underwriter, as the term "assignment" is
defined by the Investment Company Act of 1940, as amended ("1940 Act"), unless
the Securities Exchange Commission ("SEC") has issued an order exempting the
Fund and the Underwriter from the provisions of the 1940 Act which would
otherwise have effected the termination of this Agreement.
11. Amendments. No amendment to this Agreement shall be executed or become
effective with respect to any Series unless its terms have been approved: (a) by
a majority of the Directors of the Fund, or (b) by the vote of a majority of the
outstanding voting securities of such Series and, in either case, by a vote of a
majority of the Independent Directors.
12. Limitation of Liability. The Underwriter agrees to use its best
efforts in effecting the sale and public distribution of the Shares through
dealers and in performing its duties in redeeming and repurchasing the Shares,
but nothing contained in this Agreement shall make the Underwriter or any of its
officers, directors or shareholders liable for any loss sustained by the Fund or
any of its officers, directors 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 contained herein 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, 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 it may have under the Securities Act of 1933, as
amended ("1933 Act"), or the 1940 Act.
13. Definitions. The terms "assignment," "interested person," and
"majority of the outstanding voting securities" shall have the meanings given to
them by Section 2(a) of the 1940 Act, subject to such exemptions as may be
granted by the SEC by any rule, regulation or order. Additionally, with respect
to each Series, the term "Registration Statement" shall mean the registration
statement most recently filed with the SEC by the Fund, on behalf of such
Series, and effective under the 1940 Act and 1933 Act, as such Registration
Statement is amended from time to time, and the terms "Prospectus" and
"Statement of Additional Information" shall mean, respectively, the form of
prospectus(es) and statement(s) of additional information with respect to such
Series filed by the Fund as part of the Registration Statement.
- 4 -
<PAGE>
14. Governing Law. This Agreement shall be construed in accordance with
the laws of the State of New York, without giving effect to the conflicts of
laws principles thereof, and in accordance with the 1940 Act. To the extent that
the applicable laws of the State of New York conflict with the applicable
provisions of the 1940 Act, the latter shall control.
15. Severability. If any provision of this Agreement shall
be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected
thereby. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors.
16. Miscellaneous. The captions in this Agreement are
included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their
construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
FIRST INVESTORS SERIES FUND II, INC.
By: /s/Glenn O. Head (signature appears here)
Glenn O. Head
President
ATTEST:
/s/Concetta Durso (signature appears here)
Concetta Durso
Secretary
FIRST INVESTORS CORPORATION
By: /s/ Michael S. Miller (signature appears here)
Michael S. Miller
Chief Executive Officer
ATTEST:
/s/Carol R. Lerner (signature appears here)
Carol R. Lerner
Assistant Secretary
- 5 -
<PAGE>
CUSTODY AGREEMENT
Agreement made as of this 24th day of August, 1992, between First
Investors Series Fund II, Inc., a corporation organized and existing under the
laws of the State of Maryland having its principal office and place of business
at 95 Wall Street, New York, New York 10005 (hereinafter called the "Fund"), and
THE BANK OF NEW YORK, a New York corporation authorized to do a banking
business, having its principal office and place of business at 48 Wall Street,
New York, New York 10286 (hereinafter called the "Custodian").
W I T N E S S E T H :
that for and in consideration of the mutual promises hereinafter set forth, the
Fund and the Custodian agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
1. "Authorized Person" shall be deemed to include any person, whether
or not such person is an Officer or employee of the Fund, duly authorized by the
Board of Directors of the Fund to give Oral Instructions and Written
Instructions on behalf of the Fund and listed in the Certificate annexed hereto
as Appendix A or such other Certificate as may be received by the Custodian from
time to time.
2. "Book-Entry System" shall mean the Federal
Reserve/Treasury book-entry system for United States and federal
agency securities, its successor or successors and its nominee or
nominees
3. "Call Option" shall mean an exchange traded option with respect to
Securities other than Stock Index Options, Futures Contracts, and Futures
Contract Options entitling the holder, upon timely exercise and payment of the
exercise price, as specified therein, to purchase from the writer thereof the
specified underlying Securities.
4. "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be given to
the Custodian which is actually received by the Custodian and signed on behalf
of the Fund by any two Officers.
- 1 -
<PAGE>
any broker-dealer reasonably believed by the Custodian to be such
a clearing member.
5. "Collateral Account" shall mean a segregated account so denominated
which is specifically allocated to a Series and pledged to the Custodian as
security for, and in consideration of, the Custodian's issuance of (a) any Put
Option guarantee letter or similar document described in paragraph 8 of Article
v herein, or (b) any receipt described in Article V or VIII herein.
6. "Covered Call Option" shall mean an exchange traded option entitling
the holder, upon timely exercise and payment of the exercise price, as specified
therein, to purchase from the writer thereof the specified underlying Securities
(excluding Futures Contracts) which are owned by the writer thereof and subject
to appropriate restrictions.
7. "Depository" shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the Securities and Exchange Commission, its
successor or successors and its nominee or nominees. The term "Depository" shall
further mean and include any other person authorized to act as a depository
under the Investment Company Act of 1940, its successor or successors and its
nominee or nominees, specifically identified in a certified copy of a resolution
of the Fund's Board of Directors specifically approving deposits therein by the
Custodian.
8. "Financial Futures Contract" shall mean the firm
commitment to buy or sell fixed income securities including,
without limitation, U.S. Treasury Bills, U.S. Treasury Notes, U.S.
Treasury Bonds, domestic bank certificates of deposit, and
Eurodollar certificates of deposit, during a specified month at an
agreed upon price.
9. "Futures Contract" shall mean a Financial Futures Contract
and/or Stock Index Futures Contracts.
10. "Futures Contract Option" shall mean an option with
respect to a Futures Contract.
11. "Margin Account" shall mean a segregated account in the name of a
broker, dealer, futures commission merchant, or a Clearing Member, or in the
name of the Fund for the benefit of a broker, dealer, futures commission
merchant, or Clearing Member, or otherwise, in accordance with an agreement
between the Fund, the Custodian and a broker, dealer, futures commission
merchant or a Clearing Member (a "Margin Account Agreement"), separate and
distinct from the custody account, in which certain Securities and/or money of
the Fund shall be deposited and withdrawn from time to time in connection with
such transactions as the Fund may from time to time determine. Securities held
in the Book-Entry System
- 2 -
<PAGE>
or the Depository shall be deemed to have been deposited in, or withdrawn from,
a Margin Account upon the Custodian's effecting an appropriate entry in its
books and records.
12. "Money Market Security" shall be deemed to include, without
limitation, certain Reverse Repurchase Agreements, debt obligations issued or
guaranteed as to interest and principal by the government of the United States
or agencies or instrumentalities thereof, any tax, bond or revenue anticipation
note issued by any state or municipal government or public authority, commercial
paper, certificates of deposit and bankers' acceptances, repurchase agreements
with respect to the same and bank time deposits, where the purchase and sale of
such securities normally requires settlement in federal funds on the same day as
such purchase or sale.
13. "O.C.C." shall mean the Options Clearing Corporation, a clearing
agency registered under Section 17A of the Securities Exchange Act of 1934, its
successor or successors, and its nominee or nominees.
14. "Officers" shall be deemed to include the President, any Vice
President, the Secretary, the Treasurer, the Controller, any Assistant
Secretary, any Assistant Treasurer, and any other person or persons, whether or
not any such other person is an officer of the Fund, duly authorized by the
Board of Directors of the Fund to execute any Certificate, instruction, notice
or other instrument on behalf of the Fund and listed in the Certificate annexed
hereto as Appendix A or such other Certificate as may be received by the
Custodian from time to time.
15. "Option" shall mean a Call Option, Covered Call Option,
Stock Index Option and/or a Put Option.
16. "Oral Instructions" shall mean verbal instructions
actually received by the Custodian from an Officer or from a person
reasonably believed by the Custodian to be an Officer.
17. "Put Option" shall mean an exchange traded option with respect to
Securities other than Stock Index Options, Futures Contracts, and Futures
Contract Options entitling the holder, upon timely exercise and tender of the
specified underlying Securities, to sell such Securities to the writer thereof
for the exercise price.
18. "Reverse Repurchase Agreement" shall mean an agreement pursuant to
which the Fund sells Securities and agrees to repurchase such Securities at a
described or specified date and price.
- 3 -
<PAGE>
19. "Security" shall be deemed to include, without limitation, Money
Market Securities, Call Options, Put Options, Stock Index Options, Stock Index
Futures Contracts, Stock Index Futures Contract Options, Financial Futures
Contracts, Financial Futures Contract Options, Reverse Repurchase Agreements,
common stocks and other securities having characteristics similar to common
stocks, preferred stocks, debt obligations issued by state or municipal
governments and by public authorities, (including, without limitation, general
obligation bonds, revenue bonds, industrial bonds and industrial development
bonds), bonds, debentures, notes, mortgages or other obligations, and any
certificates, receipts, warrants or other instruments representing rights to
receive, purchase, sell or subscribe for the same, or evidencing or representing
any other rights or interest therein, or any property or assets.
20. "Segregated Account" shall mean an account maintained and
specifically allocated to a Series under the terms of this Agreement as a
segregated account, by recordation or otherwise, within the custody account in
which certain Securities and/or other assets of the Fund specifically allocated
to such Series shall be deposited and withdrawn from time to time in accordance
with Certificates received by the Custodian in connection with such transactions
as the Fund may from time to time determine.
21. "Series" shall mean such of the various portfolios, if any, of the
Fund as described from time to time in the current and effective prospectus for
the Fund for which the Custodian has been appointed custodian as specified in a
Certificate received by the Custodian.
22. "Shares" shall mean the shares of capital stock of the
Fund, each of which is, in the case of a Fund having Series,
allocated to a particular Series.
23. "Stock Index Futures Contract" shall mean a bilateral agreement
pursuant to which the parties agree to take or make delivery of an amount of
cash equal to a specified dollar amount times the difference between the value
of a particular stock index at the close of the last business day of the
contract and the price at which the futures contract is originally struck.
24. "Stock Index Option" shall mean an exchange traded option entitling
the holder, upon timely exercise, to receive an amount of cash determined by
reference to the difference between the exercise price and the value of the
index on the date of exercise.
25. "Terminal Link" shall mean an electronic data
transmission link between the Fund and the Custodian requiring in
connection with each use of the Terminal Link by or on behalf of
- 4 -
<PAGE>
the Fund use of an authorization code provided by the Custodian and at least two
access codes established by the Fund.
ARTICLE II.
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints the Custodian as custodian
of the Securities and moneys at any time owned by each Series of the Fund during
the period of this Agreement.
2. The Custodian hereby accepts appointment as such custodian and
agrees to perform the duties thereof as hereinafter set forth.
ARTICLE III.
CUSTODY OF CASH AND SECURITIES
1. The Fund will deliver or cause to be delivered to the Custodian all
Securities and all moneys owned by it, at any time during the period of this
Agreement, and shall specify with respect to such Securities and money the
Series to which the same are specifically allocated. The Custodian shall
segregate, keep and maintain the assets of the Series separate and apart. The
Custodian will not be responsible for any Securities and moneys not actually
received by it. The Custodian will be entitled to reverse any credits made on
the Fund's behalf where such credits have been previously made and moneys are
not finally collected. The Fund shall deliver to the Custodian a certified
resolution of the Board of Directors of the Fund, substantially in the form of
Exhibit A hereto, approving, authorizing and instructing the Custodian on a
continuous and on-going basis to deposit in the Book-Entry System all Securities
eligible for deposit therein, regardless of the Series to which the same are
specifically allocated and to utilize the Book-Entry System to the extent
possible in connection with its performance hereunder, including, without
limitation, in connection with settlements of purchases and sales of Securities,
loans of Securities and deliveries and returns of Securities collateral. Prior
to a deposit of Securities specifically allocated to a Series in the Depository,
the Fund shall deliver to the Custodian a certified resolution of the Board of
Directors of the Fund, substantially in the form of Exhibit B hereto, approving,
authorizing and instructing the Custodian on a continuous and ongoing basis
until instructed to the contrary by a Certificate actually received by the
Custodian to deposit in the Depository all Securities specifically allocated to
such Series eligible for deposit therein, and to utilize the Depository to the
extent possible with respect to such Securities in connection with its
performance hereunder, including, without limitation, in connection with
settlements of purchases and sales of Securities, loans of
- 5 -
<PAGE>
Securities, and deliveries and returns of Securities collateral.
Securities and moneys deposited in either the Book-Entry System or
the
Depository will be represented in accounts which include only assets
held by the Custodian for customers, including, but not limited to, accounts in
which the Custodian acts in a fiduciary or representative capacity and will be
specifically allocated on the Custodian's books to the separate account for the
applicable Series. Prior to the Custodian's accepting, utilizing and acting with
respect to Clearing Member confirmations for Options and transactions in Options
for a Series as provided in this Agreement, the Custodian shall have received a
certified resolution of the Fund's Board of Directors, substantially in the form
of Exhibit C hereto, approving, authorizing and instructing the Custodian on a
continuous and on-going basis, until instructed to the contrary by a Certificate
actually received by the Custodian, to accept, utilize and act in accordance
with such confirmations as provided in this Agreement with respect to such
Series.
2. The Custodian shall establish and maintain separate accounts, in the
name of each Series, and shall credit to the separate account for each Series
all moneys received by it for the account of the Fund with respect to such
Series. Money credited to a separate account for a Series shall be disbursed by
the Custodian only:
(a) As hereinafter provided;
(b) Pursuant to Certificates setting forth the name and address of the
person to whom the payment is to be made, the Series account from which payment
is to be made and the purpose for which payment is to be made; or
(c) In payment of the fees and in reimbursement of the expenses and
liabilities of the Custodian attributable to such Series.
3. Promptly after the close of business on each day, the Custodian
shall furnish the Fund with confirmations and a summary, on a per Series basis,
of all transfers to or from the account of the Fund for a Series, either
hereunder or with any co-custodian or sub-custodian appointed in accordance with
this Agreement during said day. Where Securities are transferred to the account
of the Fund for a Series, the Custodian shall also by book-entry or otherwise
identify as belonging to such Series a quantity of Securities in a fungible bulk
of Securities registered in the name of the Custodian (or its nominee) or shown
on the Custodian's account on the books of the Book-Entry System or the
Depository. At least monthly and from time to time, the Custodian shall furnish
- 6 -
<PAGE>
the Fund with a detailed statement, on a per Series basis, of the Securities and
moneys held by the Custodian for the Fund.
4. Except as otherwise provided in paragraph 7 of this Article and in
Article VIII, all Securities held by the Custodian hereunder, which are issued
or issuable only in bearer form, except such Securities as are held in the
Book-Entry System, shall be held by the Custodian in that form; all other
Securities held hereunder may be registered in the name of the Fund, in the name
of any duly appointed registered nominee of the Custodian as the Custodian may
from time to time determine, or with respect to Securities held in the
Book-Entry System or the Depository, respectively, in the name of the Book-Entry
System or the Depository or their successor or successors, or their nominee or
nominees. The Fund agrees to furnish to the Custodian appropriate instruments to
enable the Custodian to hold or deliver in proper form for transfer, or to
register in the name of its registered nominee or in the name of the Book-Entry
System or the Depository any Securities which it may hold hereunder and which
may from time to time be registered in the name of the Fund. The Custodian shall
hold all such Securities specifically allocated to a Series which are not held
in the Book-Entry System or in the Depository in a separate account in the name
of such Series physically segregated at all times from those of any other person
or persons.
5. Except as otherwise provided in this Agreement and unless otherwise
instructed to the contrary by a Certificate, the Custodian by itself, or through
the use of the Book-Entry System or the Depository with respect to Securities
held hereunder and therein deposited, shall with respect to all Securities held
for the Fund hereunder in accordance with preceding paragraph 4:
(a) Promptly collect all income due or payable;
(b) Promptly present for payment and collect the amount payable upon
such Securities which are called, but only if either (i) the Custodian receives
a written notice of such call, or (ii) notice of such call appears in one or
more of the publications listed in Appendix C annexed hereto, which may be
amended at any time by the Custodian without the prior notification or consent
of the Fund;
(c) Promptly present for payment and collect the amount
payable upon all Securities which mature;
(d) Promptly surrender Securities in temporary form for
definitive Securities;
(e) Promptly execute, as custodian, any necessary declarations
or certificates of ownership under the Federal Income Tax Laws or
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the laws or regulations of any other taxing authority now or
hereafter in effect; and
(f) Hold directly, or through the Book-Entry System or the Depository
with respect to Securities therein deposited, for the account of a Series, all
rights and similar securities issued with respect to any Securities held by the
Custodian for such Series hereunder
(g) Subject to paragraph 4 of Article XII, promptly deliver to the Fund
all notices, proxies, proxy soliciting materials, consents and other written
information (including, without limitation, notice of tender offers and exchange
offers, pendency of calls, maturities of Securities and expiration of rights)
relating to Securities held pursuant to this Agreement which are actually
received (irrespective of constructive receipt) by the Custodian, such proxies
and other similar materials to be executed by the registered holder (if
Securities are registered otherwise than in the name of the Fund), but without
indicating the manner in which proxies or consents are to be voted.
6. Upon receipt of a Certificate and not otherwise, the
Custodian, directly or through the use of the Book-Entry System or
the Depository, shall:
(a) Promptly execute and deliver to such persons as may be designated
in such Certificate proxies, consents, authorizations, and any other instruments
whereby the authority of the Fund as owner of any Securities held by the
Custodian hereunder for the Series specified in such Certificate may be
exercised;
(b) Promptly deliver any Securities held by the Custodian hereunder for
the Series specified in such Certificate in exchange for other Securities or
cash issued or paid in connection with the liquidation, reorganization,
refinancing, merger, consolidation or recapitalization of any corporation, or
the exercise of any conversion privilege and receive and hold hereunder
specifically allocated to such Series any cash or other Securities received in
exchange;
(c) Promptly deliver any Securities held by the Custodian hereunder for
the Series specified in such Certificate to any protective committee,
reorganization committee or other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization or sale of assets of any
corporation, and receive and hold hereunder specifically allocated to such
Series such certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery;
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(d) Make such transfers or exchanges of the assets of the Series
specified in such Certificate, and take such other steps as shall be stated in
such Certificate to be for the purpose of effectuating any duly authorized plan
of liquidation, reorganization, merger, consolidation or recapitalization of the
Fund; and
(e) Present for payment and collect the amount payable upon Securities
not described in preceding paragraph 5(b) of this Article which may be called as
specified in the Certificate.
