As filed with the Securities and Exchange Commission on December 29, 1997
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. 14 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 16 X
FIRST INVESTORS SERIES FUND II, INC.
(Exact name of Registrant as specified in charter)
95 Wall Street
New York, New York 10005
(Address of Principal Executive Offices) (Zip Code)
212-858-8000
(Registrant's Telephone Number, Including Area Code)
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)
It is proposed that this filing will become effective on December 31, 1997
pursuant to paragraph (b) of Rule 485.
<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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
N-1A Item No. Location
- ------------- --------
<S> <C>
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
Mid-Cap Opportunity 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: First Investors Growth & Income Fund, First Investors
Mid-Cap Opportunity Fund and First Investors 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.
Mid-Cap Opportunity Fund seeks long-term capital growth. This Fund seeks to
achieve its objective by investing, under normal market conditions, at least 65%
of its total assets in common stocks of issuers that have a medium market
capitalization.
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 December 31, 1997 (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 December 31, 1997
<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.
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
</TABLE>
Annual Fund Operating Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Mid-Cap
Growth & Income Fund Opportunity Fund Utilities Income Fund
-------------------- ---------------- ---------------------
Class A Class B Class A Class B Class A Class B
Shares Shares Shares Shares Shares Shares
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Management Fees (1)......................... 0.75% 0.75% 0.75%+ 0.75%+ 0.75% 0.75%
12b-1 Fees.................................. 0.30 1.00 0.30 1.00 0.30 1.00
Other Expenses (2).......................... 0.38 0.38 0.45+ 0.45+ 0.43 0.43
Total Fund Operating Expenses (3)........... 1.43 2.13 1.50+ 2.20+ 1.48 2.18
</TABLE>
* A contingent deferred sales charge of 1.00% will be assessed on certain
redemptions of Class A shares that are purchased without a sales charge.
See "How to Buy Shares."
+ Net of waiver and/or reimbursement.
(1) Management Fees have been restated to reflect current fees. For the fiscal
year ended October 31, 1997, the Adviser waived certain Management Fees for
each Fund. Absent the waiver, such fees would have been 1.00% for Mid-Cap
Opportunity Fund and 0.75% for Growth & Income Fund and Utilities Income
Fund. The Adviser will waive Management Fees in excess of 0.75% for Mid-Cap
Opportunity Fund for a minimum period ending October 31, 1998.
(2) Other Expenses for Utilities Income Fund have been restated to reflect
current expenses. For the fiscal year ended October 31, 1997, the Adviser
reimbursed Mid-Cap Opportunity Fund for certain Other Expenses. Absent such
reimbursement, Other Expenses for each class of shares of Mid-Cap
Opportunity Fund would have been 0.67%. The Adviser will reimburse each
class of shares for Other Expenses in excess of 0.45% for Mid-Cap
Opportunity Fund for a minimum period ending October 31, 1998.
(3) If management fees and expenses had not been waived or reimbursed, Total
Fund Operating Expenses for Mid-Cap Opportunity Fund would have been as
follows: Class A shares--1.97%; and Class B shares--2.67%. Each Fund has an
expense offset arrangement that may reduce the Fund's custodian fee based
on the amount of cash maintained by the Fund with its custodian. Any such
fee reductions are not reflected under Total Fund Operating Expenses.
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.
2
<PAGE>
The Example below is based on Class A and Class B expense data for each
Fund's fiscal year ended October 31, 1997, 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:
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
Growth & Income Fund
Class A ....................... $76 $105 $136 $223
Class B ....................... 62 97 134 228*
Mid-Cap Opportunity Fund
Class A ....................... 77 107 139 230
Class B ....................... 62 99 138 236*
Utilities Income Fund
Class A ....................... 77 106 138 228
Class B ....................... 62 98 137 234*
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:
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
Growth & Income Fund
Class A ....................... $76 $105 $136 $223
Class B ....................... 22 67 114 228*
Mid-Cap Opportunity Fund
Class A ....................... 77 107 139 230
Class B ....................... 22 69 118 236*
Utilities Income Fund
Class A ....................... 77 106 138 228
Class B ....................... 22 68 117 234*
* Assumes conversion to Class A shares eight years after purch ase.
The expenses in the Example should no t be consid ered a repre sentation 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 audited 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
and
Net Asset Unrealized
Value Net Gain Total from Net Net
Beginning Investment (Loss) on Investment Investments Realized Total
of Period Income Investment Operations Income Gain Distributions
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <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
11/1/93 to 10/31/94 .................. 6.56 .128 .109 .237 .107 -- .107
11/1/94 to 10/31/95 .................. 6.69 .163 1.125 1.288 .168 -- .168
11/1/95 to 10/31/96 .................. 7.81 .102 1.593 1.695 .115 -- .115
11/1/96 to 10/31/97 .................. 9.39 .060 2.359 2.419 .059 .160 .219
CLASS B
1/12/95* to 10/31/95 ................. 6.43 .084 1.372 1.456 .106 -- .106
11/1/95 to 10/31/96 .................. 7.78 .066 1.555 1.621 .071 -- .071
11/1/96 to 10/31/97 .................. 9.33 .002 2.318 2.320 .010 .160 .170
MID-CAP OPPORTUNITY FUND***
CLASS A
8/24/92* to 10/31/92 ................. 11.64 .036 .050 .086 .026 -- .026
11/1/92 to 10/31/93 .................. 11.70 .122 .373 .495 .045 -- .045
11/1/93 to 10/31/94 .................. 12.15 .078 (.326) (.248) .122 -- .122
11/1/94 to 10/31/95 .................. 11.78 .083 2.796 2.879 .079 -- .079
11/1/95 to 10/31/96 .................. 14.58 .042 1.564 1.606 .058 .838 .896
11/1/96 to 10/31/97 .................. 15.29 (.033) 4.021 3.988 .037 .681 .718
CLASS B
1/12/95* to 10/31/95 ................. 12.03 (.011) 2.491 2.480 -- -- --
11/1/95 to 10/31/96 .................. 14.51 .013 1.468 1.481 .053 .838 .891
11/1/96 to 10/31/97 .................. 15.10 (.077) 3.888 3.811 -- .681 .681
</TABLE>
* Commencement of operations of Class A shares or date Class B shares were
first offered.
** Calculated without sales charges.
*** Prior to December 31, 1997, known as U.S.A. Mid-Cap Opportunity Fund and
prior to February 15, 1996, known as Made In The U.S.A. Fund.
+ Annualized.
++ Net of expenses waived or assumed.
+++ Average commission rate (per share of security) as required by amended
disclosure requirements effective in 1996.
4
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
R A T I O S / S U P P L E M E N T A L D A T A
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to Average Net
Ratio to Average Net Asset Before Expenses
Assets++ Waived or Assumed
----------------------- -------------------------------------
Net Assets Net Net Portfolio
Value Net Asset Investment Investment Turnover Average
End Total Return** End of Period Expenses Income Expenses Income Rate Commission
of Period (%) (in thousands) (%) (%) (%) (%) (%) Rate+++
- --------- -------------- -------------- -------- ---------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 6.56 .99+ $3,407 -- 1.02+ 1.37+ (.35)+ 0 $ --
6.69 3.67 34,489 .67 2.26 1.83 1.11 6 --
7.81 19.51 63,493 .98 2.34 1.59 1.74 19 --
9.39 21.82 111,896 1.31 1.20 1.49 1.02 25 .0530
11.59 26.20 193,832 1.39 .55 1.43 .51 28 .0532
7.78 22.73 3,602 1.90+ 2.23+ 2.61+ 1.52+ 19 --
9.33 20.92 12,141 2.03 .48 2.19 .31 25 .0530
11.48 25.23 26,922 2.09 (.15) 2.13 (.19) 28 .0532
11.70 3.86+ 8,150 .06+ 1.87+ 2.64+ (.72)+ 0 --
12.15 4.23 15,586 .81 .96 2.03 (.26) 52 --
11.78 (2.05) 7,651 .90 .45 2.32 (.97) 29 --
14.58 24.59 8,818 1.34 .48 2.36 (.55) 106 --
15.29 11.64 14,478 1.57 .36 2.15 (.21) 118 .0704
18.56 27.09 26,284 1.50 (.21) 1.94 (.65) 90 .0683
14.51 20.62 298 2.29+ (.03)+ 3.79+ (1.53)+ 106 --
15.10 10.80 1,168 2.30 (.37) 3.03 (1.10) 118 .0704
18.23 26.17 2,959 2.20 (.91) 2.64 (1.35) 90 .0683
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Income From Investment Operations Less Distributions from
------------------------------------ -----------------------
Net Realized
and
Net Asset Unrealized
Value Net Gain Total from Net Net
Beginning Investment (Loss) on Investment Investments Realized Total
of Period Income Investment Operations Income Gain Distributions
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
UTILITIES INCOME FUND
CLASS A
2/22/93* to 10/31/93.................. $5.59 $.118 $.317 $.435 $.105 $ -- $.105
11/1/93 to 10/31/94................... 5.92 .239 (.839) (.600) .227 .013 .240
11/1/94 to 10/31/95................... 5.08 .233 .822 1.055 .235 -- .235
11/1/95 to 10/31/96................... 5.90 .214 .512 .726 .216 -- .216
11/1/96 to 10/31/97......... 6.41 .204 .609 .813 .193 -- .193
CLASS B
1/12/95* to 10/31/95.................. 4.95 .144 .930 1.074 .164 -- .164
11/1/95 to 10/31/96................... 5.86 .185 .489 .674 .184 -- .184
11/1/96 to 10/31/97................... 6.35 .153 .606 .759 .149 -- .149
</TABLE>
* Commencement of operations of Class A shares or date Class B shares were
first offered.