7. The Custodian shall comply with Section 17(f) of the Investment
Company Act of 1940, as amended, in connection with the purchase, sale,
settlement, closing out or writing of Futures Contracts, Options, or Futures
Contract Options by making payments or deliveries specified in Certificates
received by the Custodian in connection with any such purchase, sale, writing,
settlement or closing out upon its receipt from a broker, dealer, or futures
commission merchant of a statement or confirmation reasonably believed by the
Custodian to be in the form customarily used by brokers, dealers, or future
commission merchants with respect to such Futures Contracts, Options, or Futures
Contract Options, as the case may be, confirming that such Security is held by
such broker, dealer or futures commission merchant, in book-entry form or
otherwise, in the name of the Custodian (or any nominee of the Custodian) as
custodian for the Fund, provided, however, that notwithstanding the foregoing,
payments to or deliveries from the Margin Account, and payments with respect to
Securities to which a Margin Account relates, shall be made in accordance with
the terms and conditions of the Margin Account Agreement. Whenever any such
instruments or certificates are available, the Custodian shall, notwithstanding
any provision in this Agreement to the contrary, make payment for any Futures
Contract, Option, or Futures Contract Option for which such instruments or such
certificates are available only against the delivery to the Custodian of such
instrument or such certificate, and deliver any Futures Contract, Option or
Futures Contract Option for which such instruments or such certificates are
available only against receipt by the Custodian of payment therefor. Any such
instrument or certificate delivered to the Custodian shall be held by the
Custodian hereunder in accordance with, and subject to, the provisions of this
Agreement.
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ARTICLE IV.
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
1. Promptly after each purchase of Securities by the Fund, other than a
purchase of an Option, a Futures Contract, or a Futures Contract Option, the
Fund shall deliver to the Custodian (i) with respect to each purchase of
Securities which are not Money Market Securities, a Certificate, and (ii) with
respect to each purchase of Money Market Securities, a Certificate or Oral
Instructions, specifying with respect to each such purchase: (a) the Series to
which such Securities are to be specifically allocated; (b) the name of the
issuer and the title of the Securities; (c) the number of shares or the
principal amount purchased and accrued interest, if any; (d) the date of
purchase and settlement; (e) the purchase price per unit; (f) the total amount
payable upon such purchase; (g) the name of the person from whom or the broker
through whom the purchase was made, and the name of the clearing broker, if any;
and (h) the name of the broker to whom payment is to be made. The Custodian
shall, upon receipt of Securities purchased by or for the Fund, pay to the
broker specified in the Certificate out of the moneys held for the account of
such Series the total amount payable upon such purchase, provided that the same
conforms to the total amount payable as set forth in such Certificate or Oral
Instructions.
2. Promptly after each sale of Securities by the Fund, other than a
sale of any Option, Futures Contract, Futures Contract Option, or any Reverse
Repurchase Agreement, the Fund shall deliver to the Custodian (i) with respect
to each sale of Securities which are not Money Market Securities, a Certificate,
and (ii) with respect to each sale of Money Market Securities, a Certificate or
Oral Instructions, specifying with respect to each such sale: (a) the Series to
which such Securities were specifically allocated; (b) the name of the issuer
and the title of the Security; (c) the number of shares or principal amount
sold, and accrued interest, if any; (d) the date of sale; (e) the sale price per
unit; (f) the total amount payable to the Fund upon such sale; (g) the name of
the broker through whom or the person to whom the sale was made, and the name of
the clearing broker, if any; and (h) the name of the broker to whom the
Securities are to be delivered. The Custodian shall deliver the Securities
specifically allocated to such Series to the broker specified in the Certificate
against payment of the total amount payable to the Fund upon such sale, provided
that the same conforms to the total amount payable as set forth in such
Certificate or Oral Instructions.
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ARTICLE V.
OPTIONS
1. Promptly after the purchase of any Option by the Fund, the Fund
shall deliver to the Custodian a Certificate specifying with respect to each
Option purchased: (a) the Series to which such Option is specifically allocated;
(b) the type of Option (put or call); (c) the name of the issuer and the title
and number of shares subject to such Option or, in the case of a Stock Index
Option, the stock index to which such Option relates and the number of Stock
Index Options purchased; (d) the expiration date; (e) the exercise price; (f)
the dates of purchase and settlement; (q) the total amount payable by the Fund
in connection with such purchase; (h) the name of the Clearing Member through
whom such Option was purchased; and (i) the name of the broker to whom payment
is to be made. The Custodian shall pay, upon receipt of a Clearing Member's
statement confirming the purchase of such Option held by such Clearing Member
for the account of the Custodian (or any duly appointed and registered nominee
of the Custodian) as custodian for the Fund, out of moneys held for the account
of the Series to which such Option is to be specifically allocated, the total
amount payable upon such purchase to the Clearing Member through whom the
purchase was made, provided that the same conforms to the total amount payable
as set forth in such Certificate.
2. Promptly after the sale of any Option purchased by the Fund pursuant
to paragraph 1 hereof, the Fund shall deliver to the Custodian a Certificate
specifying with respect to each such sale: (a) the Series to which such Option
was specifically allocated; (b) the type of Option (put or call); (c) the name
of the issuer and the title and number of shares subject to such Option or, in
the case of a Stock Index Option, the stock index to which such Option relates
and the number of Stock Index Options sold; (d) the date of sale; (e) the sale
price; (f) the date of settlement; (g) the total amount payable to the Fund upon
such sale; and (h) the name of the Clearing Member through whom the sale was
made. The Custodian shall consent to the delivery of the Option sold by the
Clearing Member which previously supplied the confirmation described in
preceding paragraph 1 of this Article with respect to such Option against
payment to the Custodian of the total amount payable to the Fund, provided that
the same conforms to the total amount payable as set forth in such Certificate.
3. Promptly after the exercise by the Fund of any Call Option purchased
by the Fund pursuant to paragraph l hereof, the Fund shall deliver to the
Custodian a Certificate specifying with respect to such Call Option: (a) the
Series to which such Call Option was specifically allocated; (b) the name of the
issuer and the title and number of shares subject to the Call Option; (c) the
expiration date; (d) the date of exercise and settlement; (e) the
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exercise price per share; (f) the total amount to be paid by the Fund upon such
exercise; and (g) the name of the Clearing Member through whom such Call Option
was exercised. The Custodian shall, upon receipt of the Securities underlying
the Call Option which was exercised, pay out of the moneys held for the account
of the Series to which such Call Option was specifically allocated the total
amount payable to the Clearing Member through whom the Call Option was
exercised, provided that the same conforms to the total amount payable as set
forth in such Certificate.
4. Promptly after the exercise by the Fund of any Put Option purchased
by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the
Custodian a Certificate specifying with respect to such Put Option: (a) the
Series to which such Put Option was specifically allocated; (b) the name of the
issuer and the title and number of shares subject to the Put Option; (c) the
expiration date; (d) the date of exercise and settlement; (e) the exercise price
per share; (f) the total amount to be paid to the Fund upon such exercise; and
(g) the name of the Clearing Member through whom such Put Option was exercised.
The Custodian shall, upon receipt of the amount payable upon the exercise of the
Put Option, deliver or direct the Depository to deliver the Securities
specifically allocated to such Series, provided the same conforms to the amount
payable to the Fund as set forth in such Certificate.
5. Promptly after the exercise by the Fund of any Stock Index Option
purchased by the Fund pursuant to paragraph hereof, the Fund shall deliver to
the Custodian a Certificate specifying with respect to such Stock Index Option:
(a) the Series to which such Stock Index Option was specifically allocated; (b)
the type of Stock Index Option (put or call); (c) the number of Options being
exercised; (d) the stock index to which such Option relates; (e) the expiration
date; (f) the exercise price; (g) the total amount to be received by the Fund in
connection with such exercise; and (h) the Clearing Member from whom such
payment is to be received.
6. Whenever the Fund writes a Covered Call Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Covered Call Option: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of shares for which
the Covered Call Option was written and which underlie the same; (c) the
expiration date; (d) the exercise price; (e) the premium to be received by the
Fund; (f) the date such Covered Call Option was written; and (g) the name of the
Clearing Member through whom the premium is to be received. The Custodian shall
deliver or cause to be delivered, in exchange for receipt of the premium
specified in the Certificate with respect to such Covered Call Option, such
receipts as are required in accordance with the customs prevailing among
Clearing Members dealing in Covered Call Options and shall impose, or direct the
Depository to impose, upon the underlying Securities specified
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in the Certificate specifically allocated to such Series such restrictions as
may be required by such receipts. Notwithstanding the foregoing, the Custodian
has the right, upon prior written notification to the Fund, at any time to
refuse to issue any receipts for Securities in the possession of the Custodian
and not deposited with the Depository underlying a Covered Call Option.
7. Whenever a Covered Call Option written by the Fund and described in
the preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate instructing the Custodian to deliver, or
to direct the Depository to deliver, the Securities subject to such Covered Call
Option and specifying: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of shares subject
to the Covered Call Option; (c) the Clearing Member to whom the underlying
Securities are to be delivered; and (d) the total amount payable to the Fund
upon such delivery. Upon the return and/or cancellation of any receipts
delivered pursuant to paragraph 6 of this Article, the Custodian shall deliver,
or direct the Depository to deliver, the underlying Securities as specified in
the Certificate against payment of the amount to be received as set forth in
such Certificate.
8. Whenever the Fund writes a Put Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Put
Option: (a) the Series for which such Put Option was written; (b) the name of
the issuer and the title and number of shares for which the Put Option is
written and which underlie the same; (c) the expiration date; (d) the exercise
price; (e) the premium to be received by the Fund; (f) the date such Put Option
is written; (g) the name of the Clearing Member through whom the premium is to
be received and to whom a Put Option guarantee letter is to be delivered; (h)
the amount of cash, and/or the amount and kind of Securities, if any,
specifically allocated to such Series to be deposited in the Segregated Account
for such Series; and (i) the amount of cash and/or the amount and kind of
Securities specifically allocated to such Series to be deposited into the
Collateral Account for such Series. The Custodian shall, after making the
deposits into the Collateral Account specified in the Certificate, issue a Put
Option guarantee letter substantially in the form utilized by the Custodian on
the date hereof, and deliver the same to the Clearing Member specified in the
Certificate against receipt of the premium specified in said Certificate.
Notwithstanding the foregoing, the Custodian shall be under no obligation to
issue any Put Option guarantee letter or similar document if it is unable to
make any of the representations contained therein, or if it has not received an
opinion of Fund counsel satisfactory to the Custodian with respect to the
Custodian's first priority perfected security interest in the Collateral
Account.
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9. Whenever a Put Option written by the Fund and described in the
preceding paragraph is exercised, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Put Option was
written; (b) the name of the issuer and title and number of shares subject to
the Put Option; (c) the Clearing Member from whom the underlying Securities are
to be received; (d) the total amount payable by the Fund upon such delivery; (e)
the amount of cash and/or the amount and kind of Securities specifically
allocated to such Series to be withdrawn from the Collateral Account for such
Series and (f) the amount of cash and/or the amount and kind of Securities,
specifically allocated to such Series, if any, to be withdrawn from the
Segregated Account. Upon the return and/or cancellation of any Put Option
guarantee letter or similar document issued by the Custodian in connection with
such Put Option, the Custodian shall pay out of the moneys held for the account
of the Series to which such Put Option was specifically allocated the total
amount payable to the Clearing Member specified in the Certificate as set forth
in such Certificate against delivery of such Securities, and shall make the
withdrawals specified in such Certificate.
10. Whenever the Fund writes a Stock Index Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Stock Index Option: (a) the Series for which such Stock Index Option was
written; (b) whether such Stock Index Option is a put or a call; (c) the number
of options written; (d) the stock index to which such Option relates; (e) the
expiration date; (f) the exercise price; (g) the Clearing Member through whom
such Option was written; (h) the premium to be received by the Fund; (i) the
amount of cash and/or the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in the Segregated Account for such
Series; (j) the amount of cash and/or the amount and kind of Securities, if any,
specifically allocated to such Series to be deposited in the Collateral Account
for such Series; and (k) the amount of cash and/or the amount and kind of
Securities, if any, specifically allocated to such Series to be deposited in a
Margin Account, and the name in which such account is to be or has been
established. The Custodian shall, upon receipt of the premium specified in the
Certificate, make the deposits, if any, into the Segregated Account specified in
the Certificate, and either (1) deliver such receipts, if any, which the
Custodian has specifically agreed to issue, which are in accordance with the
customs prevailing among Clearing Members in Stock Index Options and make the
deposits into the Collateral Account specified in the Certificate, or (2) make
the deposits into the Margin Account specified in the Certificate.
11. Whenever a Stock Index Option written by the Fund and
described in the preceding paragraph of this Article is exercised,
the Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to such Stock Index Option: (a) the Series
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for which such Stock Index Option was written; (b) such information as may be
necessary to identify the Stock Index Option being exercised; (c) the Clearing
Member through whom such Stock Index Option is being exercised; (d) the total
amount payable upon such exercise, and whether such amount is to be paid by or
to the Fund; (e) the amount of cash and/or amount and kind of Securities, if
any, to be withdrawn from the Margin Account; and (f) the amount of cash and/or
amount and kind of Securities, if any, to be withdrawn from the Segregated
Account- for such Series; and the amount of cash and/or the amount and kind of
Securities, if any, to be withdrawn from the Collateral Account for such Series.
Upon the return and/or cancellation of the receipt, if any, delivered pursuant
to the preceding paragraph of this Article, the Custodian shall pay out of the
moneys held for the account of the Series to which such Stock Index Option was
specifically allocated to the Clearing Member specified in the Certificate the
total amount payable, if any, as specified therein.
12. Whenever the Fund purchases any Option identical to a previously
written Option described in paragraphs, 6, 8 or 10 of this Article in a
transaction expressly designated as a "Closing Purchase Transaction" in order to
liquidate its position as a writer of an Option, the Fund shall promptly deliver
to the Custodian a Certificate specifying with respect to the Option being
purchased: (a) that the transaction is a Closing Purchase Transaction; (b) the
Series for which the Option was written; (c) the name of the issuer and the
title and number of shares subject to the Option, or, in the case of a Stock
Index Option, the stock index to which such Option relates and the number of
Options held; (d) the exercise price; (e) the premium to be paid by the Fund;
(f) the expiration date; (g) the type of Option (put or call); (h) the date of
such purchase; (i) the name of the Clearing Member to whom the premium is to be
paid; and (j) the amount of cash and/or the amount and kind of Securities, if
any, to be withdrawn from the Collateral Account, a specified Margin Account, or
the Segregated Account for such Series. Upon the Custodian's payment of the
premium and the return and/or cancellation of any receipt issued pursuant to
paragraphs 6, 8 or 10 of this Article with respect to the Option being
liquidated through the Closing Purchase Transaction, the Custodian shall remove,
or direct the Depository to remove, the previously imposed restrictions on the
Securities underlying the Call Option.
13. Upon the expiration, exercise or consummation of a Closing Purchase
Transaction with respect to any Option purchased or written by the Fund and
described in this Article, the Custodian shall delete such Option from the
statements delivered to the Fund pursuant to paragraph 3 Article III herein, and
upon the return and/or cancellation of any receipts issued by the Custodian,
shall make such withdrawals from the Collateral Account, and the Margin Account
and/or the Segregated Account as may be specified in a
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Certificate received in connection with such expiration, exercise, or
consummation.
ARTICLE VI.
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures Contract, the Fund
shall deliver to the Custodian a Certificate specifying with respect to such
Futures Contract, (or with respect to any number of identical Futures
Contract(s)): (a) the Series for which the Futures Contract is being entered;
(b) the category of Futures Contract (the name of the underlying stock index or
financial instrument); (c) the number of identical Futures Contracts entered
into; (d) the delivery or settlement date of the Futures Contract(s); (e) the
date the Futures Contract(s) was (were) entered into and the maturity date; (f)
whether the Fund is buying (going long) or selling (going short) on such Futures
Contract(s); (g) the amount of cash and/or the amount and kind of Securities, if
any, to be deposited in the Segregated Account for such Series; (h) the name of
the broker, dealer, or futures commission merchant through whom the Futures
Contract was entered into; and (i) the amount of fee or commission, if any, to
be paid and the name of the broker, dealer, or futures commission merchant to
whom such amount is to be paid. The Custodian shall make the deposits, if any,
to the Margin Account in accordance with the terms and conditions of the Margin
Account Agreement. The Custodian shall make payment out of the moneys
specifically allocated to such Series of the fee or commission, if any,
specified in the Certificate and deposit in the Segregated Account for such
Series the amount of cash and/or the amount and kind of Securities specified in
said Certificate.
2. (a) Any variation margin payment or similar payment required to be
made by the Fund to a broker, dealer, or futures commission merchant with
respect to an outstanding Futures Contract, shall be made by the Custodian in
accordance with the terms and conditions of the Margin Account Agreement.
(b) Any variation margin payment or similar payment from a broker,
dealer, or futures commission merchant to the Fund with respect to an
outstanding Futures Contract, shall be received and dealt with by the Custodian
in accordance with the terms and conditions of the Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian hereunder is
retained by the Fund until delivery or settlement is made on such Futures
Contract, the Fund shall deliver to the Custodian a Certificate specifying: (a)
the Futures Contract and the Series to which the same relates; (b) with respect
to a Stock Index Futures Contract, the total cash settlement amount to be paid
or received, and with respect to a Financial Futures Contract, the
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Securities and/or amount of cash to be delivered or received; (c) the broker,
dealer, or futures commission merchant to or from whom payment or delivery is to
be made or received; and (d) the amount of cash and/or Securities to be
withdrawn from the Segregated Account for such Series. The Custodian shall make
the payment or delivery specified in the Certificate, and delete such Futures
Contract from the statements delivered to the Fund pursuant to paragraph 3 of
Article III herein.