** Calculated without sales charges.
*** Prior to December 31, 1997, known as U.S.A. Mid-Cap Opportunity Fund and
prior to February 15, 1996, known as Made In The U.S.A. Fund.
+ Annualized.
++ Net of expenses waived or assumed.
+++ Average commission rate (per share of security) as required by amended
disclosure requirements effective in 1996.
6
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
R A T I O S / S U P P L E M E N T A L D A T A
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to Average Net
Ratio to Average Net Asset Before Expenses
Assets++ Waived or Assumed
----------------------- -------------------------------------
Net Assets Net Net Portfolio
Value Net Asset Investment Investment Turnover Average
End Total Return** End of Period Expenses Income Expenses Income Rate Commission
of Period (%) (in thousands) (%) (%) (%) (%) (%) Rate+++
- --------- -------------- -------------- -------- ---------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$5.92 11.28+ $58,373 .35+ 3.84+ 1.80+ 2.39+ 17 $ --
5.08 (10.15) 62,671 .80 4.59 1.59 3.80 58 --
5.90 21.35 83,691 1.04 4.37 1.57 3.84 16 --
6.41 12.45 104,029 1.20 3.49 1.49 3.19 38 .0706
7.03 12.86 101,834 1.40 2.98 1.48 2.90 60 .0694
5.86 21.99 3,209 1.82+ 4.93+ 2.53+ 4.21+ 16 --
6.35 11.61 7,670 1.91 2.77 2.28 2.40 38 .0706
6.96 12.08 9,338 2.10 2.28 2.18 2.20 60 .0694
</TABLE>
7
<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 debt securities in which the Fund may invest are not
subject to any limitations as to ratings and may include high, medium, lower and
unrated securities. Although the Fund may invest up to 20% of its total assets
in convertible debt securities rated below Baa by Moody's Investors Service,
Inc. ("Moody's") or BBB by Standard & Poor's ("S&P") (including convertible debt
securities that have been downgraded), or in unrated convertible debt securities
that are of comparable quality as determined by the Adviser, it does not
anticipate investing more than 5% of its total net assets in such securities in
the coming year. Convertible debt securities rated lower than BBB by S&P or Baa
by Moody's, commonly referred to as "junk bonds," are speculative and generally
involve a higher risk of loss of principal and income than higher-rated
securities. See "Debt Securities," below, and Appendix A to the SAI for a
description of convertible debt security ratings.
The Fund may invest up to 35% of its total assets in the following
instruments: money market instruments, including U.S. bank certificates of
deposit, bankers' acceptances, commercial paper issued by domestic corporations
and repurchase agreements; fixed income securities, including obligations issued
or guaranteed as to principal and interest by the U.S. Government, its agencies
or instrumentalities ("U.S. Government Obligations"), including mortgage-backed
securities, and corporate debt securities rated at least Baa by Moody's or BBB
by S&P, commonly known as "investment grade securities" or unrated securities
that are of comparable quality as determined by the Adviser; and common stock
and securities convertible into common stock of companies that are not paying a
dividend if there exists the potential for growth of capital or future income.
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 debt securities, as previously discussed), provided that such
disposition is in the best interests of the Fund and its shareholders. See "Debt
Securities," below, and Appendix A to the SAI for a description of corporate and
convertible debt security 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
8
<PAGE>
about the issuer, the absence of a business history or historical pattern of
performance, as well as normal risks which accompany the development of new
products, markets or services.
The Fund may invest up to 20% of its total assets in securities of
well-established foreign companies in developed countries which are traded on a
recognized domestic or foreign securities exchange. 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" and
"American Depository Receipts and Global Depository Receipts," below. The Fund
may enter into forward currency contracts to protect against uncertainty in the
level of future exchange rates. The Adviser 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.
Mid-Cap Opportunity Fund
Mid-Cap Opportunity Fund seeks long-term capital growth by investing, under
normal market conditions, at least 65% of its total assets in common stocks of
companies that have a medium market capitalization. The Fund seeks to invest in
equity securities that the Adviser believes demonstrate outstanding growth
records and potential based on the Adviser's fundamental analysis of the
company. The companies in which the Fund invests will be primarily those with
medium market capitalization (often known as "mid-cap"), which is currently
defined by the Adviser as those with a market capitalization of between $750
million and $5 billion. Market capitalization is the total market value of a
company's outstanding common stock. The mean market capitalization for the
companies in the Standard & Poor's Midcap 400 Index is $1.9 billion as of June
30, 1997. By comparison, the mean market capitalization for the companies in the
Standard & Poor's 500 Composite Stock Price Index, an unmanaged index of 500
widely held common stocks, is approximately $13.6 billion as of June 30, 1997.
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. Although the companies in which the Fund will invest will
be primarily mid-cap companies, the Fund may also invest in companies with small
market capitalizations, which tend to be more speculative than securities of
companies with larger capitalizations. See "Investment Objectives and
Policies-Growth & Income Fund."
The Fund may invest up to 35% 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. The Fund may invest up to 15% of its total assets in ADRs. 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
9
<PAGE>
money for temporary or emergency purposes in an amount not exceeding 5% of its
net assets and invest in securities issued on a "when-issued" or delayed
delivery basis. The Adviser continually monitors the investments in the Fund's
portfolio and carefully evaluates on a case-by-case basis whether to dispose of
or retain a debt security that has been downgraded below investment grade. No
more than 5% of the Fund's net assets will remain invested in such downgraded
securities. See "Debt Securities," below, and Appendix A 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, if unrated,
will be of comparable quality as determined by the Adviser. The Fund's policy is
to attempt to sell, within a reasonable time period, a debt security in its
portfolio which has been downgraded below A, provided that such disposition is
in the best interests of the Fund and its shareholders. See "Debt Securities,"
below, and Appendix A 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.
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."
10
<PAGE>
The Fund may invest up to 35% of its total assets in the following
instruments: debt securities (rated at least A by Moody's or S&P) and common and
preferred stocks of non-utilities companies; U.S. Government Obligations;
mortgage-backed securities; cash; and money market instruments consisting of
prime commercial paper, bankers' acceptances, certificates of deposit and
repurchase agreements. The Fund may invest in securities on a "when-issued" or
delayed delivery basis and make loans of portfolio securities. The Fund may
invest up to 10% of its total assets in ADRs. The Fund may borrow money for
temporary or emergency purposes in amounts not exceeding 5% of its net assets.
The Fund also may invest in zero coupon and pay-in-kind securities. In addition,
in any period of market weakness or of uncertain market or economic conditions,
the Fund may establish a temporary defensive position to preserve capital by
having up to 100% of its assets invested in short-term fixed income securities
or retained in cash or cash equivalents. 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
General Market Risk
In addition to the risks associated with particular types of securities,
which are discussed below, the Funds are subject to general market risks. The
Funds invest primarily in common stocks. The market risks associated with stocks
include the possibility that the entire market for common stocks could suffer a
decline in price over short or even extended periods. This could affect the net
asset value of your Fund shares. The U.S. stock market tends to be cyclical,
with periods when stock prices generally rise and periods when stock prices
generally decline. In addition, certain sectors of the market, such as
technology stocks, can be more volatile than the general market, creating
greater opportunities but also greater risks. Thus, while stock markets in
general might rise, the particular market sectors in which the Funds invest
might decline. In addition, even if the primary market sectors in which the
Funds invest generally rise, the particular securities in which the Funds invest
might decline. Accordingly, the Funds generally will be suitable investments
only with respect to that portion of your assets that is available for
longer-term investment.
Types of Securities and Their Risks
American Depository Receipts and Global Depository Receipts. Growth &
Income Fund may invest in sponsored and unsponsored ADRs and GDRs. Mid-Cap
Opportunity Fund may invest in sponsored and unsponsored ADRs and Utilities
Income Fund may invest in sponsored ADRs. ADRs are receipts typically issued by
a U.S. bank or trust company evidencing ownership of the underlying securities
of foreign issuers, and other forms of depository receipts for securities of
foreign issuers. Generally ADRs in registered form, are denominated in U.S.
dollars and are designed for use in the U.S. securities markets. For an
additional discussion of ADRs, see "Investment Policies--American Depository
Receipts" in the SAI. GDRs are issued globally and evidence a similar ownership
arrangement. Generally, GDRs are designed for trading in non-U.S. securities
markets. ADRs and GDRs are considered to be foreign securities by the Funds for
purposes of Fund policies limiting investments in foreign issuers.
11
<PAGE>
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 debt securities are subject to
certain risks that may not be present with investments in higher-grade
securities. See "Debt Securities," below, and "Risk Factors of High Yield
Convertible Securities" in the SAI.
Debt Securities. Debt securities are likely to decline in value in times of
rising market interest rates and to rise in value in times of falling interest
rates ("interest rate risk"). In general, the longer the maturity of a debt
security, the more pronounced is the effect of a change in interest rates on the
value of the security. Debt securities are subject to the risk of an issuer's
inability to meet principal and interest payments on its obligations ("credit
risk") and are subject to price volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness of the issuer and market
liquidity ("market risk").
Special risk factors apply to investments, which may be made by Growth &
Income Fund, in convertible debt securities rated below investment grade.
Lower-rated securities are more likely to react to developments affecting the
economy and the credit risk of the issuer than are more highly rated securities,
which react primarily to movements in the general level of interest rates.
Changes in economic conditions may weaken the capacity of the issuer of such
securities to make principal and interest payments than is the case for
higher-grade debt securities. An economic downturn affecting the issuer may
result in an increased risk of default. The market for lower-rated securities
may be thinner and less active than for higher-rated securities ("liquidity
risk"). Pricing of thinly traded securities requires greater judgment than
pricing of securities for which market transactions are regularly reported. See
the SAI for a further discussion of these risk factors.
Foreign Securities. 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
12
<PAGE>
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.
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,
including the risks involved in their use.
Options and Futures Contracts. 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 tax considerations. Neither Fund presently intends to engage in these
strategies. See the SAI for more information regarding options and futures
contracts, including the risks involved in their use.
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, including the risks involved in their use.
Restricted Securities and Illiquid Investments. Each Fund may invest up to
15% of its net assets in illiquid investments, including (1) securities that are
illiquid due to the absence of a
13
<PAGE>
readily available market or due to legal or contractual restrictions on resale
and (2) repurchase agreements maturing in more than seven days. However,
illiquid investments for purposes of this limitation do not include restricted
securities eligible for resale under Rule 144A under the Securities Act of 1933,
as amended ("Rule 144A Securities"), which the Board of Directors or the Adviser
has determined are liquid under Board-approved guidelines. In addition, there is
a risk of increasing illiquidity during times when qualified institutional
buyers are uninterested in purchasing Rule 144A Securities. See the SAI for more
information regarding restricted securities and illiquid investments, including
the risks involved in their use.
U.S. Government Obligations. Securities issued or guaranteed as to
principal and interest by the U.S. Government include (1) U.S. Treasury
obligations which differ only in their interest rates, maturities and times of
issuance as follows: U.S. Treasury bills (maturities of one year or less), U.S.
Treasury notes (maturities of one to ten years) and U.S. Treasury bonds
(generally maturities of greater than ten years), and (2) obligations issued or
guaranteed by U.S. Government agencies and instrumentalities that are backed by
the full faith and credit of the 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. Many utilities companies, especially electric and gas
and other energy-related utilities companies, have historically been subject to
the risk of increases in fuel and other operating costs, changes in interest
rates on borrowings for capital improvement programs, changes in applicable laws
and regulations, and costs and operating constraints associated with compliance
with environmental regulations.
In recent years, regulatory changes in the United States have increasingly
allowed utilities companies to provide services and products outside their
traditional geographical areas and lines of business, creating new areas of
competition with the utilities industries. This trend toward deregulation and
the emergence of new entrants have caused non-regulated providers of utilities
services to become a significant part of the utilities industries. The Adviser
believes that the emergence of competition and deregulation will result in
certain utilities companies being able to earn more than their traditional
regulated rates of return, while others may be forced to defend their core
business from increased competition and may be less profitable.
Certain utilities, especially gas and telephone utilities, have in recent
years been affected by increased competition, which could adversely affect the
profitability of such utilities companies. In addition, expansion by companies
engaged in telephone communication services of their non-regulated activities
into other businesses (such as cellular telephone services, data processing,
equipment retailing, computer services and financial services) has provided the
opportunity for increases in earnings and dividends at faster rates than have
been allowed in traditional regulated businesses. However, technological
innovations and other structural changes also could adversely affect the
profitability of such companies. Although the Adviser seeks to take advantage of
favorable investment opportunities that may arise from these structural changes,
there can be no assurance that the Fund will benefit from any such changes.
Foreign utilities companies may be more heavily regulated than U.S.
utilities companies, which may result in increased costs or otherwise adversely
affect the operations of such
14
<PAGE>
companies. The securities of foreign utilities companies also have lower
dividend yields than U.S. utilities companies. The Fund's investments in foreign
issuers may include recently privatized enterprises, in which the Fund's
participation may be limited or otherwise affected by local law. There can be no
assurance that governments with privatization programs will continue such
programs or that privatization will succeed in such countries.
Because securities issued by utilities companies are particularly sensitive
to movement in interest rates, the equity securities of such companies are more
affected by movements in interest rates than are the equity securities of other
companies.
Each of these risks could adversely affect the ability and inclination of
public utilities companies to declare or pay dividends and the ability of
holders of common stock, such as Utilities Income Fund, to realize any value
from the assets of the company upon liquidation or bankruptcy.
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.
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 contingent deferred sales charge ("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
15
<PAGE>
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
asset-based sales charges than the economic equivalent of the maximum sales
charge on Class A shares. The automatic conversion of Class B shares into Class
A shares after eight years 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 (each, a "Representative") may help you complete and submit an
application to open an account with a Fund. Certain accounts may require
additional documentation.
With respect to certain shareholder privileges noted in this Prospectus and
the SAI, each fund in the First Investors family of funds, except as noted
below, is an "Eligible Fund" (collectively, "Eligible Funds"). First Investors
Special Bond Fund, Inc., First Investors Life Series Fund and First Investors
U.S. Government Plus Fund are not Eligible Funds. First Investors Cash
Management Fund, Inc. and First Investors Tax-Exempt Money Market Fund, Inc.
(the "Money Market Funds"), unless otherwise noted, are not Eligible Funds. The
funds of Executive Investors Trust are Eligible Funds provided the shares of any
such fund 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.
Choice of Class of 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 FIC. For more information, see the SAI.
Minimum Investment. 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. Class A share accounts opened through an exchange of shares from the 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"), SIMPLE-IRAs 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."
16
<PAGE>
Processing and Pricing of Share Purchases. Applications accompanied by
checks drawn on U.S. banks made payable to "FIC" and received in FIC's
Woodbridge offices by the close of regular trading on the NYSE, generally 4:00
P.M. (New York City time), will be processed and shares will be purchased at the
public offering price determined at the close of regular trading on the NYSE on
that day. Money orders, starter checks and third-party checks will not be
accepted.
Purchases via telephone or wire will be processed as follows: Orders
received by 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. The "public offering price" is the net asset value plus the
applicable sales charge for Class A shares and the net asset value for Class B
shares. For a discussion of pricing practices when FIC's Woodbridge offices are
unable to open for business due to an emergency, see the SAI. 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.
Purchases through the National Securities Clearing Corp. ("NSCC")
"Fund/SERV" system will be processed as follows: Orders received by a Dealer
before the close of regular trading on the NYSE and received by FIC at its
Woodbridge offices in accordance with NSCC rules and procedures will be executed
at the net asset value, plus any applicable sales charge, determined at the
close of regular trading on the NYSE on that day. It is the responsibility of
the Dealer to transmit purchase orders to FIC promptly and accurately. FIC will
not be liable for any change in the purchase price due to the failure of FIC to
receive such purchase orders. Any such disputes must be settled between you and
the Dealer.
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, purchases
that qualify for the Cumulative Purchase Privilege if they total at least $1
million or purchases made pursuant to a Letter of Intent in the minimum amount
of $1 million. 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 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 Class B shares. See
"Class B Shares."
17
<PAGE>
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 or employee (who has
completed the introductory employment period) of Series Fund II, 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 or 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) any
reinvestment of dividends or distributions in Class A shares of any Eligible
Fund; (4) any reinvestment of Systematic Withdrawal Payment Plan payments in
Class A shares of any Eligible Fund; (5) any reinvestment of the loan repayments
by a participant in a loan program of any First Investors sponsored qualified
retirement plan; (6) a purchase with proceeds from the liquidation of a First
Investors Life Variable Annuity Fund A contract, First Investors Life Variable
Annuity Fund C contract or First Investors Life Variable Annuity Fund D contract
during the one-year period preceding the maturity date of the contract; (7) any
purchase made with proceeds from the liquidation of the 1st Fund, 2nd Fund or
3rd Fund of First Investors U.S. Government Plus Fund upon maturity of each Fund
and for a period of six month thereafter; (8) any purchase by a participant in a
Group 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; and (9) any purchase in an IRA account if the purchase is made with the
proceeds of a distribution from a First Investors Fund under a Group Qualified
Plan, as defined under "Retirement Plans." With respects to items (8) and (9)
above, if shares are redeemed within 24 months of purchase, a CDSC of 1.00% will
be deducted from the redemption proceeds.