4. Whenever the Fund shall enter into a Futures Contract to offset a
Futures Contract held by the Custodian hereunder, the Fund shall deliver to the
Custodian a Certificate specifying: (a) the items of information required in a
Certificate described in para graph 1 of this Article, and (b) the Futures
Contract being offset. The Custodian shall make payment out of the money specifi
cally allocated to such Series of the fee or commission, if any, specified in
the Certificate and delete the Futures Contract being offset from the statements
delivered to the Fund pursuant to paragraph 3 of Article III herein, and make
such withdrawals from the Segregated Account for such Series as may be specified
in such Certificate. The withdrawals, if any, to be made from the Margin Account
shall be made by the Custodian in accordance with the terms and conditions of
the Margin Account Agreement.
ARTICLE VII.
FUTURES CONTRACT OPTIONS
1. Promptly after the purchase of any Futures Contract Option by the
Fund, the Fund shall promptly deliver to the Custodian a Certificate specifying
with respect to such Futures Contract Option: (a) the Series to which such
Option is specifi cally allocated; (b) the type of Futures Contract Option (put
or call); (c) the type of Futures Contract and such other information as may be
necessary to identify the Futures Contract underlying the Futures Contract
Option purchased; (d) the expiration date; (e) the exercise price; (f) the dates
of purchase and settlement; (g) the amount of premium to be paid by the Fund
upon such purchase; (h) the name of the broker or futures commission merchant
through whom such option was purchased; and (i) the name of the broker, or
futures commission merchant, to whom payment is to be made. The Custodian shall
pay out of the moneys specifically al located to such Series, the total amount
to be paid upon such purchase to the broker or futures commissions merchant
through whom the purchase was made, provided that the same conforms to the
amount set forth in such Certificate
2. Promptly after the sale of any Futures Contract Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund
shall promptly deliver to the Custodian a Certificate specifying
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with respect to each such sale: (a) Series to which such Futures Contract Option
was specifically allocated; (b) the type of Future Contract Option (put or
call); (c) the type of Futures Contract and such other information as may be
necessary to identify the Futures Contract underlying the Futures Contract
Option; (d) the date of sale; (e) the sale price; (f) the date of settlement;
(g) the total amount payable to the Fund upon such sale; and (h) the name of the
broker of futures commission merchant through whom the sale was made. The
Custodian shall consent to the cancellation of the Futures Contract Option being
closed-against payment to the Custodian of the total amount payable to the Fund,
provided the same conforms to the total amount payable as set forth in such
Certificate.
3. Whenever a Futures Contract Option purchased by the Fund pursuant to
paragraph 1 is exercised by the Fund, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Futures
Contract Option was specifically allocated; (b) the particular Futures Contract
Option (put or call) being exercised; (c) the type of Futures Contract
underlying the Futures Contract Option; (d) the date of exercise; (e) the name
of the broker or futures commission merchant through whom the Futures Contract
Option is exercised; (f) the net total amount, if any, payable by the Fund; (g)
the amount, if any, to be received by the Fund; and (h) the amount of cash
and/or the amount and kind of Securities to be deposited in the Segregated
Account for such Series. The Custodian shall make, out of the moneys and
Securities specifically allocated to such Series, the payments, if any, and the
deposits, if any, into the Segregated Account as specified in the Certificate.
The deposits, if any, to be made to the Margin Account shall be made by the
Custodian in accordance with the terms and conditions of the Margin Account
Agreement.
4. Whenever the Fund writes a Futures Contract Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Futures Contract Option: (a) the Series for which such Futures Contract Option
was written; (b) the type of Futures Contract Option (put or call); (c) the type
of Futures Contract and such other information as may be necessary to identify
the Futures Contract underlying the Futures Contract Option; (d) the expiration
date; (e) the exercise price; (f) the premium to be received by the Fund; (g)
the name of the broker or futures commission merchant through whom the premium
is to be received; and (h) the amount of cash and/or the amount and kind of
Securities, if any, to be deposited in the Segregated Account for such Series.
The Custodian shall, upon receipt of the premium specified in the Certificate,
make out of the moneys and Securities specifically allocated to such Series the
deposits into the Segregated Account, if any, as specified in the Certificate.
The deposits, if any, to be made to the Margin Account shall be made by
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the Custodian in accordance with the terms and conditions of the
Margin Account Agreement.
5. Whenever a Futures Contract Option written by the Fund which is a
call is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Futures Contract Option was
specifically allocated; (b) the particular Futures Contract Option exercised;
(c) the type of Futures Contract underlying the Futures Contract Option; (d) the
name of the broker or futures commission merchant through whom such Futures
Contract Option was exercised; (e) the net total amount, if any, payable to the
Fund upon such exercise; (f) the net total amount, if any, payable by the Fund
upon such exercise; and (g) the amount of cash and/or the amount and kind of
Securities to be deposited in the Segregated Account for such Series. The
Custodian shall, upon its receipt of the net total amount payable to the Fund,
if any, specified in such Certificate make the payments, if any, and the
deposits, if any, into the Segregated Account as specified in the Certificate.
The deposits, if any, to be made to the Margin Account shall be made by the
Custodian in accordance with the terms and conditions of the Margin Account
Agreement.
6. Whenever a Futures Contract Option which is written by the Fund and
which is a put is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Option was specifically
allocated; (b) the particular Futures Contract Option exercised; (c) the type of
Futures Contract underlying such Futures Contract Option; (d) the name of the
broker or futures commission merchant through whom such Futures Contract Option
is exercised; (e) the net total amount, if any, payable to the Fund upon such
exercise; (f) the net total amount, if any, payable by the Fund upon such
exercise; and (g) the amount and kind of Securities and/or cash to be withdrawn
from or deposited in, the Segregated Account for such Series, if any. The
Custodian shall, upon its receipt of the net total amount payable to the Fund,
if any, specified in the Certificate, make out of the moneys and Securities
specifically allocated to such Series, the payments, if any, and the deposits,
if any, into the Segregated Account as specified in the Certificate. The
deposits to and/or withdrawals from the Margin Account, if any, shall be made by
the Custodian in accordance with the terms and conditions of the Margin Account
Agreement.
7. Whenever the Fund purchases any Futures Contract Option identical to
a previously written Futures Contract Option described in this Article in order
to liquidate its position as a writer of such Futures Contract Option, the Fund
shall promptly deliver to the Custodian a Certificate specifying with respect to
the Futures Contract Option being purchased: (a) the Series to which such Option
is specifically allocated; (b) that the transaction is a
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closing transaction; (c) the type of Future Contract and such other information
as may be necessary to identify the Futures Contract underlying the Futures
Option Contract; (d) the exercise price; (e) the premium to be paid by the Fund;
(f) the expiration date; (g) the name of the broker or futures commission
merchant to whom the premium is to be paid; and (h) the amount of cash and/or
the amount and kind of Securities, if any, to be withdrawn from the Segregated
Account for such Series. The Custodian shall effect the withdrawals from the
Segregated Account specified in the Certificate. The withdrawals, if any, to be
made from the Margin Account shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
8. Upon the expiration, exercise, or consummation of a closing
transaction with respect to, any Futures Contract Option written or purchased by
the Fund and described in this Article, the Custodian shall (a) delete such
Futures Contract Option from the statements delivered to the Fund pursuant to
paragraph 3 of Article III herein and, (b) make such withdrawals from and/or in
the case of an exercise such deposits into the Segregated Account as may be
specified in a Certificate. The deposits to and/or withdrawals from the Margin
Account, if any, shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
9. Futures Contracts acquired by the Fund through the
exercise of a Futures Contract Option described in this Article
shall be subject to Article VI hereof.
ARTICLE VIII.
SHORT SALES
1. Promptly after any short sales by any Series of the Fund, the Fund
shall promptly deliver to the Custodian a Certificate specifying: (a) the Series
for which such short sale was made; (b) the name of the issuer and the title of
the Security; (c) the number of shares or principal amount sold, and accrued
interest or dividends, if any; (d) the dates of the sale and settlement; (e) the
sale price per unit; (f) the total amount credited to the Fund upon such sale,
if any, (g) the amount of cash and/or the amount and kind of Securities, if any,
which are to be deposited in a Margin Account and the name in which such Margin
Account has been or is to be established; (h) the amount of cash and/or the
amount and kind of Securities, if any, to be deposited in a Segregated Account,
and (i) the name of the broker through whom such short sale was made. The
Custodian shall upon its receipt of a statement from such broker confirming such
sale and that the total amount credited to the Fund upon such sale, if any, as
specified in the Certificate is held by such broker for the account of the
Custodian (or any nominee of the Custodian) as custodian of the Fund, issue
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a receipt or make the deposits into the Margin Account and the Segregated
Account specified in such Certificate or Oral Instructions.
2. In connection with the closing-out of any short sale, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to each
such closing out: (a) the Series for which such transaction is being made; (b)
the name of the issuer and the title of the Security; (c) the number of shares
or the principal amount, and accrued interest or dividends, if any, required to
effect such closing-out to be delivered to the broker; (d) the dates of
closing-out and settlement; (e) the purchase price per unit; (f) the net total
amount payable to the Fund upon such closing-out; (g) the net total amount
payable to the broker upon such closing-out; (h) the amount of cash and the
amount and kind of Securities to be withdrawn, if any, from the Margin Account;
(i) the amount of cash and/or the amount and kind of Securities, if any, to be
withdrawn from the Segregated Account; and (j) the name of the broker through
whom the Fund is effecting such closing-out. The Custodian shall, upon receipt
of the net total amount payable to the Fund upon such closing-out, and the
return and/or cancella tion of the receipts, if any, issued by the Custodian
with respect to the short sale being closed-out, pay out of the moneys held for
the account of the Fund to the broker the net total amount payable to the
broker, and make the withdrawals from the Margin Account and the Segregated
Account, as the same are specified in the Certificate.
ARTICLE IS.
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters a Reverse Repurchase Agreement with
respect to Securities and money held by the Custodian hereunder, the Fund shall
deliver to the Custodian a Certificate, or in the event such Reverse Repurchase
Agreement is a Money Market Security, a Certificate or Oral Instructions,
specifying: (a) the Series for which the Reverse Repurchase Agreement is
entered; (b) the total amount payable to the Fund in connection with such
Reverse Repurchase Agreement and specifically allocated to such Series; (c) the
broker or dealer through or with whom the Reverse Repurchase Agreement is
entered; (d) the amount and kind of Securities to be delivered by the Fund to
such broker or dealer; (e) the date of such Reverse Repurchase Agreement; and
(f) the amount of cash and/or the amount and kind of Securities, if any,
specifically allocated to such Series to be deposited in a Segregated Account
for such Series in connection with such Reverse Repurchase Agreement. The
Custodian shall, upon receipt of the total amount payable to the Fund specified
in the Certificate or Oral Instructions make the delivery to the broker or
dealer, and
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the deposits, if any, to the Segregated Account, specified in such
Certificate or Oral Instructions.
2. Upon the termination of a Reverse Repurchase Agreement described in
preceding paragraph 1 of this Article, the Fund shall promptly deliver a
Certificate or, in the event such Reverse Repurchase Agreement is a Money Market
Security, a Certificate or Oral Instructions, to the Custodian specifying: (a)
the Reverse Repurchase Agreement being terminated and the Series for which same
was entered; (b) the total amount payable by the Fund in connection with such
termination; (c) the amount and kind of Securities to be received by the Fund
and specifically allocated to such Series in connection with such termination;
(d) the date of termination; (e) the name of the broker or dealer with or
through whom the Reverse Repurchase Agreement is to be terminated; and (f) the
amount of cash and/or the amount and kind of Securities to be withdrawn from the
Senior Securities Account for such Series. The Custodian shall, upon receipt of
the amount and kind of Securities to be received by the Fund specified in the
Certificate or Oral Instructions, make the payment to the broker or dealer, and
the withdrawals, if any, from the Segregated Account, specified in such
Certificate or Oral Instructions.
ARTICLE X.
LOAN OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities specifically
allocated to a Series held by the Custodian hereunder, the Fund shall deliver or
cause to be delivered to the Custodian a Certificate specifying with respect to
each such loan: (a) the Series to which the loaned Securities are specifically
allocated; (b) the name of the issuer and the title of the Securities, (c) the
number of shares or the principal amount loaned, (d) the date of loan and
delivery, (e) the total amount to be delivered to the Custodian against the loan
of the Securities, including the amount of cash collateral and the premium, if
any, separately identified, and (f) the name of the broker, dealer, or financial
institution to which the loan was made. The Custodian shall deliver the
Securities thus designated to the broker, dealer or financial institution to
which the loan was made upon receipt of the total amount designated as to be
delivered against the loan of Securities. The Custodian may accept payment in
connection with a delivery otherwise than through the Book-Entry System or
Depository only in the form of a certified or bank cashier's check payable to
the order of the Fund or the Custodian drawn on New York Clearing House funds
and may deliver Securities in accordance with the customs prevailing among
dealers in securities.
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<PAGE>
2. Promptly after each termination of the loan of Securities by the
Fund, the Fund shall deliver or cause to be delivered to the Custodian a
Certificate specifying with respect to each such loan termination and return of
Securities: (a) the Series to which the loaned Securities are specifically
allocated; (b) the name of the issuer and the title of the Securities to be
returned, (c) the number of shares or the principal amount to be returned, (d)
the date of termination, (e) the total amount to be delivered by the Custodian
(including the cash collateral for such Securities minus any offsetting credits
as described in said Certificate), and (f) the name of the broker, dealer, or
financial institution from which the Securities will be returned. The Custodian
shall receive all Securities returned from the broker, dealer, or financial
institu tion to which such Securities were loaned and upon receipt thereof shall
pay, out of the moneys held for the account of the Fund, the total amount
payable upon such return of Securities as set forth in the Certificate.
ARTICLE XI.
CONCERNING MARGIN ACCOUNTS, SEGREGATED
ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such deposits to, or
withdrawals from, a Segregated Account as specified in a Certificate received by
the Custodian. Such Certificate shall specify the Series for which such deposit
or withdrawal is to be made and the amount of cash and/or the amount and kind of
Securities specifically allocated to such Series to be deposited in, or
withdrawn from, such Segregated Account for such Series. In the event that the
Fund fails to specify in a Certificate the Series, the name of the issuer, the
title and the number of shares or the principal amount of any particular
Securities to be deposited by the Custodian into, or withdrawn from, a Senior
Securities Account, the Custodian shall be under no obligation to make any such
deposit or withdrawal and shall so notify the Fund.
2. The Custodian shall make deliveries or payments from a Margin
Account to the broker, dealer, futures commission merchant or Clearing Member in
whose name, or for whose benefit, the account was established as specified in
the Margin Account Agreement.
3. Amounts received by the Custodian as payments or distributions with
respect to Securities deposited in any Margin Account shall be dealt with in
accordance with the terms and conditions of the Margin Account Agreement.
4. To the extent permitted by the Fund's Article of
Incorporation, investment restrictions and the Investment Company
Act of 1940, as amended, the Custodian shall have a continuing lien
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and security interest in and to any property at any time held by the Custodian
in any Collateral Account described herein. In accordance with applicable law
the Custodian may enforce its lien and realize on any such property whenever the
Custodian has made payment or delivery pursuant to any Put Option guarantee
letter or similar document or any receipt issued hereunder by the Custodian. In
the event the Custodian should realize on any such property net proceeds which
are less than the Custodian's obligations under any Put Option guarantee letter
or similar document or any receipt, such deficiency shall be a debt owed the
Custodian by the Fund within the scope of Article XIV herein.
5. On each business day the Custodian shall furnish the Fund with a
statement with respect to each Margin Account in which money or Securities are
held specifying as of the close of business on the previous business day: (a)
the name of the Margin Account; (b) the amount and kind of Securities held
therein; and (c) the amount of money held therein. The Custodian shall make
available upon request to any broker, dealer, or futures commission merchant
specified in the name of a Margin Account a copy of the statement furnished the
Fund with respect to such Margin Account.
6. Promptly after the close of business on each business day in which
cash and/or Securities are maintained in a Collateral Account for any Series,
the Custodian shall furnish the Fund with a statement with respect to such
Collateral Account specifying the amount of cash and/or the amount and kind of
Securities held therein. No later than the close of business next succeeding the
delivery to the Fund of such statement, the Fund shall furnish to the Custodian
a Certificate specifying the then market value of the Securities described in
such statement. In the event such then market value is indicated to be less than
the Custodian's obligation with respect to any outstanding Put Option guarantee
letter or similar document, the Fund shall promptly specify in a Certificate the
additional cash and/or Securities to be deposited in such Collateral Account to
eliminate such deficiency.
ARTICLE XII.
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish to the Custodian a copy of the resolution of
the Board of Directors of the Fund, certified by the Secretary or any Assistant
Secretary, either (i) setting forth with respect to the Series specified therein
the date of the declaration of a dividend or distribution, the date of payment
thereof, the record date as of which shareholders entitled to payment shall be
determined, the amount payable per Share of such Series to the shareholders of
record as of that date and the total amount payable to the Dividend Agent and
any sub-dividend agent or co-dividend
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<PAGE>
agent of the Fund on the payment date, or (ii) authorizing with respect to the
Series specified therein the declaration of divi dends and distributions on a
daily basis and authorizing the Custodian to rely on Oral Instructions or a
Certificate setting forth the date of the declaration of such dividend or
distribution, the date of payment thereof, the record date as of which share
holders entitled to payment shall be determined, the amount payable per Share of
such Series to the shareholders of record as of that date and the total amount
payable to the Dividend Agent on the payment date.