Additionally, policyholders of participating life insurance policies issued
by First Investors Life Insurance Company, an affiliate of the Adviser and
Underwriter, may elect to invest dividends earned on such policies in Class A
shares of a Fund at net asset value, provided the annual dividend is at least
$50 and the policyholder has an existing account with the Fund.
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
Municipals-Income Trust sponsored by Van Kampen Merritt Inc. (the "New York
Trust"); Unitholders of various series of the Multistate Tax Exempt Trust
sponsored by Advest Inc.; and Unitholders of various series of the Municipal
Insured National Trust, J.C. Bradford & Co. as agent, may purchase Class A
shares of a 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%. Unitholders may invest in Class A shares of a Fund, other than through the
reinvestment of Unit Distributions. Unitholders will be charged the Fund's
regular offering price on such purchases. Each Fund's initial minimum investment
requirement is waived for purchases of Class A shares with Unit Distributions.
Shares of a Fund
18
<PAGE>
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, SIMPLE-IRA 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 "Group Qualified Plan") are
entitled to a reduced sales charge provided the number of employees eligible to
participate is 99 or less. The sales charge as a percentage of the offering
price and net amount invested is 3.00% and 3.09%, respectively, and the
concession to dealers as a percentage of the offering price is 2.55%.
There is no sales charge on purchases through a participant-directed Group
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 Group Qualified Plan account will be subject to the
lower of the sales charge for Group Qualified Plans or the sales charge for the
purchase of Fund shares.
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:
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 you 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
19
<PAGE>
$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
the month in which the eighth anniversary of the purchase of the Class B shares
occurs. If a shareholder effects one or more exchanges between Class B shares of
the Eligible Funds during the eight-year period, the holding period for the
shares so exchanged will commence upon the date of the purchase of the original
shares. Because the per share net asset value of the Class A shares may be
higher than that of the Class B shares at the time of conversion, a shareholder
may receive fewer Class A shares than the number of Class B shares converted.
See "Determination of Net Asset Value."
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.
Systematic Investing. Shareholders who have an account with a U.S. bank, or
other financial institution that is an Automated Clearing House member, 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 reinvest systematically in Class A or Class B shares of a Fund at net
asset value the cash distributions or Systematic Withdrawal Plan payments from
the same class of shares of an existing account in another Eligible Fund,
including the Money Market Funds. 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.
Transfer of Shares. Shareholders may transfer the ownership of their shares
in a Fund account to another party. Because the Fund does not offer its shares
other than through a broker or dealer, if the party to whom the shares are to be
transferred does not have a broker or dealer of record, the Fund reserves the
right to liquidate the shares and forward the proceeds to the new
20
<PAGE>
accountholder rather than to make the transfer. For more information on how to
transfer your Fund shares, call your Representative or call Shareholder Services
at 1-800-423-4026.
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 that
employ a Dealer Representative who sells a minimum dollar amount of the shares
of the Funds and/or certain other First 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. FIC Representatives generally are more highly compensated for sales
of First Investors mutual funds than for sales of other mutual funds.
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. 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 into which the exchange is
being made. Additionally, the fund must be available for sale in the state where
you reside. Before exchanging Fund shares for shares of another fund, you should
read the Prospectus of the fund into which the exchange is to be made. You may
obtain Prospectuses and information with respect to which funds qualify for the
exchange privilege free of charge by calling Shareholder Services at
1-800-423-4026. Exchange requests received in "good order," as defined below, 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., 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 number(s), the dollar amount,
number of shares or percentage of the account you wish to exchange; (2) share
certificates, if issued; (3) the signature of all registered owners exactly as
the account is registered; and (4) signature guarantees, if required (see "How
to Redeem Shares-Signature Guarantees"). 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."
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
21
<PAGE>
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
in a non-retirement account may be redeemed by mail or telephone. Shares in a
retirement account may only be redeemed by mail. Certain account registrations
may require additional legal documentation in order to redeem. 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 generally will be made within seven
days. If the shares being redeemed were recently purchased by check, payment may
be delayed to verify that the check has been honored, which may take up to
fifteen days from date of purchase. Shareholders may not redeem shares by
telephone or Electronic Fund Transfer unless the shares being redeemed have been
owned for at least 15 days. Redemption checks returned to the Transfer Agent,
marked as being undeliverable, by the U.S. Postal Service after two consecutive
mailings will be held by the Transfer Agent in a non-interest bearing account.
Such funds will remain in the non-interest bearing account until the Transfer
Agent is provided with a current address and any required supporting
documentation or is required to forfeit the funds to the appropriate state
treasury. For a discussion of pricing practices when FIC's Woodbridge offices
are unable to open due to an emergency, see the SAI.
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; and (6) signature guarantees, if required.
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. 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. 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."
Electronic Fund Transfer. Shareholders who have established Electronic Fund
Transfer may have redemption proceeds electronically transferred to a
predesignated bank account. Each Fund has the right, at its sole discretion, to
limit or terminate your ability to exercise the
22
<PAGE>
electronic fund transfer privilege at any time. For additional information, see
the SAI. Applications to establish Electronic Fund Transfer are available from
your FIC Representative or by calling Shareholder Services at 1-800-423-4026.
Fund/SERV Redemptions. If there is a Dealer of record on your Fund account,
the Fund is authorized to execute electronic redemption requests received
directly from this Dealer. Electronic requests may be processed through the
services of the NSCC "Fund/SERV" system. Redemption requests received by a
Dealer before the close of regular trading on the NYSE and received by FIC at
its Woodbridge offices in accordance with NSCC rules and procedures will be
executed at the net asset value, less any applicable sales charge, determined at
the close of regular trading on the NYSE on that day. It is the responsibility
of the Dealer to transmit redemption requests to FIC promptly and accurately.
FIC will not be liable for any change in the redemption price due to the failure
of FIC to receive such redemption requests. Any such disputes must be settled
between you and the Dealer.
Systematic Withdrawal Plan. If you own noncertificated shares, you may set
up a plan for redemptions to be made automatically at regular intervals. See the
SAI for more information on the Systematic Withdrawal Plan or 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 six months 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, see the SAI or call Shareholder
Services at 1-800-423-4026.
Repurchase through Underwriter. You may redeem Fund shares 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, less any
applicable CDSC. The Dealer may charge you a fee 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 that have been
discontinued prior to meeting the $1,000 minimum are subject to this policy.
Additional information concerning how to redeem shares of a Fund is
available upon request to your Representative or Shareholder Services at
1-800-423-4026.
23
<PAGE>
TELEPHONE TRANSACTIONS
Unless you specifically decline to have telephone privileges, you, or any
person who we reasonably believe is authorized to act on your behalf, 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). Certain accounts, however, are required to
complete additional documents in order to activate telephone privileges.
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. Exchange or redemption
requests received after the close of regular trading on the NYSE will be
processed the following business 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). Telephone exchanges to Money Market Funds are not
available if your address of record has changed within 60 days prior to the
exchange request.
Telephone Redemptions. The telephone redemption privilege may be used to
redeem shares from a non-retirement account provided: (1) the redemption
proceeds are being mailed to the address of record or to a predesignated bank
account; (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) each
redemption does not exceed $50,000; (5) the proceeds of the redemption, together
with all redemptions made from the account during the prior 30-day period, do
not exceed $100,000; and (6) the shares being redeemed have been owned for at
least fifteen days. Telephone redemption instructions will be accepted from any
one owner or authorized individual.
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 or which they reasonably believe to be
authentic. This policy places the entire risk of loss for unauthorized or
fraudulent transactions on the shareholder, except that if the above-referenced
parties 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.
The Funds have the right, at their 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
determines each Fund's
24
<PAGE>
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 controls FICC and, therefore, controls
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, 1997, advisory fees, net of waiver for Growth & Income Fund, Mid-Cap
Opportunity Fund and Utilities Income Fund were 0.71%, 0.75% and 0.70%,
respectively, of each Fund's average daily net assets.
Prior to January 1, 1998, Wellington Management Company, LLP ("WMC") was
the investment subadviser to Growth & Income Fund. For the fiscal year ended
October 31, 1997, WMC's fees amount of 0.28% of Growth & Income Fund's average
daily net assets, all of which was paid by the Adviser and not by the Fund.
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.
Portfolio Managers. Patricia D. Poitra, Director of Equities, has been
primarily responsible for the day-to-day management of the Mid-Cap Opportunity
Fund since October 1994 and the Utilities Income Fund since early November 1997.
Ms. Poitra is assisted by a team of portfolio analysts. Ms. Poitra also is
responsible for the management of the Special Situations Fund and the equity
portion of the Total Return Fund, series of First Investors Series Fund. In
addition, Ms. Poitra is responsible for the management of the Discovery Fund of
First Investors Life Series Fund. Ms. Poitra joined FIMCO in 1985 as a Senior
Equity Analyst.
Effective January 1, 1998, Growth & Income Fund will be co-managed by
Dennis T. Fitzpatrick and Kimberly Speegle. At that time, Ms. Speegle will join
Mr. Fitzpatrick as co-manager of the Blue Chip Fund of First Investors Series
Fund, the Blue Chip Fund of First Investors Life Series Fund and the Blue Chip
Fund of Executive Investors Trust. Mr. Fitzpatrick joined FIMCO in October 1995
as a Large Cap Analyst. From February 1997 Mr. Fitzpatrick has co-managed the
Blue Chip Fund of First Investors Life Series Fund, the Blue Chip Fund of First
Investors Series Fund and the Blue Chip Fund of Executive Investors Trust. From
July 1995 to October 1995, Mr. Fitzpatrick was a Regional Surety Manager at
United States Fidelity & Guaranty Co. and from 1988 to 1995 he was Northeast
Surety Manager at American International Group. Ms. Speegle joined FIMCO in
August 1997 as an Assistant Portfolio Manager. From March 1997 to August 1997,
Ms. Speegle was an Investment Analyst at Sage Asset Management and from 1992 to
1995 she was a Portfolio Manager for the Clark Family.
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.
25
<PAGE>
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."
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 the 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.
The Funds 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 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
26
<PAGE>
all liabilities attributable to that class, by the number of shares of the
applicable class outstanding. If there is no available market value, securities
will be valued at their fair value as determined in good faith pursuant to
procedures adopted by the Board of Directors. 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. 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
NYSE currently observes the following holidays: New Year's Day, Martin Luther
King, Jr. 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
Mid-Cap Opportunity 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 each
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.
27
<PAGE>
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 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. With respect to (3) above, no interest will be
earned on dividend or distribution checks during the period prior to their
reinvestment.
TAXES
Each Fund intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code of 1986, as amended, so that
it will be relieved of Federal income tax on that part of its investment company
taxable income (consisting generally of 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 it distributes 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. Under the Taxpayer Relief Act of
1997, different maximum tax rates apply to an individual's net capital gain
depending on the individual's holding period and marginal rate of federal income
tax - generally, 28% for gain recognized on capital assets held for more than
one year but not more than 18 months and 20% (10% for taxpayers in the 15%
marginal tax bracket) for gain recognized on capital assets held for more than
18 months. Pursuant to an Internal Revenue Service notice, each Fund may divide
each net capital gain distribution into a 28% rate gain distribution and a 20%
rate gain distribution (in accordance with the Fund's holding periods for the
securities it sold that generated the distributed gain) and its shareholders
must treat those portions accordingly.
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 your Fund during that year. The information regarding
capital gain distributions will designate the portions thereof subject to the
different maximum rates of tax applicable to individuals' net capital gain
indicated above.
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
an 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
28
<PAGE>
of an Eligible Fund without paying a sales charge due to the 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.
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 or CDSC will be greater than if
the maximum sales charge or CDSC were used. Each class of shares of a Fund has
different expenses which will affect its performance. 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. 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
29
<PAGE>
meeting of shareholders for any purpose, including the removal of Directors.
Each share of each Fund has equal voting rights except as noted above. Prior to
December 31, 1997, Mid-Cap Opportunity Fund was called U.S.A. Mid-Cap
Opportunity Fund and prior to February 15, 1996, it was called Made In The
U.S.A. Fund.
Custodian. The Bank of New York, 48 Wall Street, New York, NY 10286, is
custodian of the securities and cash of each Fund 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 for 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. Generally, confirmation statements 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. However,
systematic investments made through First Investors Money Line or automatic
payroll deductions will only be confirmed in your monthly or quarterly
statement, showing all transactions occurring during the period.
Shareholder Inquiries. Shareholder inquiries can be made by calling
Shareholder Services at 1-800-423-4026.
Annual and Semi-Annual Reports to Shareholders. It is each Fund's 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.
30
<PAGE>
TABLE OF CONTENTS
================================================================================
Fee Table.................................................................... 2
Financial Highlights......................................................... 4
Investment Objectives and Policies........................................... 8
Alternative Purchase Plans...................................................15
How to Buy Shares............................................................16
How to Exchange Shares.......................................................21
How to Redeem Shares.........................................................22
Telephone Transactions.......................................................24
Management...................................................................24
Distribution Plans...........................................................26
Determination of Net Asset Value.............................................26
Dividends and Other Distributions............................................27
Taxes........................................................................28
Performance Information......................................................29
General Information..........................................................29
Investment Adviser Transfer Agent
First Investors Management Administrative Data
Company, Inc. Management Corp
95 Wall Street 581 Main Street
New York, NY 10005 Woodbridge, NJ 07095-1198
Underwriter Custodian
First Investors Corporation The Bank of New York
95 Wall Street 48 Wall Street
New York, NY 10005 New York, NY 10286
Legal Counsel Auditors
Kirkpatrick & Lockhart LLP Tait, Weller & Baker
1800 Massachusetts Two Penn Center Plaza
Avenue, N.W. Philadelphia, PA 19102-1707
Washington, D.C. 20036
This Prospectus is intended to constitute an offer by Series Fund II only of the
securities of which it is the issuer and is not intended to constitute an offer
by any Fund of the securities of any other Fund whose securities are also
offered by this Prospectus. No Fund intends to make any representation as to the
accuracy or completeness of the disclosure in this Prospectus relating to any
other Fund. No dealer, salesman or any other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus or the Statement of Additional Information, and if given or
made, such information and representation must not be relied upon as having been
authorized by Series Fund II, First Investors Corporation, or any affiliate
thereof. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy any of the shares offered hereby in any state to any person
to whom it is unlawful to make such offer in such state.
<PAGE>
First Investors
Series Fund II, Inc.
- ---------------------------
Growth & Income Fund
Mid-Cap Opportunity Fund
Utilities Income Fund
- ---------------------------
Prospectus
- ----------------------------
December 31, 1997
First Investors Logo
Logo is described as follows: the arabic numeral one separated into seven
vertical segments followed by the words "First Investors."
Verticle line from top to bottom in center of page about 1/2 inch in thickness
The following language appears on the lefthand side:
FIRST INVESTORS SERIES FUND II, INC
95 WALL STREET
NEW YORK, NY 10005
First Investors Logo (as described above)
A MEMBER OF THE
FIRST INVESTORS
FINANCIAL NETWORK
The following appears on the bottom lefthand side:
FISF 005
<PAGE>
FIRST INVESTORS SERIES FUND II, INC.
Growth & Income Fund
Mid-Cap Opportunity Fund
Utilities Income Fund
95 Wall Street 1-800-423-4026
New York, New York 10005
Statement of Additional Information
dated December 31, 1997
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: First Investors Growth &
Income Fund, First Investors Mid-Cap Opportunity Fund and First Investors
Utilities Income Fund (each, a "Fund"). The investment objective of each Fund is
as follows:
Growth & Income Fund seeks long-term growth of capital and current income.
Mid-Cap Opportunity Fund seeks long-term capital growth. Prior to December
31, 1997, the Fund was known as U.S.A. Mid-Cap Opportunity Fund and prior to
February 15, 1996, the Fund was known as Made In The U.S.A. Fund.
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 December 31, 1997 which may be obtained free of cost
from the Funds at the address or telephone number noted above.
<PAGE>
TABLE OF CONTENTS
Page
----
Investment Policies...................................................... 3
Hedging and Option Income Strategies..................................... 10
Investment Restrictions.................................................. 18
Directors and Officers................................................... 23
Management............................................................... 25
Underwriter.............................................................. 27
Distribution Plans....................................................... 28
Determination of Net Asset Value......................................... 29
Allocation of Portfolio Brokerage........................................ 30
Reduced Sales Charges, Additional Exchange and
Redemption Information and Other Services.............................. 31
Taxes.................................................................... 40
Performance Information.................................................. 42
General Information...................................................... 46
Appendix A............................................................... 47
Appendix B............................................................... 49
Appendix C............................................................... 50
Appendix D............................................................... 52
Financial Statements..................................................... 58
2
<PAGE>
INVESTMENT POLICIES
American Depository Receipts. American Depository Receipts ("ADRs") may be
purchased through "sponsored" or "unsponsored" facilities. A sponsored facility
is established jointly by the issuer of the underlying security and a
depository, whereas a depository may establish an unsponsored facility without
participation by the issuer of the depository security. Holders of unsponsored
depository receipts generally bear all the costs of such facilities and the
depository of an unsponsored facility frequently is under no obligation to
distribute shareholder communications received from the issuer of the deposited
security or to pass through voting rights to the holders of such receipts of the
deposited securities. ADRs are not necessarily denominated in the same currency
as the underlying securities to which they may be connected. Generally, ADRs in
registered form are designed for use in the U.S. securities market and ADRs in
bearer form are designed for use outside the United States.
Bankers' Acceptances. Each Fund may invest in bankers' acceptances.
Bankers' acceptances are short-term credit instruments used to finance
commercial transactions. Generally, an acceptance is a time draft drawn on a
bank by an exporter or importer to obtain a stated amount of funds to pay for
specific merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an asset
or it may be sold in the secondary market at the going rate of interest for a
specific maturity. Although maturities for acceptances can be as long as 270
days, most acceptances have maturities of six months or less.
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") 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.