2. Upon the payment date specified in such resolution, Oral
Instructions or Certificate, as the case may be, the Custodian shall pay out of
the moneys held for the account of each Series the total amount payable to the
Dividend Agent and any sub-dividend agent or co-dividend agent of the Fund with
respect to such Series.
ARTICLE XIII.
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any Shares, it shall deliver
to the Custodian a Certificate duly specifying:
(a) The Series, the number of Shares sold, trade date, and
price; and
(b) The amount of money to be received by the Custodian for
the sale of such Shares and specifically allocated to the separate
account in the name of such Series.
2. Upon receipt of such money from the Transfer Agent, the Custodian
shall credit such money to the separate account in the name of the Series for
which such money was received.
3. Upon issuance of any Shares of any Series described in the foregoing
provisions of this Article, the Custodian shall pay, out of the money held for
the account of such Series, all original issue or other taxes required to be
paid by the Fund in connection with such issuance upon the receipt of a
Certificate specifying the amount to be paid.
4. Except as provided hereinafter, whenever the Fund desires the
Custodian to make payment out of the money held by the Custodian hereunder in
connection with a redemption of any Shares, it shall furnish to the Custodian a
Certificate specifying:
(a) The number and Series of Shares redeemed; and
(b) The amount to be paid for such Shares.
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<PAGE>
5. Upon receipt from the Transfer Agent of an advice setting forth the
Series and number of Shares received by the Transfer Agent for redemption and
that such Shares are in good form for redemption, the Custodian shall make
payment to the Transfer Agent out of the moneys held in the separate account in
the name of the Series the total amount specified in the Certificate issued
pursuant to the foregoing paragraph 4 of this Article.
6. Notwithstanding the above provisions regarding the redemption of any
Shares, whenever any Shares are redeemed pursuant to any check redemption
privilege which may from time to time be offered by the Fund, the Custodian,
unless otherwise instructed by a Certificate, shall, upon receipt of an advice
from the Fund or its agent setting forth that the redemption is in good form for
redemption in accordance with the check redemption procedure, honor the check
presented as part of such check redemption privilege out of the moneys held in
the separate account of the Series of the Shares being redeemed.
ARTICLE XIV.
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian, should in its sole discretion advance funds on
behalf of any Series which results in an overdraft because the moneys held by
the Custodian in the separate account for such Series shall be insufficient to
pay the total amount payable upon a purchase of Securities specifically
allocated to such Series, as set forth in a Certificate or Oral Instructions, or
which results in an overdraft in the separate account of such Series for some
other reason, or if the Fund is for any other reason indebted to the Custodian
with respect to a Series, including any indebtedness to The Bank of New York
under the Fund's Cash Management and Related Services Agreement, (except a
borrowing for investment or for temporary or emergency purposes using Securities
as collateral pursuant to a separate agreement and subject to the provisions of
paragraph 2 of this Article), such overdraft or indebtedness shall be deemed to
be a loan made by the Custodian to the Fund for such Series payable on demand
and shall bear interest from the date incurred at a rate per annum (based on a
360-day year for the actual number of days involved) equal to 1/2% over
Custodian's prime commercial lending rate in effect from time to time, such rate
to be adjusted on the effective date of any change in such prime commercial
lending rate but in no event to be less than 6% per annum. In addition, the Fund
hereby agrees that the Custodian shall have a continuing lien and security
interest in and to any property specifically allocated to such Series at any
time held by it for the benefit of such Series or in which the Fund may have an
interest which is then in the Custodian's possession or control or in possession
or control of any third party acting in the
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<PAGE>
Custodian's behalf. The Fund authorizes the Custodian, in its sole discretion,
at any time to charge any such overdraft or indebted ness together with interest
due thereon against any balance of account standing to such Series' credit on
the Custodian's books. In addition, the Fund hereby covenants that on each
Business Day on which either it intends to enter a Reverse Repurchase Agreement
and/ or otherwise borrow from a third party, or which next succeeds a Business
Day on which at the close of business the Fund had outstanding a Reverse
Repurchase Agreement or such a borrowing, it shall prior to 9 a.m., New York
City time, advise the Custodian, in writing, of each such borrowing, shall
specify the Series to which the same relates, and shall not incur any
indebtedness not so specified other than from the Custodian.
2. The Fund will cause to be delivered to the Custodian by any bank
(including, if the borrowing is pursuant to a separate agreement, the Custodian)
from which it borrows money for invest ment or for temporary or emergency
purposes using Securities held by the Custodian hereunder as collateral for such
borrowings, a notice or undertaking in the form currently employed by any such
bank setting forth the amount which such bank will loan to the Fund against
delivery of a stated amount of collateral. The Fund shall promptly deliver to
the Custodian a Certificate specifying with respect to each such borrowing: (a)
the Series to which such borrowing relates; (b) the name of the bank, (c) the
amount and terms of the borrowing, which may be set forth by incorporating by
reference an attached promissory note, duly endorsed by the Fund, or other loan
agreement, (d) the time and date, if known, on which the loan is to be entered
into, (e) the date on which the loan becomes due and payable, (f) the total
amount payable to the Fund on the borrowing date, (g) the market value of
Securities to be delivered as collateral for such loan, including the name of
the issuer, the title and the number of shares or the principal amount of any
particular Securities, and (h) a statement specifying whether such loan is for
investment purposes or for temporary or emergency purposes and that such loan is
in conformance with the Investment Company Act of 1940 and the Fund's
prospectus. The Custodian shall deliver on the borrowing date specified in a
Certificate the specified collateral and the executed promissory note, if any,
against delivery by the lending bank of the total amount of the loan payable,
provided that the same conforms to the total amount payable as set forth in the
Certificate. The Custodian may, at the option of the lending bank, keep such
collateral in its possession, but such collateral shall be subject to all rights
therein given the lending bank by virtue of any promissory note or loan
agreement. The Custodian shall deliver such Securities as additional collateral
as may be specified in a Certificate to collateralize further any transaction
described in this paragraph. The Fund shall cause all Securities released from
collateral status to be returned directly to the Custodian, and the Custodian
shall receive from time to time such return of collateral as may be
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<PAGE>
tendered to it. In the event that the Fund fails to specify in a Certificate the
Series, the name of the issuer, the title and number of shares or the principal
amount of any particular Securities to be delivered as collateral by the
Custodian, the Custodian shall not be under any obligation to deliver any
Securities.
ARTICLE XV.
TERMINAL LINK
1. At no time and under no circumstances shall the Fund be obligated to
have or utilize the Terminal Link, and the provisions of this Article shall
apply if, but only if, the Fund in its sole and absolute discretion elects to
utilize the Terminal Link to transmit Certificates to the Custodian.
2. The Terminal Link shall be utilized by the Fund only for the purpose
of the Fund providing Certificates to the Custodian with respect to transactions
involving Securities or for the transfer of money to be applied to the payment
of dividends, distributions or redemptions of Fund Shares, and shall be utilized
by the Custodian only for the purpose of providing notices to the Fund. Such use
shall commence only after the Fund shall have delivered to the Custodian a
Certificate substantially in the form of Exhibit D and shall have established
access codes. Each use of the Terminal Link by the Fund shall constitute a
representation and warranty that the Terminal Link is being used only for the
purposes permitted hereby, that at least two Officers have each utilized an
access code, that such safekeeping procedures have been established by the Fund,
and that such use does not contravene the Investment Company Act of 1940, as
amended, or the rules or regulations thereunder.
3. The Fund shall obtain and maintain at its own cost and expense all
equipment and services, including, but not limited to communications services,
necessary for it to utilize the Terminal Link, and the Custodian shall not be
responsible for the reliability or availability of any such equipment or
services.
4. The Fund acknowledges that any data bases made available as part of,
or through the Terminal Link and any proprietary data, software, processes,
information and documentation (other than any such which are or become part of
the public domain or are legally required to be made available to the public)
(collectively, the "Information"), are the exclusive and confidential property
of the Custodian. The Fund shall, and shall cause others to which it discloses
the Information, to keep the Information confidential by using the same care and
discretion it uses with respect to its own confidential property and trade
secrets, and shall neither make nor
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permit any disclosure without the express prior written consent of
the Custodian.
5. Upon termination of this Agreement for any reason, the Fund shall
return to the Custodian any and all copies of the Information which are in the
Fund's possession or under its control, or which the Fund distributed to third
parties. The provisions of this Article shall not affect the copyright status of
any of the Information which may be copyrighted and shall apply to all
Information whether or not copyrighted.
6. The Custodian reserves the right to modify the Terminal Link from
time to time without notice-to the Fund except that the Custodian shall give the
Fund notice not less than 75 days in advance of any modification which would
materially adversely affect the Fund's operation, and the Fund agrees that the
Fund shall not modify or attempt to modify the Terminal Link without the
Custodian's prior written consent. The Fund acknowledges that any software or
procedures provided the Fund as part of the Terminal Link are the property of
the Custodian and, accordingly, the Fund agrees that any modifications to the
Terminal Link, whether by the Fund, or by the Custodian and whether with or
without the Custodian's consent, shall become the property of the Custodian.
7. Neither the Custodian nor any manufacturers and suppliers it
utilizes or the Fund utilizes in connection with the Terminal Link makes any
warranties or representations, express or implied, in fact or in law, including
but not limited to warranties of merchantability and fitness for a particular
purpose.
8. The Fund will cause its Officers and employees to treat the
authorization codes and the access codes applicable to Terminal Link with
extreme care, and irrevocably authorizes the Custodian to act in accordance with
and rely on Certificates received by it through the Terminal Link. The Fund
acknowledges that it is its responsibility to assure that only its Officers use
the Terminal Link on its behalf, and that a Custodian shall not be responsible
nor liable for use of the Terminal Link on the Fund's behalf by persons other
than such persons or Officers, or by only a single Officer, nor for any
alteration, omission, or failure to promptly forward.
9. (a) Except as otherwise specifically provided in Section 9(b) of
this Article, the Custodian shall have no liability for any losses, damages,
injuries, claims, costs or expenses arising out of or in connection with any
failure, malfunction or other problem relating to the Terminal Link except for
money damages suffered as the direct result of the negligence of the Custodian
in an amount not exceeding for any incident $75,000 provided, however, that the
Custodian shall have no liability under this Section 9 if the Fund fails to
comply with the provisions of Section 11.
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<PAGE>
(b) The Custodian's liability for its negligence in executing or
failing to execute a transfer of funds in accordance with a Certificate received
through Terminal Link shall arise if any such Certificate shall have been duly
acknowledged by the Custodian, and shall be contingent upon the Fund complying
with the provisions of Section 12 of this Article, and shall be limited to (i)
restoration of the principal amount mistransferred, if and to the extent that
the Custodian would be required to make such restoration under applicable law,
and (ii) the lesser of (A) a Fund's actual pecuni ary loss incurred by reason of
its loss of use of the mistrans ferred funds or the funds which were not
transferred, as the case may be, or (B) compensation for the loss of the use of
the mis transferred funds or the funds which were not transferred, as the case
may be, at a rate per annum equal to the average federal funds rate as computed
from the Federal Reserve Bank of New York's daily determination of the effective
rate for federal funds, for the period during which a Fund has lost use of such
funds. In no event shall the Custodian have any liability for failing to execute
in accordance with a Certificate a transfer of funds where the Certificate is
received by the Custodian through Terminal Link other than through the
applicable transfer module for the particu lar instructions contained in such
Certificate.
10. Without limiting the generality of the foregoing, in no event shall
the Custodian or any manufacturer or supplier of its computer equipment,
software or services relating to the Terminal Link be responsible for any
special, indirect, incidental or con sequential damages which the Fund may incur
or experience by reason of its use of the Terminal Link even if the Custodian or
any manu facturer or supplier has been advised of the possibility of such
damages, nor with respect to the use of the Terminal Link shall the Custodian or
any such manufacturer or supplier be liable for acts of God, or with respect to
the following to the extent beyond such person's reasonable control: machine or
computer breakdown or malfunction, interruption or malfunction of communication
facili ties, labor difficulties or any other similar or dissimilar cause.
11. The Fund shall notify the Custodian of any errors, omissions or
interruptions in, or delay or unavailability of, the Terminal Link as promptly
as practicable, and in any event within 24 hours after the earliest of (i)
discovery thereof, (ii) the Business Day on which discovery should have occurred
through the exercise of reasonable care and (iii) in the case of any error, the
date of actual receipt of the earliest notice which reflects such error, it
being agreed that discovery and receipt of notice may only occur on a business
day. The Custodian shall promptly advise the Fund whenever the Custodian learns
of any errors, omissions or interruption in, or delay or unavailability of, the
Terminal Link.
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12. Each party shall, as soon as practicable after its receipt of a
Certificate or a notice transmitted by the Terminal Link, verify to the other
party by use of the Terminal Link its receipt of such Certificate or notice, and
in the absence of such verification the party to which the Certificate or notice
is sent shall not be liable for any failure to act in accordance with such
Certificate or notice and the sending party may not claim that such Certificate
or notice was received by the other party.
ARTICLE XVI.
DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY
OF ANY SERIES HELD OUTSIDE OF THE UNITED STATES
1. The Custodian is authorized and instructed to employ, as
sub-custodian for each Series' Foreign Securities (as such term is defined in
paragraph (c)(1) of Rule 17f-5 under the Investment Company Act of 1940, as
amended) and other assets, the foreign banking institutions and foreign
securities depositories and clearing agencies designated on Schedule I hereto
("Foreign Sub-Custodians") to carry out their respective responsibilities in
accordance with the terms of the sub-custodian agreement between each such
Foreign SubCustodian and the Custodian, copies of which have been previously
delivered to the Fund and receipt of which is hereby acknowledged (each such
agreement, a "Foreign SubCustodian Agreement"). The Custodian shall be liable
for the acts and omis sions of each Foreign Sub-Custodian constituting
negligence or willful misconduct in the conduct of its responsibilities under
the terms of the Foreign Sub-Custodian Agreement. Upon receipt of a Certificate,
together with a certified resolution substantially in the form attached as
Exhibit E of the Fund's Board of Directors, the Fund may designate any
additional foreign sub-custodian with which the Custodian has an agreement for
such entity to act as the Custodian's agent, as its sub-custodian and any such
additional foreign sub-custodian shall be deemed added to Schedule I. Upon
receipt of a Certificate from the Fund, the Custodian shall cease the employment
of any one or more Foreign Sub-Custodians for maintaining custody of the Fund's
assets and such Foreign Sub-Custodian shall be deemed deleted from Schedule I.
2. Each Foreign Sub-Custodian Agreement shall be substan tially in the
form previously delivered to the Fund and will not be amended in a way that
materially adversely affects the Fund without the Fund's prior written consent.
3. The Custodian shall identify on its books as belonging to each
Series of the Fund the Foreign Securities of such Series held by each Foreign
Sub-Custodian. At the election of the Fund, it shall be entitled to be
subrogated to the rights of the Custodian with respect to any claims by the Fund
or any Series against a
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<PAGE>
Foreign Sub-Custodian as a consequence of any loss, damage, cost, expense,
liability or claim sustained or incurred by the Fund or any Series if and to the
extent that the Fund or such Series has not been made whole for any such loss,
damage, cost, expense, liability or claim.
4. Upon request of the Fund, the Custodian will, consistent with the
terms of the applicable Foreign SubCustodian Agreement, use reasonable efforts
to arrange for the independent accountants of the Fund to be afforded access to
the books and records of any Foreign Sub-Custodian insofar as such books and
records relate to the performance of such Foreign Sub-Custodian under its
agreement with the Custodian on behalf of the Fund.
5. The Custodian will supply to the Fund from time to time, as mutually
agreed upon, statements in respect of the securities and other assets of each
Series held by Foreign Sub-Custodians, including but not limited to, an
identification of entities having possession of each Series' Foreign Securities
and other assets, and advices or notifications of any transfers of Foreign
Securities to or from each custodial account maintained by a Foreign
SubCustodian for the Custodian on behalf of the Series.
6. The Custodian shall furnish annually to the Fund, as mutually agreed
upon, information concerning the Foreign Sub Custodians employed by the
Custodian. Such information shall be similar in kind and scope to that furnished
to the Fund in connec tion with the Fund's initial approval of such Foreign
Sub-Custodians and, in any event, shall include information pertaining to (i)
the Foreign Custodians' financial strength, general reputation and standing in
the countries in which they are located and their ability to provide the
custodial services required, and (ii) whether the Foreign Sub-Custodians would
provide a level of safeguards for safekeeping and custody of securities not
materially different form those prevailing in the United States. The Custodian
shall monitor the general operating performance of each Foreign SubCustodian,
and at least annually obtain and review the annual financial report published by
such Foreign Sub-Custodian to determine that it meets the financial criteria of
an "Eligible Foreign Custodian" under Rule 17f-5(c)(2)(i) or (ii). The Custodian
will promptly inform the Fund in the event that the Custodian learns that a
Foreign Sub-Custodian no longer satisfies the financial criteria of an "Eligible
Foreign Custodian" under such Rule. The Custodian agrees that it will use
reasonable care in monitoring compliance by each Foreign Sub-Custodian with the
terms of the relevant Foreign SubCustodian Agreement and that if it learns of
any breach of such Foreign Sub-Custodian Agreement believed by the Custodian to
have a material adverse effect on the Fund or any Series it will promptly notify
the Fund of such breach. The Custodian also agrees to use reasonable and
diligent efforts to
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<PAGE>
enforce its rights under the relevant Foreign Sub-Custodian
Agreement.
7. The Custodian shall transmit promptly to the Fund all notices,
reports or other written information received pertaining to the Fund's Foreign
Securities, including without limitation, notices of corporate action, proxies
and proxy solicitation materials.
8. Notwithstanding any provision of this Agreement to the contrary,
settlement and payment for securities received for the account of any Series and
delivery of securities maintained for the account of such Series may be effected
in accordance with the customary or established securities trading or securities
process ing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivery of securities to the
purchaser thereof or to a dealer therefor (or an agent for such purchaser or
dealer) against a receipt with the expectation of receiving later payment for
such securities from such purchaser or dealer.
ARTICLE XVII.
CONCERNING THE CUSTODIAN
1. Except as hereinafter provided, neither the Custodian nor its
nominee shall be liable for any loss or damage, including counsel fees,
resulting from its action or omission to act or otherwise, either hereunder or
under any Margin Account Agreement, except for any such loss or damage arising
out of its own negligence or willful misconduct. In no event shall the Custodian
be liable to the Fund or any third party for special, indirect or consequential
damages or lost profits or loss of business, arising under or in connection with
this Agreement, even if previously informed of the possibility of such damages
and regardless of the form of action. The Custodian may, with respect to
questions of law arising hereunder or under any Margin Account Agreement, apply
at the expense of the Fund, for and obtain the advice and opinion of counsel to
the Fund or of its own counsel, at its own expense, and shall be fully protected
with respect to anything done or omitted by it in good faith in conformity with
such advice or opinion. The Custodian shall be liable to the Fund for any loss
or damage resulting from the use of the Book-Entry System or any Depository
arising by reason of any negligence or willful misconduct on the part of the
Custodian or any of its employees or agents.
2. Without limiting the generality of the foregoing, the
Custodian shall be under no obligation to inquire into, and shall
not be liable for:
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<PAGE>
(a) The validity of the issue of any Securities purchased,
sold, or written by or for the Fund, the legality of the purchase, sale or
writing thereof, or the propriety of the amount paid or received therefor;
(b) The legality of the sale or redemption of any
Shares, or the propriety of the amount to be received or paid
therefor, as specified in a Certificate;
(c) The legality of the declaration or payment of any
dividend by the Fund as specified in a resolution, Certificate or
Oral Instructions;
(d) The legality of any borrowing by the Fund using
Securities as collateral;
(e) The legality of any loan of portfolio Securities, nor
shall the Custodian be under any duty or obligation to see to it that any cash
collateral delivered to it by a broker, dealer, or financial institution or held
by it at any time as a result of such loan of portfolio Securities of the Fund
is adequate collateral for the Fund against any loss it might sustain as a
result of such loan. The Custodian specifically, but not by way of limitation,
shall not be under any duty or obligation periodically to check or notify the
Fund that the amount of such cash collateral held by it for the Fund is
sufficient collateral for the Fund, but such duty or obligation shall be the
sole responsibility of the Fund. In addition, the Custodian shall be under no
duty or obligation if any broker, dealer or financial institution to which
portfolio Securities of the Fund are lent pursuant to Article XIV of this
Agreement makes payment to it of any dividends or interest which are payable to
or for the account of the Fund during the period of such loan or at the
termination of such loan, provided, however, that the Custodian shall promptly
notify the Fund in the event that such dividends or interest are not paid and
received when due; or
(f) The sufficiency or value of any amounts of money and/or
Securities held in any Margin Account, Segregated Account or Collateral Account
in connection with transactions by the Fund. In addition, the Custodian shall be
under no duty or obligation if any broker, dealer, futures commission merchant
or Clearing Member makes payment to the Fund of any variation margin payment or
simi lar payment which the Fund may be entitled to receive from such broker,
dealer, futures commission merchant or Clearing Member, to see that any payment
received by the Custodian from any broker, dealer, futures commission merchant
or Clearing Member is the amount the Fund is entitled to receive, or to notify
the Fund of the Custodian's receipt or non-receipt of any such payment.
3. The Custodian shall not be liable for, or considered to
be the Custodian of, any money, whether or not represented by any
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<PAGE>
check, draft, or other instrument for the payment of money, received by it on
behalf of the Fund until the Custodian actually receives and collects such money
directly or by the final crediting of the account representing the Fund's
interest at the Book-Entry System or the Depository.
4. The Custodian shall have no responsibility and shall not be liable
for ascertaining or acting upon any calls, conversions, exchange offers,
tenders, interest rate changes or similar matters relating to Securities held in
the Depository, unless the Custodian shall have actually received timely notice
from the Depository. In no event shall the Custodian have any responsibil ity or
liability for the failure of the Depository to collect, or for the late
collection or late crediting by the Depository of any amount payable upon
Securities deposited in the Depository which may mature or be redeemed, retired,
called or otherwise become payable. However, upon receipt of a Certificate from
the Fund of an overdue amount on Securities held in the Depository the Custodian
shall make a claim against the Depository on behalf of the Fund, except that the
Custodian shall not be under any obliga tion to appear in, prosecute or defend
any action suit or proceed ing in respect to any Securities held by the
Depository which in its opinion may involve it in expense or liability, unless
indem nity satisfactory to it against all expense and liability be furnished as
often as may be required.
5. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount due to the Fund from the Transfer
Agent of the Fund nor to take any action to effect payment or distribution by
the Transfer Agent of the Fund of any amount paid by the Custodian to the
Transfer Agent of the Fund in accordance with this Agreement.
6. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount, if the Securities upon which such
amount is payable are in default, or if payment is refused after due demand or
presentation, unless and until (i) it shall be directed to take such action by a
Certificate and (ii) it shall be assured to its satisfaction of reimbursement of
its costs and expenses in connection with any such action.
7. With the prior approval of the Board of Directors of the Fund, the
Custodian may appoint one or more banking institutions as Depository or
Depositories, as Sub-Custodian or Sub-Custodians, or as Co-Custodian or
Co-Custodians including, but not limited to, banking institutions located in
foreign countries, of Securities and moneys at any time owned by the Fund, upon
such terms and conditions as may be approved in a Certificate or contained in an
agreement executed by the Custodian, the Fund and the appointed institution.
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<PAGE>
8. The Custodian shall not be under any duty or obligation (a) to
ascertain whether any Securities at any time delivered to, or held by it,for the
account of the Fund and specifically alloca ted to a Series are such as properly
may be held by the Fund or such Series under the provisions of its then current
prospectus, or (b) to ascertain whether any transactions by the Fund, whether or
not involving the Custodian, are such transactions as may properly be engaged in
by the Fund; provided, however, that appointment of any foreign banking
institution or depository shall be subject to the provision of Article XVI
hereof.
9. The Custodian shall be entitled to receive and the Fund agrees to
pay to the Custodian all out-of-pocket expenses and such compensation as may be
agreed upon in writing from time to time between the Custodian and the Fund. The
Custodian may charge such compensation and any expenses with respect to a Series
incurred by the Custodian in the performance of its duties pursuant to such
agreement against any money specifically allocated to such Series. The Custodian
shall notify the Fund in writing of the nature and amount of any loss, damage,
liability or expense attributable to one or more series of the Fund. The Fund
may notify the Custodian of the appropriate allocation of any such loss, damage,
liability or expense. In the event the Fund fails to notify the Custodian of any
allocation within five business days of receipt from the Custodian of notice or
a reimbursable expense, then the Custodian shall also be entitled to charge
against any money held by it to the extent otherwise provided in this Agreement
for the account of a Series such Series' pro rata share (based on such Series
net asset value at the time of the charge to the aggregate net asset value of
all Series at that time) of the amount of any loss, damage, liability or
expense, including counsel fees, for which it shall be entitled to reimbursement
under the provisions of this Agreement. The expenses for which the Custodian
shall be entitled to reimbursement hereunder shall include, but are not limited
to, the expenses of Sub-Custodian and foreign branches of the Custodian incurred
in settling outside of New York City transactions involving the purchase and
sale of Securities of the Fund.
10. The Custodian shall be entitled to rely upon any Certificate,
notice or other instrument in writing received by the Custodian and reasonably
believed by the Custodian to be a Certificate. The Custodian shall be entitled
to rely upon any Oral Instructions actually received by the Custodian
hereinabove provided for. The Fund agrees to forward to the Custodian a
Certificate or facsimile thereof confirming such Oral Instructions in such
manner so that such Certificate or facsimile thereof is received by the
Custodian, whether by hand delivery, telecopier or other similar device, or
otherwise, by the close of business of the same day that such Oral Instructions
are given to the Custodian. The Fund agrees that the fact that such confirming
instructions are not received by the Custodian shall in no way
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<PAGE>
affect the validity of the transactions or enforceability of the transactions
hereby authorized by the Fund. The Fund agrees that the Custodian shall incur no
liability to the Fund in acting upon Oral Instructions given to the Custodian
hereunder concerning such transactions provided such instructions reasonably
appear to have been received from an Officer.
11. The Custodian shall be entitled to rely upon any instrument,
instruction or notice received by the Custodian and reasonably believed by the
Custodian to be given in accordance with the terms and conditions of any Margin
Account Agreement. Without limiting the generality of the foregoing, the
Custodian shall be under no duty to inquire into, and shall not be liable for,
the accuracy of any statements or representations contained in any such
instrument or other notice including, without limitation, any specification of
any amount to be paid to a broker, dealer, futures commission merchant or
Clearing Member.
12. The books and records pertaining to the Fund which are in the
possession of the Custodian shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the Investment Company
Act of 1940, as amended, and other applicable securities laws and rules and
regulations. The Fund, or the Fund's authorized representatives, shall have
access to such books and records during the Custodian's normal business hours.
Upon the reasonable request of the Fund, copies of any such books and records
shall be provided by the Custodian to the Fund or the Fund's authorized
representative, and the Fund shall reimburse the Custodian its expenses of
providing such copies. Upon reasonable request of the Fund, the Custodian shall
provide in hard copy or on micro-film, whichever the Custodian elects, any
records included in any such delivery which are maintained by the Custodian on a
computer disc, or are similarly maintained, and the Fund shall reimburse the
Custodian for its expenses of providing such hard copy or micro-film.
13. The Custodian shall provide the Fund with any report obtained by
the Custodian on the system of internal accounting control of the Book-Entry
System, the Depository or O.C.C., and with such reports on its own systems of
internal accounting control as the Fund may reasonably request from time to
time.
14. The Fund agrees to indemnify the Custodian against and save the
Custodian harmless from all liability, claims, losses and demands whatsoever,
including reasonable attorney's fees, howsoever arising or incurred because of
or in connection with this Agreement, including the Custodian's payment or
non-payment of checks pursuant to paragraph 6 of Article XIII as part of any
check redemption privilege program of the Fund, except for any such liability,
claim, loss and demand arising out of the Custodian's own or its nominee's
negligence or willful misconduct.
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<PAGE>
15. Subject to the foregoing provisions of this Agreement, the
Custodian may deliver and receive Securities, and receipts with respect to such
Securities, and arrange for payments to be made and received by the Custodian in
accordance with the customs prevailing from time to time among brokers or
dealers in such Securities. When the Custodian is instructed to deliver
Securities against payment, delivery of such Securities and receipt of payment
therefor may not be completed simultaneously. The Fund assumes all
responsibility and liability for all credit risks involved in connection with
the Custodian's delivery of Securities pursuant to instructions of the Fund,
which responsibility and liability shall continue until final payment in full
has been received by the Custodian.
16. The Custodian shall have no duties or responsibilities whatsoever
except such duties and responsibilities as are specifically set forth in this
Agreement, and no covenant or obligation shall be implied in this Agreement
against the Custodian.
17. Whenever the Custodian has the authority to deduct monies from the
account for a series without a Certificate, it shall notify the Fund within one
business day of such deduction and the reason for it. Whenever the Custodian has
the authority to sell Securities or any other property of the Fund on behalf of
any Series without a Certificate, the Custodian will notify the Fund of its
intention to do so and afford the Fund the reasonable opportu nity to select
which Securities or other property it wishes to sell on behalf of such Series.
If the Fund does not promptly sell sufficient Securities or other property on
behalf of the Series, then, after notice, the Custodian may proceed with the
intended sale.
18. From time to time the Fund may advise the Custodian in writing of
procedures, guidelines or restrictions ("Procedures") adopted by the Fund for
particular types of investments or transactions, e.g., repurchase agreements and
reverse repurchase agreements. Not more than ten days after receipt of any such
Procedures, the Custodian shall advise the Fund as to whether it has determined
in its absolute discretion to comply with such Procedures. The Fund agrees that
the Custodian, for whatever reason, without any penalty or liability, shall have
the absolute right to determine that it will not comply with any such
Procedures. If the Custodian determines that it will not comply with such
Procedures, the Fund shall have the right, notwithstand ing any provision to the
contrary in this Agreement, to terminate this Agreement without any penalty to
the Fund on 30 days written notice to the Custodian.
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<PAGE>
ARTICLE XVIII.
TERMINATION
This Agreement shall continue in full force and effect until the first
to occur of: (a) termination by the Custodian by a notice in writing delivered
or mailed to the Fund, such termination to take effect not sooner than ninety
(90) days after the date of such delivery; (b) termination by the Fund by a
notice in writing delivered or mailed to the Custodian, such termination to take
effect not sooner than sixty (60) days after the date of such delivery; or (c)
termination by the Fund by written notice delivered to the Custodian, based upon
the fund's determination that there is a reasonable basis to conclude that the
Custodian is insolvent or that the financial condition of the Custodian is
deteriorating in any material respect, in which case termination shall take
effect upon the Custodian's receipt of such notice or at such later time as the
Fund shall designate. In the event of ter mination pursuant to this Section, the
Fund shall make payment of all accrued fees and unreimbursed expenses within a
reasonable time following termination and delivery of a statement to the Fund
setting forth such fees and expenses. Notwithstanding any provi sions elsewhere
contained herein, the Custodian may deduct all fees, expenses and other amounts
it is owed by the Fund from Securities and moneys held hereunder prior to making
any delivery described in this Article. The Fund shall identify in any notice of
termination a successor custodian to which the Securities, money and other
assets of the Series shall, upon termination of this Agreement, be delivered. In
the event that no written notice designating a successor custodian shall have
been delivered to the Custodian on or before the date when termination of this
Agreement shall become effective, the Custodian may deliver to a bank or trust
company doing business in the City of New York, New York, of its own selection,
having an aggregate capital, surplus, and undivided profits, as shown by its
last published report, of not less than $25,000,000, all Securities, moneys and
other assets held by the Custodian and all instruments held by the Custodian
relative thereto and all other property held by it under this Agreement.
Thereafter, such bank or trust company shall be the successor or the Custodian
under this Agreement. In the event that Securities and other assets remain in
the possession of the Custodian after the date of termination hereof owing to
failure of the Fund to appoint a successor custodian, the Custodian shall be
entitled to compensation for its services in accordance with the fee schedule
most recently in effect, for such period as the Custodian retains possession of
such Securities and other assets, the provisions of this Agreement relating to
the duties and obligations of the Custodian and the Fund shall remain in full
force and effect, and the Fund shall provide the Custodian at least ten (10)
days prior notice of any delivery to be made by the Custodian. In the event of
the appointment of a successor custodian, it is agreed that the
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<PAGE>
Securities, moneys and other property owned by the Fund and held by the
Custodian, or nominee shall be delivered to the successor custodian; and the
Custodian agrees to cooperate with the Fund at the Fund's expense in the
execution of documents and performance of other actions necessary or desirable
in order to substitute the successor custodian for the Custodian under this
Agreement.
ARTICLE XIX.
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed by two of the
present Officers of the Fund under its corporate seal, setting forth the names
and the signatures of the present Officers of the Fund. The Fund agrees to
furnish to the Custodian a new Certificate in similar form in the event any such
present Officer ceases to be an Officer of the Fund, or in the event that other
or additional Officers are elected or appointed. Until such new Certificate
shall be received, the Custodian shall be fully protec ted in acting under the
provisions of this Agreement upon the signatures of the Officers as set forth in
the last delivered Certificate.
2. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Custodian, shall be sufficiently given if
addressed to the Custodian and mailed or delivered to it at its offices at 101
Barclay Street, New York, New York (21W) 10286, or at such other place as the
Custodian may from time to time designate in writing.
3. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Fund shall be sufficiently given if addressed
to the Fund and mailed or delivered to it at its office at the address for the
Fund first above written, or at such other place as the Fund may from time to
time designate in writing.
4. This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties with the same formality as this
Agreement and approved by a resolution of the Board of Directors of the Fund.
5. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Fund without the written consent
of the Custodian, or by the Custodian without the written consent of the Fund,
authorized or approved by a resolution of the Fund's Board of Directors.
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<PAGE>
6. This Agreement shall be construed in accordance with the laws of the
State of New York without giving effect to conflict of laws principles thereof.
Each party hereby consents to the jurisdiction of a state or federal court
situated in New York City, New York in connection with any dispute arising
hereunder and hereby waives its right to trial by jury.
7. This Agreement may be executed in any number of counter parts, each
of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
8. With respect to any obligations of the Fund on behalf of the Series
arising out of this Agreement, the Custodian shall look for payment or
satisfaction of any obligation solely to the assets and property of the Series
to which such obligation relates as though the Fund had separately contacted
with the Custodian by separate written instrument with respect to each Series.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective corporate Officers, thereunto duly
authorized and their respective corporate seals to be hereunto affixed, as of
the day and year first have written
FIRST INVESTORS SERIES FUND II, INC.
[SEAL] By:/s/ David D. Grayson
Attest:
/s/ C. Durso
THE BANK OF NEW YORK
[SEAL] By:/s/Jorge Ramos
Attest:
/s/Mike Cecero
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<PAGE>
EXHIBIT A/EXHIBIT B
CERTIFICATION
The undersigned, C. Durso, hereby certifies that she is the duly
elected and acting Vice President and Secretary of First Investors Series Fund
II, Inc., a Maryland corporation (the "Fund"), and further certifies that the
following resolution was adopted by the Board of Directors of the Fund at a
meeting duly held on May 26, 1992, at which a quorum was at all times present
and that such resolution has not been modified or rescinded and is in full force
and effect as of the date thereof.
RESOLVED, that pursuant to the terms of its Custodian Agreement with
the Fund, [The Bank of New York] be, and it hereby is, authorized to deposit,
directly or through a qualified sub-custodian acting as its agent, any or all of
the securities of the Fund in a clearing agency registered with the Securities
and Exchange Commission as a securities depository or in the book entry system
as provided in applicable federal regulations as such regulations may be amended
from time to time.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of First
Investors Series Fund II, Inc. as of the 24th day of August , 1992.