High Yield Convertible Securities-Risk Factors. 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 ("High
Yield Convertible Securities").
Effect of Interest Rate and Economic Changes. Debt obligations,
including convertible debt securities, rated lower than Baa by Moody's or
BBB by S&P, commonly referred to as "junk bonds" are speculative and
generally involve a higher risk or
3
<PAGE>
loss of principal and income than higher-rated securities. The prices of
High Yield 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. Periods of
economic uncertainty and changes generally result in increased volatility
in the market prices and yields of High Yield Convertible Securities and
thus in Growth & Income 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 Convertible Securities. In these circumstances,
highly leveraged companies might have greater difficulty in making
principal and interest payments, meeting projected business goals, and
obtaining additional financing. Thus, there could be a higher incidence of
default. This would affect the value of such securities and thus the Fund's
net asset value. Further, if the issuer of a security owned by the Fund
defaults, the Fund might incur additional expenses to seek recovery.
Generally, when interest rates rise, the value of fixed rate debt
obligations, including High Yield Convertible 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 Convertible
Security containing a redemption or call provision exercises either
provision in a declining interest rate market, the Fund would have to
replace the security, which could result in a decreased return for
shareholders. Conversely, if the Fund experiences unexpected net
redemptions in a rising interest rate market, it might be forced to sell
certain securities, regardless of investment merit. This could result in
decreasing the assets to which Fund expenses could be allocated and in a
reduced rate of return for the Fund. While it is impossible to protect
entirely against this risk, diversification of the Fund's portfolio and the
Adviser's careful analysis of prospective portfolio securities should
minimize the impact of a decrease in value of a particular security or
group of securities in the Fund's portfolio.
The High Yield Securities Market. The market for below investment
grade bonds expanded rapidly in recent years and its growth paralleled a
long economic expansion. In the past, the prices of many lower-rated debt
securities declined substantially, reflecting an expectation that many
issuers of such securities might experience financial difficulties. As a
result, the yields on lower-rated debt securities rose dramatically.
However, such higher yields did not reflect the value of the income streams
that holders of such securities expected, but rather the risk that holders
of such securities could lose a substantial portion of their value as a
result of the issuers' financial restructuring or default. There can be no
assurance that such declines in the below investment grade market will not
reoccur. The market for below investment grade bonds generally is thinner
and less active than that for higher quality bonds, which may limit the
Fund's ability to sell such securities at fair value in response to changes
in the economy or the financial markets. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may also
decrease the values and liquidity of lower rated securities, especially in
a thinly traded market.
Credit Ratings. The credit ratings issued by credit rating services
may not fully reflect the true risks of an investment. For example, credit
ratings typically evaluate the safety of principal and interest payments,
not market value risk, of High Yield Convertible Securities. Also, credit
rating agencies may fail to change on a timely basis a credit rating to
reflect changes in economic or company conditions that affect a security's
market value. Although the Adviser considers ratings of recognized rating
services such as Moody's and S&P, the Adviser primarily relies on its own
credit analysis, which includes a study of existing debt, capital
structure, ability to service debt and to pay dividends, the
4
<PAGE>
issuer's sensitivity to economic conditions, its operating history and the
current trend of earnings.
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 Convertible 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 Convertible Securities may not be as liquid as
higher-grade bonds. A less active and thinner market for High Yield
Convertible Securities than that available for higher quality securities
may result in more volatile valuations of the Fund's holdings and more
difficulty in executing trades at favorable prices during unsettled market
conditions.
The ability of the Fund to value or sell High Yield Convertible
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 Convertible 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 Convertible
Security, whether or not such perceptions are based on a fundamental
analysis.
Legislation. Provisions of the Revenue Reconciliation Act of 1989
limit a corporate issuer's deduction for a portion of the original issue
discount on "high yield discount" obligations (including certain
pay-in-kind securities). This limitation could have a materially adverse
impact on the market for certain High Yield Convertible 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 Convertible
Securities, will be enacted into law.
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 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, the
borrowers can, and typically do,
5
<PAGE>
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
6
<PAGE>
it. For example, if the higher-yielding mortgages from the pool are
prepaid, the yield on the remaining pool will be reduced.
FHLMC Securities. The Federal Home Loan Mortgage Corporation ("FHLMC")
issues two types of mortgage pass-through securities, mortgage
participation certificates ("PCs") and guaranteed mortgage certificates
("GMCs"). PCs resemble GNMA Certificates in that each PC represents a pro
rata share of all interest and principal payments made and owed on the
underlying pool.
FNMA Securities. The Federal National Mortgage Association ("FNMA")
issues guaranteed mortgage pass-through certificates ("FNMA Certificates").
FNMA Certificates resemble GNMA Certificates in that each FNMA Certificate
represents a pro rata share of all interest and principal payments made and
owed on the underlying pool. FNMA guarantees timely payment of interest on
FNMA Certificates and the full return of principal.
Risk of foreclosure of the underlying mortgages is greater with FHLMC and
FNMA securities because, unlike GNMA Certificates, FHLMC and FNMA securities are
not guaranteed by the full faith and credit of the U.S. Government.
Repurchase Agreements. A repurchase agreement essentially is a short-term
collateralized loan. The lender (a Fund) agrees to purchase a security from a
borrower (typically a broker-dealer) at a specified price. The borrower
simultaneously agrees to repurchase that same security at a higher price on a
future date (which typically is the next business day). The difference between
the purchase price and the repurchase price effectively constitutes the payment
of interest. In a standard repurchase agreement, the securities which serve as
collateral are transferred to a Fund's custodian bank. In a "tri-party"
repurchase agreement, these securities would be held by a different bank for the
benefit of the Fund as buyer and the broker-dealer as seller. In a "quad-party"
repurchase agreement, the Fund's custodian bank also is made a party to the
agreement. Although each Fund may enter into repurchase agreements with banks
which are members of the Federal Reserve System or securities dealers who are
members of a national securities exchange or are market makers in government
securities, the Funds currently do not intend to do so. The period of these
repurchase agreements will usually be short, from overnight to one week, and at
no time will a Fund invest in repurchase agreements with more than one year in
time to maturity. The securities which are subject to repurchase agreements,
however, may have maturity dates in excess of one year from the effective date
of the repurchase agreement. Each Fund will always receive, as collateral,
securities whose market value, including accrued interest, which will at all
times be at least equal to 100% of the dollar amount invested by the Fund in
each agreement, and the Fund will make payment for such securities only upon
physical delivery or evidence of book entry transfer to the account of the
custodian. If the seller defaults, a Fund might incur a loss if the value of the
collateral securing the repurchase agreement declines, and might incur
disposition costs in connection with liquidating the collateral. In addition, if
bankruptcy or similar proceedings are commenced with respect to the seller of
the security, realization upon the collateral by a Fund may be delayed or
limited. No Fund may enter into a repurchase agreement with more than seven days
to maturity if, as a result, more than 15% of such Fund's net assets would be
invested in such repurchase agreements and other illiquid investments.
Restricted Securities and Illiquid Investments. 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
7
<PAGE>
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 has determined under Board-approved guidelines are liquid.
Restricted securities which are illiquid may be sold only in privately
negotiated transactions or in public offerings with respect to which a
registration statement is in effect under the 1933 Act. Such securities include
those that are subject to restrictions contained in the securities laws of other
countries. Securities that are freely marketable in the country where they are
principally traded, but would not be freely marketable in the United States,
will not be subject to this 15% limit. Where registration is required, a Fund
may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, a Fund might obtain a less favorable price than prevailed when it
decided to sell.
In recent years, a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including private
placements, repurchase agreements, commercial paper, foreign securities and
corporate bonds and notes. These instruments are often restricted securities
because the securities are either themselves exempt from registration or sold in
transactions not requiring registration. Institutional investors generally will
not seek to sell these instruments to the general public, but instead will often
depend on an efficient institutional market in which such unregistered
securities can be readily resold or on an issuer's ability to honor a demand for
repayment. Therefore, the fact that there are contractual or legal restrictions
on resale to the general public or certain institutions is not dispositive of
the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
that might develop as a result of Rule 144A could provide both readily
ascertainable values for restricted securities and the ability to liquidate an
investment in order to satisfy share redemption orders. An insufficient number
of qualified institutional buyers interested in purchasing Rule 144A-eligible
securities held by a Fund, however, could affect adversely the marketability of
such portfolio securities and a Fund might be unable to dispose of such
securities promptly or at reasonable prices.
Over-the-counter ("OTC") options and their underlying collateral are also
considered illiquid investments. Growth & Income Fund and Mid-Cap Opportunity
Fund may not invest in options. While Utilities Income Fund has no intention of
investing in options in the coming year, if it did, the assets used as cover for
OTC options written by the Fund would not be considered illiquid unless the OTC
options are sold to qualified dealers who agree that a Fund may repurchase any
OTC option it writes at a maximum price to be calculated by a formula set forth
in the option agreement. The cover for an OTC option written subject to this
procedure would be considered illiquid only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option
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
8
<PAGE>
assets, of which no more than 2% may not be listed on the New York or American
Stock Exchange.