/s/ C. Durso
[SEAL]
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<PAGE>
APPENDIX A
I, David D. Grayson, President, and I, Concetta Durso, Secretary of the
following First Investors Fund/Series:
First Investor Cash Management Fund, Inc.
First Investors Fund For Income, Inc.
First Investor Global Fund, Inc.
First Investors Government Fund, Inc.
First Investor High Yield Fund, Inc.
First Investor Insured Tax Exempt Fund, Inc.
First Investors Life Series Fund
First Investors Multi-State Insured Tax Free Fund
(Arizona, California, Colorado, Connecticut, Florida, Georgia,
Maryland, Massachusetts, Michigan, Minnesota, Missouri, New Jersey,
North Carolina, Ohio, Oregon, Pennsylvania and Virginia Series)
First Investors New York Insured Tax Free Fund, Inc.
First Investors Series Fund
First Investors Blue Chip Series
First Investors Investment Grade Series
First Investors Special Situation Series
First Investors Total Return Series
First Investors Special Bond Fund, Inc.
First Investors Tax-Exempt Money Market Fund, Inc.
First Investors U.S. Government Plus Fund lst, 2nd & 3rd Series
Executive Investors Trust
Executive Investors Blue Chip Fund
Executive Investors High Yield
Executive Investors Insured Tax Exempt Fund
do hereby certify that the following individual serves in the following position
with each Fund/Series and she has been duly elected or appointed to such
position and qualified therefor in conformity with the Fund/Series Articles of
Incorporation and By-Laws or Declaration of Trust and that the signature set
forth opposite her respective name is her true and correct signature:
<TABLE>
<CAPTION>
<S> <C> <C>
NAME POSITION SIGNATURE
Gemma Della Fave Authorized Signer /s/ Gemma Della Fave
</TABLE>
I, Concetta Durso, Secretary of the above First Investors Funds/Series hereby
certify that the above named individual has been duly elected and appointed to
such position and qualified therefor in conformity with the Funds/Series
Articles of Incorporation and By-Laws or Declaration of Trust and that the
signature set forth opposite her respective name is her true and correct
signature.
/s/ C. Durso 7/20/92
Concetta Durso, Secretary Dated
<PAGE>
I, David D. Grayson, in my official capacity as President of the above First
Investors Funds/Series, hereby certify that Concetta Durso is currently the duly
elected and appointed Secretary of these Funds/Series and that the above named
individual has been duly appointed to such position and that the signature
appearing opposite her name is her true and correct signature.
/s/ David D. Grayson 7/20/92
David. D. Grayson, President Dated
<PAGE>
I, David D. Grayson, President, and I, Concetta Durso, Secretary of
each Fund, Series in the First Investors Family of Funds, do hereby
certify that:
The following individuals are duly authorized to execute any
certificate, instruction, notice or other instrument or to give oral
instructions on behalf of each Fund/Series, and the signatures set forth
opposite their respective names are their true and correct signatures:
<TABLE>
<CAPTION>
NAME SIGNATURE
<S> <C> <C>
David D. Grayson President /s/ David D. Grayson
Glenn O. Head Vice President /s/ Glenn O. Head
Concetta Durso Vice President and /s/ C. Durso
Secretary
Joseph I. Benedek Treasurer /s/ Joseph I. Benedek
---------------------
Irving P. David Assistant Treasurer /s/ Irving P. David
-------------------
Carol R. Lerner Assistant Secretary /s/ Carol R. Lerner
-------------------
Joseph P. Abbamont Authorized Signer /s/ Joseph Abbamont
-------------------
Susan E. Bryant Authorized Signer /s/ Susan E. Bryant
--------------------
Marianne C. Buzzerio Authorized Signer /s/Marianne
C.Buzzerio
------------------
Susan I. Grant Authorized Signer /s/ Susan I. Grant
------------------
Evan S. Israel Authorized Signer /s/ Evan S. Israel
================= ------------------
Nanette A. King Authorized Signer /s/ Nanette A. King
-------------------
Mary T. Kohl Authorized Signer /s/ Mary T. Kohl
----------------
Mark S. Spencer Authorized Signer /s/ Mark S. Spencer
-------------------
</TABLE>
I, David D. Grayson, in my official capacity as President of each Fund/Series in
the First Investors Family of Funds, hereby certify that Concetta Durso is
currently the duly elected and appointed Secretary of all Fund/Series in the
First Investors Family of Funds and that the above named individuals have been
duly authorized to execute any certificate, instruction, notice, or other
instrument or to give oral instructions on behalf of each Fund/Series and the
signatures set forth opposite their names are their true and correct signatures.
/s/ David D. Grayson
David D. Grayson, President
Dated: 4/14/92
<PAGE>
I, Concetta Durso, Secretary of each Fund/Series in the First Investors Family
of Funds, hereby certify that the above named individuals have been duly
authorized to execute any certificate, instruction, notice, or other instrument
or to give oral instructions on behalf of each Fund/Series and the signatures
set forth opposite their names are their true and correct signatures.
/s/ C. Durso
Concetta Durso, Secretary
Dated: 4/14/92
<PAGE>
APPENDIX B
I, David D. Grayson, President, and I, Concetta Durso, Secretary
of Investors Series Fund, a Massachusetts Business Trust, do hereby
certify that:
The following individuals are duly authorized to execute any
certificate, instruction, notice or other instrument or to give oral
instructions on behalf of the Fund, and the signatures set forth opposite their
respective names are their true and correct signatures:
<TABLE>
<CAPTION>
NAME SIGNATURE
<S> <C> <C>
David D. Grayson President /s/ David D. Grayson
--------------------
Glenn O. Head Vice President /s/ Glenn O. Head
-----------------
Concetta Durso Vice President and Secretary /s/ C. Durso
-------------
Joseph I. Benedek Treasurer /s/Joseph I. Benedek
------------------
Carol R. Lerner Assistant Secretary /s/ Carol R. Lerner
------------------
Joseph P. Abbamont Authorized Signer /s/Joseph P.Abbamont
-------------------
Marianne C. Buzzerio Authorized Signer /s/ Marianne C. Buzzerio
------------------------
Irving P. David Authorized Signer /s/ Irving P. David
-------------------
Anthony Gentile Authorized Signer /s/ Anthony Gentile
-------------------
Susan I. Grant Authorized Signer /s/ Susan I. Grant
------------------
Robert J. Grosso Authorized Signer /s/ Robert J.Grosso
-------------------
Nanette A. King Authorized Signer /s/ Nanette A. King
-------------------
Mary T. Kohl Authorized Signer /s/ Mary T. Kohl
----------------
Mark S. Spencer Authorized Signer /s/ Mark S. Spencer
-------------------
</TABLE>
I, David D. Grayson, in my official capacity as President of First Investors
Series Fund, hereby certify that Concetta Durso is currently the duly elected
and appointed Secretary of First Investors Series Fund and that the above named
individuals have been duly authorized to execute any certificate, instruction,
notice, or other instrument or to give oral instructions on behalf of Fund and
the signatures set forth opposite their names are their true and correct
signatures.
/s/ David D. Grayson
David D. Grayson, President
<PAGE>
Dated: 4/14/92
I, Concetta Durso, Secretary of First Investors Series Fund, hereby certify that
the above named individuals have been duly authorized to execute any
certificate, instruction, notice, or other instrument or to give oral
instructions on behalf of the Fund and the signatures set forth opposite their
names are their true and correct signatures.
/s/ C. Durso
Concetta Durso, Secretary
Dated: 4/14/92
<PAGE>
FIRST INVESTORS MANAGEMENT COMPANY, INC.
95 Wall Street
New York, New York 10005-4297
August 26, 1992
Mr. Octavio Cabrera, Assistant Treasurer
The Bank of New York
110 Washington Street
New York, New York 10286
Dear Mr. Cabrera:
In accordance with your telephone request to Mr. Joseph I. Benedek, this is
to confirm that the authorized signers on the attached Appendixes (see copies
attached) are also the authorized signers for the First Investors Made In The
U.S.A. Fund (A Series of First Investors Series Fund II, Inc.).
Very truly yours,
/s/ C. Durso
C. Durso
Vice President
CD:is
Enc.
cc: Mr. Joseph I. Benedek - FIMCO/N.J.
Mr. Robert Orson - The Bank of New York
<PAGE>
APPENDIX C
I, Jorge Ramos, a Vice President with THE BANK OF NEW YORK do hereby
designate the following publications:
The Bond Buyer Depository Trust Company Notices Financial Daily Card Service JJ
Kenney Municipal Bond Service London Financial Times New York Times Standard &
Poor's Called Bond Record Wall Street Journal
- 51 -
<PAGE>
SCHEDULE I
Bank of New York Branches
and
Eligible Foreign Custodians
<TABLE>
<CAPTION>
Country Bank Name and Address Status
<S> <C> <C>
Argentina The First National Bank of Boston Correspondent
Florida 99, 1005 Buenos Aires,
Argentina
Australia Australia and New Zealand Banking Correspondent
Group, Limited
55 Colins Street,
Melbourne Australia
Austria GiroCredit Bank Correspondent
Aktiengesellschaft
der Sparkassen
A-1010 Wien, Schubertring 5,
Vienna, Austria
Belgium Banque Bruxelles Lambert, S.A. Correspondent
24 Avenue Marnix,
Brussels 1050
Belgium
Brazil The First National Bank of Boston Correspondent
Rua Libero Badaro, 487,
01009 - Sao - SP (Alt 226)
Brazil
Canada Royal Trust Corporation of Canada Correspondent
55 King Street West
Royal Trust Tower, Toronto,
Ontario M5H 1P9, Canada
Denmark Den Danske Bank Correspondent
2-12 Holmens Kanal
DK - 1092 Copenhagen K.
Denmark
Finland Union Bank of Finland Ltd. Correspondent
Aleksanterinkatu 30,
Helsinki, Finland
- 52 -
<PAGE>
France Banque Paribas Correspondent
3 Rue D'Antin
75002 Paris, France
Germany Dresdner Bank A.G. Correspondent
Jurgen-Ponto-Platz 1 (Alt 207)
6000 Frankfurt 11,
Federal Republic of Germany
Hong Kong The Hongkong & Shanghai Banking Correspondent
9 Corporation
1 Queen's Road Central,
Hong Kong
Indonesia The Hongkong & Shanghai Banking Correspondent
Corporation
P.O. Box 2307, Jakarta 1001,
Indonesia
Italy Citibank, N.A. Correspondent
Foro Buonaparte, 16
1-20121 Milano
Italy
Japan The Yasuda Trust & Banking Correspondent
Company, Limited
2-1 Yaesu, 1-chome
Chuo-ku, Tokyo 103,
Japan
Korea Bank of Seoul Correspondent
10-1, Namdaeman-Ro 2-Ka
Chung-ku, Seoul, 100-092
Korea
Luxembourg Cedel, S.A. Depository
67 Boulevard Grande-Duchesse
Charlotte
L-1010, Luxembourg
Malaysia The Hongkong & Shanghai Banking Correspondent
Corporation Ltd.
Kuala Lumpur, Malaysia
Mexico Citibank, N.A. Correspondent
Passee de la Reforma 390,
Mexico City, 06695
Mexico
- 53 -
<PAGE>
Netherlands Amsterdam-Rotterdam Bank, N.V. Correspondent
Kemelstede 2, 4817 ST Breda
The Netherlands
New Zealand Australia and New Zealand Banking Correspondent
Group Ltd.
215-229 Lambton Quay
P.O. Box 1492
Wellington, 1
New Zealand
Norway Den norske Bank AS Correspondent
Kirkengaten 21, 0153 Oslo 1,
Norway
Phillippines The Hongkong and Shangahi Correspondent
Corporation Ltd.
Makti, Metro Manila,
Phillippines
Portugal Banco Comercial Portugues Correspondent
(Alt 136)
Rua Augusta, 41, 1100 Lison,
Portugal
Singapore United Overseas Bank Limited Correspondent
1 Bonham Street, #01-00,
Singapore
Spain Banco Bilbao Vizcaya, S.A. Correspondent
Plaza de San Nicholas 4,
Bilbao, Spain
Sweden Skandinaviska Enskilda Banken Correspondent
Kungstradgardsgatan 8, (Alt 132)
Stockholm, Sweden
Switzerland Union Bank of Switzerland Correspondent
45 Bahnhofstrasse,
Zurich, Switzerland
Thailand The Siam Commercial Bank, Ltd. Correspondent
1060 Phetchaburi Road,
Bangkok 10400, Thailand
- 54 -
<PAGE>
United The Bank of New York Branch
Kingdom 46 Berkeley Street
London W1X 6AA, England
Venezuela Citibank, N.A. Correspondent
Carmelitas a Altagracia,
Edificio Citibank,
Caracas, 1010, Venezuela
</TABLE>
- 55 -
<PAGE>
ADMINISTRATION AGREEMENT
This Agreement, dated as of the 10th day of August, 1992 made by and
among FIRST INVESTORS SERIES FUND II, INC., a corporation duly organized and
existing under the laws of the State of Maryland (the "Fund"), on behalf of its
separate, designated series presently existing or hereafter established
(hereinafter the "Series"); and ADMINISTRATIVE DATA MANAGEMENT CORP., a
corporation duly organized and existing under the laws of the State of New York
("ADM").
WITNESSETH THAT:
WHEREAS, ADM has agreed to act as transfer agent to the Series, as
their dividend disbursing agent, and as administrator of the Dividend
Reinvestment, Share Accumulation and Systematic Withdrawal Accounts of the
Series ("Plans" as defined in Section 21 hereof), and ADM has also agreed to act
for the Series in other respects as hereinafter stated; and
WHEREAS, the parties hereto desire to set forth certain terms relating
to the activities of ADM under this Agreement.
NOW, THEREFORE, in consideration of the promises and mutual covenants
contained herein, the parties hereto, intending to be legally bound, do hereby
agree as follows:
THE TRANSFER AGENCY
Section 1. The Fund hereby appoints ADM as the Series' transfer agent
and ADM accepts such appointment and agrees to act in such capacity upon the
terms set forth in this Agreement.
Section 2. ADM will maintain stock registry records in the usual form
in which it will note the issuance and redemption of shares and the issuance and
transfer of share certificates and is also authorized to maintain an account
entitled Unissued Share Certificate Account in which it will record the shares
and fractions thereof issued and outstanding from time to time for which
issuance of share certificates is deferred. ADM is also authorized to keep
records, which will be part of the stock transfer records, as well as its
records of the Plans, in which it will note the names and registered addresses
of Planholders (as defined in Section 21 hereof), and the number of shares and
fractions thereof from time to time owned by them for which no share
certificates are outstanding. Each shareholder whether he or she holds one or
more share certificates will be assigned a single account number.
Section 3. Whenever shares are purchased for Planholders, the Fund
authorizes ADM to dispense with the issuance and
-1-
<PAGE>
countersignature of share certificates. In such case ADM, as transfer agent,
shall merely note on its stock registry records the issuance of the shares and
fractions thereof (if any), shall credit the proper Unissued Share Certificate
Account with the shares and fractions thereof to the respective Planholders.
Likewise, whenever ADM has occasion to surrender for redemption shares and
fractions thereof owned by Planholders, it shall be unnecessary to issue share
certificates for redemption purposes. The Fund authorizes ADM in such cases to
process the transactions by appropriate entries in its stock transfer accounts
and debiting of the Unissued Share Certificate Account and the record of shares
outstanding. Whenever Planholders are entitled to the issuance of share
certificates for shares held under Plans, the Fund authorizes ADM as transfer
agent, to countersign share certificates for issuance and delivery and to debit
the Unissued Certificate Account.
Section 4. ADM in its capacity as transfer agent will, in addition to
the duties and functions above-mentioned, perform the usual duties and functions
of a stock transfer agent for the Series. ADM may rely conclusively and act
without further investigation upon any list, instruction, certification,
authorization, share certificate or other instrument or paper reasonably
believed by it to be genuine and unaltered and to have been signed,
counter-signed or executed by a duly authorized person or persons or upon the
instructions of any officer of the Fund, or upon the advice of counsel for the
Fund or for ADM. ADM shall be protected in any action it takes or does not take
in reliance upon directions, advice or written instructions it receives from the
Fund or from counsel in accordance with this Agreement and which ADM believes,
in good faith, to be consistent with those directions, advice or written
instructions.
Nothing in this section shall be construed to impose an obligation upon
ADM (1) to seek such directions, advice or written instructions or (2) to act in
accordance with such directions, advice or written instructions unless, under
the terms of other provisions of this Agreement, the same is a condition of
ADM's properly taking or not taking such action. Nothing in this subsection
shall excuse ADM when an action or omission on the part of ADM constitutes
willful misfeasance, bad faith, negligence or reckless disregard by ADM of any
duties, obligations or responsibilities provided for in this Agreement.
THE DIVIDEND DISBURSEMENT AGENCY
Section 5. Upon declaration of each dividend and each securities profit
distribution by the Board of Directors of the Fund on behalf of any Series, the
Fund shall notify ADM of the date of such declaration, the amount payable per
share, the record date for determining the shareholders entitled to payment,
the payment date, the date for issuance of shares as dividends, and the price
-2-
<PAGE>
which is to be used to issue such shares. In the case of dividends and
securities profit distributions issued in shares, ADM will advise the applicable
Series of the number of shares to be issued, or upon shareholder election, pay
such dividends and distributions in cash, if provided for in the Series'
prospectus. In all cases, such issuance of shares or payments of cash, as well
as payments upon redemption, shall be made after ADM deducts and pays the
required amount of funds to be withheld in accordance with any applicable tax
law or other laws, rules or regulations. ADM shall mail to each Series'
shareholders such tax forms and other information, or permissible substitute
notice, relating to any dividends and distributions paid by the Series as are
required to be filed and mailed by applicable law, rule or regulation.
Dividends and securities profit distributions directed to be reinvested
under Plans will be applied as provided in Section 11 below.
ADM shall prepare, maintain and file with the IRS and other appropriate
taxing authorities reports relating to all dividends paid by any Series to its
shareholders as required by tax or other law, rule or regulation.
Section 6. On or about each payment date for cash payments, the Fund
will transfer, or cause the Custodian to transfer, to ADM in its capacity as
dividend disbursing agent, the total amount of the dividend and/or distribution
currently payable in cash, and ADM in such capacity will, on the designated
payment date, mail distribution checks to the shareholders for the proper
amounts payable to them.
THE ADMINISTRATION OF THE PLANS
Section 7. The Fund hereby appoints ADM as administrator of the Plans
and ADM accepts such appointment and agrees to act in such capacity upon the
terms set forth in this Agreement. As provided in Section 2, ADM will maintain
records, which will be part of the stock registry records as well as its records
of the administration of the Plans, in which it will note the transactions
effected for the respective Planholders and the number of shares and fractions
thereof from time to time owned by them for which no share certificates are
outstanding.
Section 8. The Fund will from time to time keep ADM fully informed of
the respective prices which are applicable to Planholders who are entitled to
purchase shares at reduced offering prices. ADM may conclusively rely on such
information in placing orders for shares on behalf of such Planholders.
-3-
<PAGE>
Section 9. It will be the practice of ADM to process payments by
Planholders received by it in acceptable form between and until the time of the
closing of the New York Stock Exchange on each day on which said Exchange is
open, and the same time on the prior business day in which said Exchange was
open, and to obtain from the Series a quotation of the public offering price per
Series share (on which it may conclusively rely) as of the close of business on
said Exchange. ADM will proceed to calculate the amount available for investment
in shares at the public offering price so quoted and, if applicable, the amounts
to be allocated as between commissions of dealers, share of the Series'
principal underwriter and net asset value to be deposited with the Custodian.
While the public offering price so quoted is still in effect, ADM, as agent for
the Planholders, will place an order with the Series' principal underwriter for
the proper number of shares and fractions thereof, will advise the underwriter
of the breakdown of the total purchase price as between commissions of dealers,
share of the underwriter and net asset value, and will confirm said figures in
writing.
Section 10. ADM will thereupon set aside the commissions of dealers,
and the share of the Series' principal underwriter, and will pay over the
balance available (i.e., the net asset value) to the Custodian and will furnish
said Custodian with the statements required by the Custodian Agreement. Said
Custodian will deposit the net asset value in the Principal Account under the
Custodian Agreement. ADM will credit the bank account of the underwriter for its
share. The proper number of shares and fractions thereof will then be issued and
credited to the Unissued Certificate Account and the shares and fractions
thereof purchased for each Planholder will be credited to his or her separate
account. ADM will thereupon mail to each Planholder a confirmation of the
purchase, with copies to the Series and the proper dealers, if a Series so
requests. Such confirmation will show the prior and new share balance, the
shares held under the Plans and shares (if any) for which share certificates are
outstanding, the amount invested, the price paid and other data.
ADM will remit commissions to the proper dealers weekly or at other
convenient intervals, as agreed upon between the Series and ADM.
Section 11. As and when a Series declares dividends and/or securities
profit distributions, it will promptly quote to ADM the net asset value per
share at the close of business on the payment date for reinvestments.
Thereafter, ADM promptly will advise the Series of the amounts which will be
issued in full and fractional shares on such payment date. Upon determination of
the amount of the dividends or distributions to be issued in shares under Plans,
the shares and fractions thereof purchased for the Plans will be issued pursuant
to a Statement of ADM and will be credited to the Unissued Certificate Account.
ADM will credit the shares and
-4-
<PAGE>
fractions thereof so issued to the separate accounts maintained for the
respective Planholders, and will promptly mail to each Planholder a confirmation
of the purchase, with a copy to the Series, showing the prior and new share
balance.
Section 12. Whenever a shareholder shall deposit shares represented by
share certificates in a Systematic Withdrawal Plan or other Plan permitting
deposit of shares thereunder, ADM as transfer agent is authorized upon receipt
of share certificates registered in the name of the shareholder, or if not so
registered in due form for transfer, to cancel such share certificates, to debit
the individual share accounts and to credit the shares to the Unissued
Certificate Account. ADM as Plan administrator will credit the shares to be
deposited to the proper Plan accounts. In the event that a Planholder shall
desire to deposit under a Systematic Withdrawal Plan shares held in an
investment plan or other like plan, ADM will accomplish such deposit by proper
debiting and crediting of Plan accounts.
Section 13. ADM will administer the Systematic Withdrawal Plans for the
Planholders. ADM will note in such accounts the share balances from time to
time, the additional shares issued from the payment of dividends and
distributions in shares and the share redeemed to provide the withdrawal
payments. Confirmations will be mailed to the Planholders reflecting each
transaction, with copies to the Series.
Section 14. Whenever ADM shall have received requests from Planholders
to redeem shares and remit proceeds, or whenever ADM is required to redeem
shares to make withdrawal payments under Systematic Withdrawal Plans or the
like, ADM will advise the Series that it has shares for redemption, stating the
number of shares and fractions thereof to be redeemed. The Series will then
quote to ADM the applicable net asset value or redemption price, whereupon ADM
will furnish the Series with an appropriate confirmation of the redemption and
will process the redemption by filing with the Custodian an appropriate
Statement of ADM as may be required by the Custodian Agreement. The Custodian
shall be authorized to pay over to ADM as administrator, the total redemption
price stated in the Statement of ADM for proper distribution and application.
The stock registry books recording outstanding shares, the Unissued Certificate
Account and the individual accounts of the shareholders shall be properly
debited.
Section 15. The practices and procedures of ADM and the Series above
outlined in Sections 7 to 14, inclusive, may be altered or modified from time to
time as may be mutually agreed by the parties to this Agreement, so long as the
intent and purposes of the Plans, as stated from time to time in the
prospectuses of the Series, are complied with. For special cases, the parties
hereto may adopt such procedures as may be appropriate or practical under the
circumstances and ADM may conclusively assume that any
-5-
<PAGE>
special procedure which has been approved by the Fund does not conflict with or
violate any requirements of the Fund's Articles of Incorporation or By-Laws or
the applicable Series' current prospectus, or any applicable rule, regulation or
requirement of a regulatory body.
Section 16. ADM in acting for Planholders or in any other capacity set
forth in this Agreement, shall not be personally liable for any taxes,
assessments or governmental charges which may be levied or assessed on any basis
whatsoever in connection with the administration of the Plans, excepting only
for taxes assessed against it in its corporate capacity out of its compensation
hereunder. ADM shall be under no duty to take any action on behalf of a Series,
except as specifically set forth herein or as may be specifically agreed to by
ADM in writing. ADM shall be obligated to exercise due care and diligence in the
performance of its duties hereunder, to act in good faith, and to use its best
efforts in performing services provided for under this Agreement. ADM shall be
liable for any damages arising out of or in connection with ADM's performance of
or omission or failure to perform its duties under this Agreement to the extent
such damages arise out of ADM's negligence, reckless disregard of its duties,
bad faith or willful misfeasance.
Without limiting the generality of the foregoing or of any other
provision of this Agreement, ADM, in connection with its duties under this
Agreement, shall not be under any duty or obligation to inquire into and shall
not be liable for (a) the validity or invalidity or authority or lack thereof of
any written instruction, notice or other instrument which conforms to the
applicable requirements of this Agreement, and which ADM reasonably believes to
be genuine; or (b) subject to the provisions of Section 27, delays or errors or
loss of data occurring by reason of circumstances beyond ADM's control,
including acts of civil or military authority, national emergencies, labor
difficulties, acts of God, insurrection, war, riots or failure of the mails,
transportation, communication or power supply.
MISCELLANEOUS
Section 17. In addition to the services as transfer agent, dividend
disbursing agent and administrator as set forth above, ADM will perform other
services for the Fund as agreed to from time to time, including but not limited
to preparation of Federal 1099 and other required tax information forms, mailing
of annual and semi-annual reports of the Series, preparation of one annual list
of shareholders and mailing of notices of shareholders meeting,
proxies and proxy statements.
Section 18. The Fund, on behalf of the Series, agrees to pay ADM
compensation for its services and to reimburse it for expenses as set forth in
Schedule A attached hereto, or as shall be
-6-
<PAGE>
set forth in amendments to such schedule approved by the parties to this
Agreement.
Section 19. ADM may from time to time in its sole discretion delegate
some or all of its duties hereunder to any affiliate(s) or other entity, which
shall perform such functions as the agent of ADM. To the extent of such
delegation, the term "ADM" in this Agreement shall be deemed to refer to both
ADM and such affiliate(s) or other entity or any of them, as the context may
indicate; provided that the assignment and delegation of any of ADM's duties
under this section shall not relieve ADM of any of its responsibilities or
liabilities under this Agreement.
Section 20. Nothing contained in this Agreement is intended to or shall
require ADM in any capacity hereunder to perform any functions or duties on any
holiday or other day of special observances on which the Fund and ADM are
closed. Functions or duties normally scheduled to be performed on such days
shall be performed on, and as of, the next business day on which both the Series
and ADM are open.
Section 21. All terms herein which are defined in the Custodian
Agreement shall have the same meanings as set forth therein. In addition, the
following terms as used in this Agreement shall have the meaning set forth below
unless the context otherwise requires:
Plan: The term "Plan" shall include such Dividend Reinvestment
Accounts, Share Accumulation Accounts, Systematic Withdrawal Plans and other
types of plans or accounts in a form acceptable to ADM, which the Fund, on
behalf of the Series, may from time to time adopt and make available to
shareholders of the Series, including plans or accounts adopted for pension and
profit-sharing plans established by self-employed individuals, partnerships,
individuals, corporations and not-for-profit organizations.
Planholder: The term "Planholder" shall mean a shareholder
who at the time of reference is participating in a Plan.
Section 22. This Agreement may be terminated by any party to this
Agreement by giving at least sixty (60) days' advance written notice stating
when thereafter such termination shall be effective. In case of such notice of
termination, the Board of Directors of the Fund shall, by resolution duly
adopted, promptly appoint a successor to ADM to serve upon the terms set forth
in this Agreement as then amended and supplemented. Unless and until a successor
to ADM has been appointed as above, provided ADM shall continue to perform
according to the terms of this Agreement, ADM shall be entitled to receive all
the payments and reimbursement to which it is entitled under this Agreement.
-7-
<PAGE>
Section 23. This Agreement may be executed in one or more counterparts,
each of which when so executed shall be deemed to be original, but such
counterparts shall together constitute but one and the same instrument.
Section 24. This Agreement shall extend to, and shall be binding upon,
the parties hereto and their respective successors and assigns; provided however
that this Agreement shall not be assignable by the Fund without the written
consent of the Fund, authorized or approved by a resolution of its Board of
Directors.
Section 25. This Agreement shall be construed in accordance with the
laws of the State of New York.
Section 26. Notwithstanding any provision of law to the contrary, ADM
hereby waives any right to enforce this Agreement against the individual and
separate assets of any shareholder of the Series. With respect to any
obligations of the Fund on behalf of the Series arising out of this Agreement,
ADM shall look for payment or satisfaction of any obligation solely to the
assets and property of the Series to which such obligation relates as though the
Series had separately contracted with ADM by separate written instrument with
respect to each Series.
Section 27. No Director, officer, employee, or agent of the Fund shall
be subject to any personal liability whatsoever under this Agreement, except for
that arising from his or her bad faith, willful misconduct, gross negligence, or
reckless disregard of his or her duties or for his or her failure to act in good
faith and in the reasonable belief that his or her action was in the best
interest of the Fund, and ADM shall look solely to the Fund property for
satisfaction of claims of any nature arising in connection with the affairs of
the Fund.
Section 28. ADM shall maintain insurance of the types and in the
amounts deemed by it to be appropriate. To the extent that policies of insurance
may provide for coverage of claims for liability or indemnity by the parties set
forth in this Agreement, the contracts of insurance shall take precedence, and
no provision of the Agreement shall be construed to relieve an insurer of any
obligation to pay claims to the Series, ADM or any other insured party which
could otherwise be a covered claim in the absence of any provision of this
Agreement.
Section 29. ADM shall enter into and shall maintain in effect with
appropriate parties one or more agreements making reasonable provision for
periodic backup of computer files and data with respect to the Series and
emergency use of electronic data processing equipment. In the event of equipment
failures, ADM shall, at no additional expense to the Fund, take all reasonable
steps to minimize service interruptions. ADM shall have no liability with
respect to the loss of data or service interruptions
-8-
<PAGE>
caused by equipment failures, provided such loss or interruption is not caused
by the negligence of ADM and provided further that ADM has complied with the
provisions of this Section 29.
Section 30. ADM represents that it is currently registered with the
appropriate federal agency for the registration of transfer agents, or is
otherwise permitted to lawfully conduct its activities without such registration
and that it will remain so registered for the duration of this Agreement. ADM
agrees that it will promptly notify the Fund in the event of any material change
in its status as a registered transfer agent. Should ADM fail to be registered
with the SEC as a transfer agent at any time during this Agreement, and such
failure to register does not permit ADM to lawfully conduct its activities, the
Series may, on written notice to ADM, terminate this Agreement upon five days
written notice to ADM.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized officers and their seals hereunto duly affixed
and attested as of the day and the year first above written.
ATTEST: FIRST INVESTORS SERIES FUND II, INC
/s/ C. Durso By: /s/ David D. Grayson
C. Durso, Vice President David D. Grayson, President
and Secretary
ATTEST: ADMINISTRATIVE DATA MANAGEMENT
CORP.
/s/ C. Durso By: /s/ David D. Grayson
C. Durso, Vice President David D. Grayson, President
-9-
<PAGE>
ADMINISTRATION AGREEMENT
SCHEDULE A
Compensation and charges of Administrative Data Management Corp. for
services as Transfer Agent, Dividend Disbursing Agent and Plan
Administration, and for other services under the Administration Agreement.
Opening New Account $5.00 for each account
Processing Payments $0.75 for each payment*
Processing Share Certificates $3.00 per certificate issued
General Account Maintenance $0.65 per account per month
Legal Transfers of Shares $10.00 per transfer
Dividend Processing $0.45 per account per dividend
declared
Partial Withdrawals and
Complete Liquidations $5.00 per transaction
Reports Required by
Governmental Authorities $1.00 for each account
Exchange Fee $5.00 for each exchange of shares
into a Fund
Systematic Withdrawal Plans $1.00 for each SWP check*
OUT-OF-POCKET EXPENSES: In addition to the above charges, the Fund, First
Investors Management Company, Inc. or First Investors Corporation shall
reimburse Administrative Data Management Corp. for all out-of-pocket costs
including but not limited to postage, insurance, forms relating to shareholders
of the Fund, envelopes and other similar items, and will also reimburse
Administrative Data Management Corp. for counsel fees, including fees for the
preparation of the Administration Agreement and review of prospectus and
application forms.
THE ABOVE FEES AND OUT-OF-POCKET EXPENSES APPLY TO THE FOLLOWING FUNDS:
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 SERIES FUND, FIRST INVESTORS SERIES FUND II, INC., FIRST INVESTORS
U.S. GOVERNMENT PLUS FUND - 1st, 2nd & 3rd SERIES, EXECUTIVE INVESTORS TRUST
* Administrative Data Management Corp. (ADM) bills the Fund. ADM is then
paid by the Fund, after which FIMCO reimburses the Fund.
-10-
<PAGE>
Consent of Independent Certified Public Accountants
First Investors Series Fund II, Inc.
95 Wall Street
New York, New York 10005
We consent to the use in Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A (File No. 33-46924) of our report dated
November 30, 1995 relating to the October 31, 1995 financial statements of First
Investors Series Fund II, Inc., which are included in said Registration
Statement.
/s/Tait, Weller & Baker
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 5, 1996
<PAGE>
AMENDED AND RESTATED
CLASS A DISTRIBUTION PLAN
OF
FIRST INVESTORS SERIES FUND II, INC.
WHEREAS, FIRST INVESTORS SERIES FUND II, INC. (the "Fund") is a
diversified open-end management investment company duly registered with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Fund employs one or more broker-dealers as distributors of
its shares ("Underwriter") pursuant to a written agreement ("Underwriting
Agreement");
WHEREAS, Rule 12b-1 under the 1940 Act permits registered investment
companies to bear certain expenses associated with the distribution of their
shares;
WHEREAS, the Fund offers multiple classes of shares for
purchase by shareholders;
WHEREAS, the Board of Directors believes that payment of certain
expenses associated with the distribution of Class A shares of the Fund and the
servicing or maintenance of Class A shareholder accounts would be beneficial to
the Fund and its shareholders; and
WHEREAS, the Fund, on behalf of each of its separate designated series
presently existing or hereafter established (collectively and singularly,
"Series"), wishes to adopt a plan under Rule 12b-1 to permit each Series to pay
some of the expenses involved in distributing its Class A shares and the
servicing or maintenance of its Class A shareholder accounts.
NOW, THEREFORE, in consideration of the foregoing, the Fund hereby
adopts the following distribution plan in accordance with Rule 12b-1 (the "Class
A Plan"):
1. PAYMENT OF THE FEE. Pursuant to one or more Underwriting Agreements
which the Fund can enter into from time to time and the Class A Plan, each
Series shall pay as compensation for the Underwriter's services a quarterly Rule
12b-1 fee of up to an aggregate of 0.30 of 1% of each Series' average daily net
assets attributable to Class A shares on an annual basis (referred to herein as
the "Class A 12b-1 fee"). The Class A 12b-1 fee is payable by each Series
monthly or at such intervals as shall be determined by the Board of Directors in
the manner provided for approval of the Class A Plan in paragraph 5(a). The fee
shall consist of a distribution fee and a service fee, in such proportions as
shall be determined from time to time by the Board of Directors in the manner
provided for approval of the Plan in
- 1 -
<PAGE>
paragraph 5(a). The distribution and service fees shall be payable regardless of
whether that amount exceeds or is less than the actual expenses incurred by the
Underwriter in distributing Class A shares of such Series in a particular year.