When-Issued Securities. Growth & Income Fund and Utilities Income Fund may
invest up to 10%, and Mid-Cap Opportunity Fund may invest up to 5%, of each of
its net assets in securities issued on a when-issued or delayed delivery basis
at the time the purchase is made. A Fund generally would not pay for such
securities or start earning interest on them until they are issued or received.
However, when a Fund purchases debt obligations on a when-issued basis, it
assumes the risks of ownership, including the risk of price fluctuation, at the
time of purchase, not at the time of receipt. Failure of the issuer to deliver a
security purchased by the Fund on a when-issued basis may result in the Fund's
incurring a loss or missing an opportunity to make an alternative investment.
When a Fund enters into a commitment to purchase securities on a when-issued
basis, it establishes a separate account with its custodian consisting of cash
or liquid high-grade debt securities equal to the amount of the Fund's
commitment, which are valued at their fair market value. If on any day the
market value of this segregated account falls below the value of the Fund's
commitment, the Fund will be required to deposit additional cash or qualified
securities into the account until equal to the value of the Fund's commitment.
When the securities to be purchased are issued, a Fund will pay for the
securities from available cash, the sale of securities in the segregated
account, sales of other securities and, if necessary, from sale of the
when-issued securities themselves although this is not ordinarily expected.
Securities purchased on a when-issued basis are subject to the risk that yields
available in the market, when delivery takes place, may be higher than the rate
to be received on the securities a Fund is committed to purchase. Sale of
securities in the segregated account or sale of the when-issued securities may
cause the realization of a capital gain or loss.
Zero Coupon and Pay-In-Kind Securities. Although there is no intention to
do so in the foreseeable future, Mid-Cap Opportunity 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-in-kind securities generally are more
volatile than the prices of securities that pay interest periodically and in
cash and are likely to respond to changes in interest rates to a greater degree
than do other types of debt securities having similar maturities and credit
quality. Original issue discount earned on zero coupon securities and the
"interest" on pay-in-kind securities must be included in a 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.
Portfolio Turnover. Although each Fund generally will not invest for
short-term trading purposes, portfolio securities may be sold from time to time
without regard to the length of time they have been held when, in the opinion of
the Adviser, investment considerations warrant such action. Portfolio turnover
rate is calculated by dividing (1) the
9
<PAGE>
lesser of purchases or sales of portfolio securities for the fiscal year by (2)
the monthly average of the value of portfolio securities owned during the fiscal
year. A 100% turnover rate would occur if all the securities in a Fund's
portfolio, with the exception of securities whose maturities at the time of
acquisition were one year or less, were sold and either repurchased or replaced
within one year. A high rate of portfolio turnover (100% or more) generally
leads to transaction costs and may result in a greater number of taxable
transactions. See "Allocation of Portfolio Brokerage."
For the fiscal year ended October 31, 1996, the portfolio turnover rate for
Growth & Income Fund and Utilities Income Fund was 25% and 38%, respectively.
Mid-Cap Opportunity Fund had an increase in trading activity in 1996 because the
Adviser restructured the Fund's portfolio after the change in certain investment
policies resulting from the change of its name from Made In The U.S.A. Fund to
U.S.A. Mid-Cap Opportunity Fund. This resulted in a portfolio turnover rate of
118% for the Fund for the fiscal year ended October 31, 1996.
For the fiscal year ended October 31, 1997, the portfolio turnover rate for
Growth & Income Fund, Mid-Cap Opportunity Fund and Utilities Income Fund was
28%, 90% and 60%, respectively. The Adviser does not anticipate that the
portfolio turnover rate for Mid-Cap Opportunity Fund will be over 100% for its
current fiscal year.
HEDGING AND OPTION INCOME STRATEGIES
Utilities Income Fund - Options and Futures Contracts
Although it does not intend to engage in these strategies in the coming
year, Utilities Income Fund may purchase and sell futures contracts and options
on futures contracts to hedge its portfolio and may purchase and sell options on
securities and indices 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 and the Commodities Futures Trading Commission ("CFTC"). 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; and (4) the possible absence of a liquid secondary market
for any particular instrument at any time.
10
<PAGE>
The Fund may buy and sell put and call options on indices and securities
that are traded on national securities exchanges or in the 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 series. The Fund also may write put and call
options to offset previously purchased put and call options of the same series.
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 indices of
equity or debt securities, 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. The Fund will not write
options or purchase or sell futures contracts unless it owns either (1) an
offsetting ("covered") position in securities, or other options or futures
contracts or (2) cash and/or other liquid assets 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 such instruments by mutual
funds and, if required, will set aside cash and/or liquid assets in a segregated
account with its custodian in the prescribed amount. Securities or other options
or futures positions used for cover and 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.
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
11
<PAGE>
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 Securities and Illiquid
Investments." 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 indices in much the same manner as the more traditional equity and debt
options discussed above, except that 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. An
index assigns relative values to the securities included in the index and
fluctuates with changes in such values. Index options operate in the same way as
the more traditional equity or debt options, except that settlements of index
options are effected with cash payments and do not involve delivery of
securities. Thus, upon settlement of an 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 index. The effectiveness of hedging
techniques using index options will depend on the extent to which price
movements in the index selected correlate with price movements of the securities
in which the Fund invests.
The Fund may write put options on securities or on an 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 an
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 put options
in circumstances when the Adviser believes that the market price of the
securities will not decline below the exercise price less the premiums received.
If the put option is not exercised, the Fund will realize income in the amount
of the premium received. This technique could be used to enhance current return
during periods of market uncertainty. The risk in such a transaction would be
that the market price of the underlying security would decline below the
exercise price less the premiums received, in which case the Fund would expect
to suffer a loss.
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
12
<PAGE>
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 or
otherwise perform its obligations with respect to an index 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 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 index and general
market conditions. For this reason, the successful use of options depends upon
the Adviser's ability to forecast the direction of price fluctuations in the
underlying securities or, in the case of index options, fluctuations in the
market sector represented by the index selected.
Options normally have expiration dates of up to nine months. Unless an
option purchased by 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
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
13
<PAGE>
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 or
segregate assets 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.
Index options are settled exclusively in cash. If the Fund purchases an
option on an index, the option is settled based on the closing value of the
index on the exercise date. Thus, a holder of an index option who exercises it
before the closing index value for that day is available runs the risk that the
level of the underlying index may subsequently change. For example, in the case
of a call option, if such a change causes the closing index value to fall below
the exercise price of the option on the index, the exercising holder will be
required to pay the difference between the closing index value and the exercise
price of the option.
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 Contracts and Options on Futures Contracts. The Fund may purchase
and sell futures contracts and options on futures contracts 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 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 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 an 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 securities, which securities
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 an index future to hedge against a
market advance in securities that the Fund plans to purchase at a future date.
The Fund may also write put options on an index futures contract as a partial
hedge against a market advance in securities the Fund plans to purchase at a
future date. The Fund may write call options on 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 index futures contracts.
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
14
<PAGE>
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. 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. In the event that the Fund
enters into futures contracts or options thereon other than for bona fide
hedging purposes (as defined by the CFTC), the aggregate initial margin and
premiums required to establish these positions (excluding the in-the-money
amount for options that are in-the-money at the time of purchase) will not
exceed 5% of the Fund's net assets. This does not limit the Fund's assets at
risk to 5%. 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 an amount of cash or U.S. Government securities
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 deposit. 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. The Fund is also obligated to make initial
and variation margin payments when it writes options on futures contracts.
Purchasers and sellers of futures positions and options thereon can enter
into offsetting closing transactions, similar to closing transactions on options
on securities, by selling or purchasing, respectively, a futures position or
options position with the same terms as the position or option purchased or
sold. 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.
15
<PAGE>
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract or 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 or options 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 or option. 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 futures 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.
Like options on securities, options on futures contracts have a limited
life. A purchased option that expires unexercised has no value.
16
<PAGE>
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.
Growth & Income Fund - Forward Currency Contracts
Although it does not intend to do so in the coming year, Growth & Income
Fund may use forward currency contracts to protect against uncertainty in the
level of future foreign currency 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 dividend or
interest payment is declared, and the date on which such payments are made or
received.
The precise matching of the forward currency contract amounts and the value
of the securities involved will not generally be possible because the future
value of such securities in foreign currencies will change as a consequence of
market movements in the value of those securities between the date the forward
contract is entered into and the date it matures. Accordingly, it may be
necessary for the Fund to purchase additional foreign currency on the spot
(i.e., cash) market and bear the expense of such purchase if the market value of
the security is less than the amount of foreign currency the Fund is obligated
to deliver and if a decision is made to sell the security and make delivery of
the foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
its market value exceeds the amount of foreign currency 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 currency 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. Unless the Fund's obligations
under a forward contract are covered with positions in
17
<PAGE>
securities, currencies or other forward contracts, the Fund will enter into a
forward contract only if the Fund maintains cash or liquid assets in a
segregated account in an amount not less than the value of 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 the Fund
will be able to enter into new or offsetting forward currency contracts. Forward
currency contracts also involve a risk that the other party to the contract may
fail to deliver currency or pay for currency when due, which could result in
substantial 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. Except with respect to borrowing, 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
18
<PAGE>
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 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 loans, except loans of portfolio securities and repurchase
agreements.