2. EXPENSES DIFFERENT FROM ANNUAL RATE. To the extent that the Class A
12b-1 fee paid by each Series in a particular year exceeds actual expenses
incurred by an Underwriter in that year, the Underwriter would realize a profit
in that year. If the expenses incurred by an Underwriter in a particular year
are greater than the fee payable under the Class A Plan by the Series, the
Underwriter would incur a loss in that year and would not recover from such
Series such excess of expenses over the fee paid under the Class A Plan unless
actual expenses incurred in a subsequent year in which the Class A Plan remained
in effect were less than the fee paid under the Class A Plan in that year.
3. DISTRIBUTION AND SERVICE FEES. "Distribution" fees are fees paid for
the distribution of the Series' Class A shares, including continuing payments to
registered representatives and dealers for sales of Class A shares, the costs of
printing and dissemination of sales material or literature, prospectuses used as
sales material and reports or proxy material prepared for the Series' Class A
shareholders to the extent that such material is used in connection with the
sales of the Series' Class A shares, and general overhead of an Underwriter.
"Service" fees are fees paid for services related to the maintenance and
servicing of existing Series' Class A shareholder accounts, including
shareholder liaison services, whether provided by individual representatives,
dealers, an Underwriter or others entitled to receive such fees.
4. REPORTS TO DIRECTORS. Quarterly and annually in each year that the
Class A Plan remains in effect, the Treasurer of the Fund shall prepare and
furnish to the Board of Directors of the Fund a written report of the amounts so
expended and the purposes for which such expenditures were made under the Class
A Plan. The Board of Directors will promptly review the Treasurer's report.
5. APPROVAL OF PLAN. The Class A Plan shall become effective with
respect to any Series of the Fund immediately upon the approval by the majority
vote of (a) the Fund's Board of Directors and of the Directors who are not
"interested persons" of the Fund, within the meaning of the 1940 Act, and have
no direct or indirect financial interest in the operation of the Class A Plan or
in any agreements related to the Class A Plan (the "Independent Directors") cast
in person at a meeting called for the purpose of voting on such Class A Plan and
(b) the outstanding Class A voting securities of such Series, voting separately
from any other class or Series of the Fund, which for this purpose is defined in
Section 2(a)(42) of the 1940 Act and means the lesser of (1) more than 50% of
the outstanding shares, or (2) 67% or more of the shares present or represented
at a shareholders meeting if more than 50% of the
- 2 -
<PAGE>
outstanding shares are represented at the meeting in person or by
proxy, whichever is less.
6. TERMINATION OF PLAN. If the shareholders of any Series approve the
Class A Plan, it can be terminated with respect to such Series at any time
without the payment of any penalty by vote of a majority of the Independent
Directors or by vote of a majority of the outstanding Class A voting securities
of such Series, voting separately from any other class or Series of the Fund (as
defined in Section 2(a)(42) of the 1940 Act), on not more than 60 days' written
notice to any other party to the Class A Plan.
7. AMENDMENTS. Any material amendment to the Class A Plan with respect
to any Series must be approved by the outstanding Class A voting securities of
such Series, voting separately from any other class or Series of the Fund (as
defined in Section 2(a)(42) of the 1940 Act). Any amendment to materially
increase the cost to any Series of the Fund under the Class A Plan must also be
approved by the outstanding Class B voting securities of such Series, voting
separately from any other class or Series of the Fund (as defined in Section 2
(a)(42) of the 1940 Act.)
8. NOMINATION OF DIRECTORS. While the Class A Plan shall be
in effect, the selection and nomination of the Independent
Directors shall be committed to the discretion of the Independent
Directors then in office.
9. TERM. The Class A Plan shall remain in effect with respect to any
Series for one year from the date of its approval by the shareholders of such
Series and may continue thereafter only if the Class A Plan is approved at least
annually by either the Board of Directors or by a vote of a majority of the
outstanding Class A voting securities of such Series, voting separately from any
other class or Series of the Fund, and in either case by a majority vote of the
Independent Directors, cast in person at a meeting called for the purpose of
voting on the Class A Plan.
10. PAYMENTS OUTSIDE OF THE PLAN. To the extent any payments made by
any Series to its investment advisor, its transfer agent or any company
affiliated with an Underwriter, may be deemed to be indirect financing of any
monies paid by the Underwriter or investment advisor out of their own assets for
distribution expenses, such payments are permissible under the Class A Plan.
Permissible payments may include, but are not limited to, the payment by the
Series of investment advisory and service fees.
11. TREATMENT OF EXPENSES. The Directors, including all of the
Independent Directors, have determined that the Class A 12b-1 fee will not be an
operating expense of the Series. However, while it is expected that the payments
under the Class A Plan will be excluded from each Series' total expenses for
purposes of determining compliance with any state expense limitation, whether
any expenditure under the Class A Plan is subject to any such state
- 3 -
<PAGE>
expense limitation will depend upon the nature of the expenditure and the terms
of the state regulation imposing the limitation. In any event, the amounts paid
under the Class A Plan will be an expense for accounting purposes.
Dated: August 10, 1992, as amended and restated as of September
22, 1994
- 4 -
<PAGE>
CLASS B DISTRIBUTION PLAN
OF
FIRST INVESTORS SERIES FUND II, INC.
WHEREAS, FIRST INVESTORS SERIES FUND II, INC. (the "Fund") is a
diversified open-end management investment company duly registered with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Fund employs one or more broker-dealers as distributors of
its shares ("Underwriter") pursuant to a written agreement ("Underwriting
Agreement");
WHEREAS, Rule 12b-1 under the 1940 Act permits registered investment
companies to bear certain expenses associated with the distribution of their
shares;
WHEREAS, the Fund offers multiple classes of shares for
purchase by shareholders;
WHEREAS, the Board of Directors believes that payment of certain
expenses associated with the distribution of Class B shares of the Fund and the
servicing or maintenance of such Class B shareholder accounts would be
beneficial to the Fund and its shareholders; and
WHEREAS, the Fund, on behalf of its separate designated series
presently existing or hereafter established (individually and collectively,
"Series"), wishes to adopt a plan under Rule 12b-1 to permit each Series to pay
some of the expenses involved in distributing its Class B shares and the
servicing or maintenance of its Class B shareholder accounts.
NOW, THEREFORE, in consideration of the foregoing, the Fund hereby
adopts the following distribution plan in accordance with Rule 12b-1 (the "Class
B Plan"):
1. PAYMENT OF THE FEE. Pursuant to one or more Underwriting Agreements
which the Fund can enter into from time to time and this Class B Plan, each
Series shall pay as compensation for the Underwriter's services an annualized
Rule 12b-1 fee of an aggregate of 1% of each Series' average daily net assets
attributable to Class B shares (referred to herein as the "Class B 12b-1 fee").
The Class B 12b-1 fee is payable by each Series monthly or at such intervals as
shall be determined by the Board of Directors in the manner provided for
approval of this Class B Plan in paragraph 5(a). The Class B 12b-1 fee shall
consist of a distribution fee and a service fee, in the following proportions:
(a) the distribution fee shall be at the rate of 0.75% of the average daily net
assets attributable to Class B shares, and (b) the service fee shall be at the
rate of 0.25% of the average daily net assets attributable to Class B shares.
The Class B 12b-1 fee shall be payable regardless of whether that amount exceeds
or is less than the actual expenses incurred by the Underwriter in distributing
Class B shares of such Series in a particular year.
- 1 -
<PAGE>
2. EXPENSES DIFFERENT FROM ANNUAL RATE. To the extent that
the Class B 12b-1 fee paid by each Series in a particular year
exceeds actual expenses attributable to Class B Shares incurred by an
Underwriter in that year, the Underwriter may realize a profit in that year. If
the expenses attributable to Class B Shares incurred by an Underwriter in a
particular year are greater than the Class B 12b-1 fee, the Underwriter may
incur a loss in that year and may not recover from such Series such excess of
expenses attributable to Class B Shares over the Class B 12b-1 fee unless actual
expenses attributable to Class B shares incurred in a subsequent year in which
the Class B Plan remained in effect were less than the Class B 12b-1 fee paid
under the Class B Plan in that year.
3. DISTRIBUTION AND SERVICE FEES. "Distribution" fees are fees paid for
the distribution of the Series' Class B shares, including continuing payments to
registered representatives and dealers for sales of such shares, the costs of
printing and dissemination of sales material or literature, prospectuses used as
sales material and reports or proxy material prepared for the Series' Class B
shareholders to the extent that such material is used in connection with the
sales of the Series' Class B shares, and general overhead of an Underwriter.
"Service" fees are fees paid for services related to the maintenance and
servicing of existing Class B shareholder accounts, including shareholder
liaison services, whether provided by individual representatives, dealers, an
Underwriter or others entitled to receive such fees.
4. REPORTS TO DIRECTORS. Quarterly and annually in each year that the
Class B Plan remains in effect, the Treasurer of the Fund shall prepare and
furnish to the Board of Directors of the Fund a written report of the amounts so
expended and the purposes for which such expenditures were made under the Class
B Plan. The Board of Directors will promptly review the Treasurer's report.
5. APPROVAL OF PLAN. The Class B Plan shall become effective with
respect to any Series of the Fund immediately upon the approval by the majority
vote of (a) the Fund's Board of Directors and of the Directors who are not
"interested persons" of the Fund, within the meaning of the 1940 Act, and have
no direct or indirect financial interest in the operation of the Class B Plan or
in any agreements related to the Class B Plan (the "Independent Directors") cast
in person at a meeting called for the purpose of voting on such Class B Plan and
(b) the outstanding Class B voting securities of such Series, voting separately
from any other class or Series of the Fund, which for this purpose is defined in
Section 2(a)(42) of the 1940 Act and means the lesser of (1) more than 50% of
the outstanding shares, or (2) 67% or more of the shares present or represented
at a shareholders meeting if more than 50% of the outstanding shares are
represented at the meeting in person or by proxy, whichever is less.
6. TERMINATION OF PLAN. The Class B Plan can be terminated by any
Series at any time without the payment of any penalty by vote of a majority of
the Independent Directors or by vote of a majority of the outstanding Class B
voting securities of such Series, voting separately from any other class or
Series of the Fund (as defined in Section 2(a)(42) of the 1940 Act), on not more
than 60 days' written notice to any other party to the Class B Plan.
- 2 -
<PAGE>
7. AMENDMENTS. Any amendment to increase materially the cost to any
Series of the Fund under the Class B Plan may not be instituted without the
approval of the outstanding Class B voting securities of such Series, voting
separately from any other class or Series of the Fund (as defined in Section
2(a)(42) of the 1940 Act).
8. NOMINATION OF DIRECTORS. While the Class B Plan shall be
in effect, the selection and nomination of the Independent
Directors shall be committed to the discretion of the Independent
Directors then in office.
9. TERM. The Class B Plan shall remain in effect with respect to any
Series for one year from the date of its approval by the Class B shareholders of
such Series and may continue thereafter only if the Class B Plan is approved at
least annually by either the Board of Directors or by a vote of a majority of
the outstanding Class B voting securities of such Series, voting separately from
any other class or Series of the Fund, and in either case by a majority vote of
the Independent Directors, cast in person at a meeting called for the purpose of
voting on the Class B Plan.
10. PAYMENTS OUTSIDE OF THE PLAN. To the extent any payments made by
any Series to its investment advisor, its transfer agent or any company
affiliated with an Underwriter, may be deemed to be indirect financing of any
monies paid by the Underwriter or investment advisor out of their own assets for
distribution expenses, such payments are permissible under the Class B Plan.
Permissible payments may include, but are not limited to, the payment by the
Series of investment advisory and service fees.
11. TREATMENT OF EXPENSES. The Directors, including all of the
Independent Directors, have determined that the Class B 12b-1 fee will not be an
operating expense of the Series. However, while it is expected that the payments
under the Class B Plan will be excluded from each Series' total expenses for
purposes of determining compliance with any state expense limitation, whether
any expenditure under the Class B Plan is subject to any such state expense
limitation will depend upon the nature of the expenditure and the terms of the
state regulation imposing the limitation. In any event, the amounts paid under
the Class B Plan will be an expense for accounting purposes.
Dated: September 22, 1994
- 3 -
<PAGE>
SEC Standardized Total Returns
Average Annual Total Return and Total Return for First Investors
Funds are calculated using the following standardized formula:
Average Annual
Total Return = ((ERV (divided sign) P) - 1
Total Return = ((ERV - P) (divided sign) P)
WHERE: ERV = Ending redeemable value of a hypothetical
$1,000 investment made at the beginning of
1, 5, or 10 year periods (or fractional
period there of.)
P = a hypothetical initial investment of $1,000
N = number of years
The following table lists the information used to calculate the average annual
total return and total return for First Investors Series Fund II, Inc. (Class B
shares) as of October 31, 1995.
AVE. ANNUAL TOTAL
Class B ERV P N TOTAL RETURN RETURN
Growth & Income Fund
Life of Fund: $1,177.84 $1,000.00 .80 N/A 17.78%
Made In The U.S.A. Fund
Life of Fund: $1,158.01 $1,000.00 .80 N/A 15.80%
Utilities Income Fund
Life of Fund: $1,170.24 $1,000.00 .80 N/A 17.02%
<PAGE>
SEC Standardized Total Returns
Average Annual Total Return and Total Return for First Investors
Funds are calculated using the following standardized formula:
Average Annual
Total Return = ((ERV (divided sign) P) - 1
Total Return = ((ERV - P) (divided sign) P)
WHERE: ERV = Ending redeemable value of a hypothetical
$1,000 investment made at the beginning of
1, 5, or 10 year periods (or fractional
period there of.)
P = a hypothetical initial investment of $1,000
N = number of years
The following table lists the information used to calculate the average annual
total return and total return for First Investors Series Fund II, Inc. (Class A
shares) as of October 31, 1995.
AVE. ANNUAL TOTAL
Class A ERV P N TOTAL RETURN RETURN
Growth & Income Fund
1 year: $1,191.81 $1,000.00 1.00 11.98% 11.98%
Life of Fund: $1,161.97 $1,000.00 2.07 7.51% 16.20%
Made In The U.S.A. Fund
1 year: $1,167.61 $1,000.00 1.00 16.76% 16.76%
Life of Fund: $1,201.89 $1,000.00 3.19 5.91% 20.09%
Utilities Income Fund
1 year: $1,137.38 $1,000.00 1.00 13.74% 13.74%
Life of Fund: $1,102.50 $1,000.00 2.69 3.70% 10.25%
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000886048
<NAME> FIRST INVESTORS SERIES FUND II, INC.
<SERIES>
<NUMBER> 011
<NAME> MADE IN THE USA SERIES CLASS A
<MULTIPLIER> 1000
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-1-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 7921
<INVESTMENTS-AT-VALUE> 8894
<RECEIVABLES> 51
<ASSETS-OTHER> 192
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9137
<PAYABLE-FOR-SECURITIES> 0
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<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 8818
<DIVIDEND-INCOME> 54
<INTEREST-INCOME> 91
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<NET-INVESTMENT-INCOME> 43
<REALIZED-GAINS-CURRENT> 1202
<APPREC-INCREASE-CURRENT> 463
<NET-CHANGE-FROM-OPS> 1708
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (48)
<DISTRIBUTIONS-OF-GAINS> (0)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 131
<NUMBER-OF-SHARES-REDEEMED> 179
<SHARES-REINVESTED> 4
<NET-CHANGE-IN-ASSETS> 1166
<ACCUMULATED-NII-PRIOR> 36
<ACCUMULATED-GAINS-PRIOR> (699)
<OVERDISTRIB-NII-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (191)
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<PER-SHARE-NAV-BEGIN> 11.78
<PER-SHARE-NII> .083
<PER-SHARE-GAIN-APPREC> 2.796
<PER-SHARE-DIVIDEND> .079
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.58
<EXPENSE-RATIO> 1.34
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000886048
<NAME> FIRST INVESTORS SERIES FUND II, INC.
<SERIES>
<NUMBER> 012
<NAME> MADE IN THE USA SERIES CLASS B
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-1-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 7921
<INVESTMENTS-AT-VALUE> 8894
<RECEIVABLES> 51
<ASSETS-OTHER> 192
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9137
<PAYABLE-FOR-SECURITIES> 0
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<OTHER-ITEMS-LIABILITIES> 21
<TOTAL-LIABILITIES> 21
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<PAID-IN-CAPITAL-COMMON> 282
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<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 18
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2)
<NET-ASSETS> 298
<DIVIDEND-INCOME> 1
<INTEREST-INCOME> 1
<OTHER-INCOME> 0
<EXPENSES-NET> (2)
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 18
<APPREC-INCREASE-CURRENT> (2)
<NET-CHANGE-FROM-OPS> 16
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 22
<NUMBER-OF-SHARES-REDEEMED> 1
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 298
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (1)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (2)
<AVERAGE-NET-ASSETS> 110
<PER-SHARE-NAV-BEGIN> 12.03
<PER-SHARE-NII> (.011)
<PER-SHARE-GAIN-APPREC> 2.491
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.51
<EXPENSE-RATIO> 2.29
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000886048
<NAME> FIRST INVESTORS SERIES FUND II, INC.
<SERIES>
<NUMBER> 021
<NAME> UTILITIES INCOME SERIES CLASS A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-1-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 77547
<INVESTMENTS-AT-VALUE> 86142
<RECEIVABLES> 853
<ASSETS-OTHER> 255
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 87250
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 350
<TOTAL-LIABILITIES> 350
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 79816
<SHARES-COMMON-STOCK> 14174
<SHARES-COMMON-PRIOR> 12344
<ACCUMULATED-NII-CURRENT> 333
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4798)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8340
<NET-ASSETS> 83691
<DIVIDEND-INCOME> 3314
<INTEREST-INCOME> 555
<OTHER-INCOME> 0
<EXPENSES-NET> (730)
<NET-INVESTMENT-INCOME> 3139
<REALIZED-GAINS-CURRENT> (721)
<APPREC-INCREASE-CURRENT> 11991
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