The following investment restrictions are not fundamental and may be
changed without shareholder approval. The Fund will not:
(1) Invest more than 15% of its net assets in repurchase agreements
maturing in more than seven days or in other illiquid securities, including
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions as to resale. Securities that have
legal or contractual restrictions as to resale but have a readily available
market and securities eligible for resale under Rule 144A under the 1933 Act,
are not deemed illiquid for purposes of this limitation; the Adviser will
monitor the liquidity of such restricted securities under the supervision of the
Board of Directors.
(2) 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.
19
<PAGE>
(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.
Series Fund II, on behalf of the Fund, has filed the following undertakings
to comply with requirements of certain states in which shares of the Fund are
sold, which may be changed without shareholder approval:
(1) The Fund will not invest more than 10% of its total assets in
securities that are restricted as to public resale, excluding Rule 144A
securities.
(2) The Fund will not purchase puts, calls, straddles, spreads and 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.
Mid-Cap Opportunity Fund. Mid-Cap Opportunity Fund will not:
(1) Issue senior securities or borrow money, except that the Fund may
borrow money from a bank for temporary or emergency purposes in amounts not
exceeding 5% (taken at the lower of cost or current value) of its net assets
(not including the amount borrowed).
(2) Purchase any security (other than obligations of the U.S. Government,
its agencies or instrumentalities) if as a result: (a) as to 75% of the Fund's
total assets more than 5% of such assets would then be invested in securities of
a single issuer, or (b) 25% or more of the Fund's total assets would be invested
in a single industry.
(3) Purchase more than 10% of the outstanding voting securities of any one
issuer or more than 10% of any class of securities of one issuer (all debt and
all preferred stock of an issuer are each considered a single class for this
purpose).
(4) Pledge, mortgage or hypothecate any of its assets, except that the Fund
may pledge its assets to secure borrowings made in accordance with paragraph (1)
above, provided the Fund maintains asset coverage of at least 300% for all such
borrowings.
(5) Buy or sell commodities or commodity contracts, including futures
contracts, or real estate or interests in real estate, although it may purchase
and sell securities which are secured by real estate, securities of companies
which invest or deal in real estate, and interests in real estate investment
trusts.
(6) Act as an underwriter, except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be an underwriter
under certain Federal securities laws.
(7) Make investments for the purpose of exercising control or management.
(8) Purchase any securities on margin.
20
<PAGE>
(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."
Series Fund II, on behalf of the Fund, has filed the following undertakings
to comply with requirements of certain states in which shares of the Fund are
sold, which may be changed without shareholder approval:
(1) The Fund will not invest more than 10% of its total assets in
securities that are restricted as to public resale, excluding Rule 144A
securities.
21
<PAGE>
(2) The Fund will not invest in real estate limited partnerships or in
interests in real estate investment trusts that are not readily marketable.
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.
(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
22
<PAGE>
resale but have a readily available market and securities eligible for resale
under Rule 144A under the 1933 Act, are not deemed illiquid for purposes of this
limitation; the Adviser will monitor the liquidity of such restricted securities
under the supervision of the Board of Directors.
(2) 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."
Series Fund II, on behalf of the Fund, has filed the following undertakings
to comply with requirements of certain states in which shares of the Fund are
sold, 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.
(5) The Fund will not invest more than 10% of its total assets in
securities that are restricted as to public resale, excluding 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*+ (72), President and Director. Chairman of the Board and
Director, Administrative Data Management Corp. ("ADM"), FIMCO, Executive
Investors Management Company, Inc. ("EIMCO"), First Investors Corporation
("FIC"), Executive Investors Corporation ("EIC") and First Investors
Consolidated Corporation ("FICC").
23
<PAGE>
Roger L. Grayson* (41), Director. Director, FIC and FICC; President and
Director, First Investors Resources, Inc.; Commodities Portfolio Manager.
Kathryn S. Head*+ (42), Director, 581 Main Street, Woodbridge, NJ 07095.
President and Director, FICC, ADM and FIMCO; Vice President, Chief Financial
Officer and Director, FIC and EIC; President, EIMCO; Chairman, President and
Director, First Financial Savings Bank, S.L.A.
Rex R. Reed (75), Director, 259 Governors Drive, Kiawah Island, SC 29455.
Retired; formerly Senior Vice President, American Telephone & Telegraph Company.
Herbert Rubinstein (76), Director, 695 Charolais Circle, Edwards, CO 81632-1136.
Retired; formerly President, Belvac International Industries, Ltd. and
President, Central Dental Supply.
James M. Srygley (65), Director, 33 Hampton Road, Chatham, NJ 07982. Principal,
Hampton Properties, Inc. (property investment company).
John T. Sullivan* (65), Director and Chairman of the Board; Director, FIMCO,
FIC, FICC and ADM; Of Counsel, Hawkins, Delafield & Wood, Attorneys.
Robert F. Wentworth (68), Director, RR1, Box 2554, Upland Downs Road, Manchester
Center, VT 05255. Retired; formerly financial and planning executive with
American Telephone & Telegraph Company.
Nancy Schaenen (66), Director, 56 Midwood Terrace, Madison, NJ 07940. Trustee,
Drew University and DePauw University.
Joseph I. Benedek (40), Treasurer, 581 Main Street, Woodbridge, NJ 07095.
Treasurer, FIC, FIMCO, EIMCO and EIC; Comptroller and Treasurer, FICC.
Concetta Durso (63), Vice President and Secretary. Vice President, FIMCO, EIMCO
and ADM; Assistant Vice President and Assistant Secretary, FIC and EIC.
Patricia D. Poitra (42), Vice President. Vice President, First Investors Series
Fund, First Investors U.S. Government Plus Fund and Executive Investors Trust;
Director of Equities, FIMCO.
* 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. Poitra, hold identical or
similar positions with 14 other registered investment companies in the First
Investors Family of Funds. Mr. Head is also an officer and/or Director of First
Investors Asset Management Company, Inc., First Investors Credit Funding
Corporation, First Investors Leverage Corporation, First Investors Realty
Company, Inc., First Investors Resources, Inc., N.A.K. Realty Corporation, Real
Property Development Corporation, Route 33 Realty Corporation, First Investors
Life Insurance Company, First Financial Savings Bank, S.L.A., First Investors
Credit Corporation and School Financial Management Services, Inc. Ms. Head is
also an officer and/or Director of First Investors Life Insurance Company, First
Investors Credit Corporation, School Financial Management Services, Inc., First
Investors Credit Funding Corporation, N.A.K. Realty
24
<PAGE>
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, 1997.
<TABLE>
<CAPTION>
Pension or Total Compensation
Retirement From First
Aggregate Benefits Accrued Estimated Annual Investors Family
Compensation as Part of Fund Benefits Upon of Funds Paid to
Director** From Fund* Expenses Retirement Directors*
- ---------- ------------ ---------------- ---------------- ------------------
<S> <C> <C> <C> <C>
James J. Coy** $1,200 $-0- $-0- $18,600
Roger L. Grayson -0- -0- -0- -0-
Glenn O. Head -0- -0- -0- -0-
Kathryn S. Head -0- -0- -0- -0-
Rex R. Reed 2,400 -0- -0- 37,200
Herbert Rubinstein 2,400 -0- -0- 37,200
James M. Srygley 2,400 -0- -0- 37,200
John T. Sullivan -0- -0- -0- -0-
Robert F. Wentworth 2,400 -0- -0- 37,200
Nancy Schaenen 1,400 -0- -0- 21,700
</TABLE>
* Compensation to officers and interested Directors of Series Fund II is paid by
the Adviser. In addition, prior to November 1, 1997, compensation to
non-interested Directors of Series Fund II was voluntarily paid by the Adviser.
Commencing November 1, 1997, compensation to non-interested Directors of Series
Fund II will be paid by Series Fund II.
** On March 27, 1997, Mr. Coy resigned as a Director of Series Fund II. Mr. Coy
did not resign due to a disagreement on any matters relating to Series Fund II's
operations, policies or practices. Mr. Coy currently serves as an emeritus
Director.
MANAGEMENT
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. 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
25
<PAGE>
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:
Mid-Cap Opportunity Fund
Annual
Average Daily Net Assets Rate
- ------------------------ ------
Up to $200 million................................................... 1.00%
In excess of $200 million up to $500 million......................... 0.75
In excess of $500 million up to $750 million......................... 0.72
In excess of $750 million up to $1.0 billion......................... 0.69
Over $1.0 billion.................................................... 0.66
Growth & Income Fund, Utilities Income Fund
Annual
Average Daily Net Assets Rate
- ------------------------ ------
Up to $300 million................................................... 0.75%
In excess of $300 million up to $500 million......................... 0.72
In excess of $500 million up to $750 million......................... 0.69
Over $750 million.................................................... 0.66
For the fiscal year ended October 31, 1995, Mid-Cap Opportunity 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, Mid-Cap Opportunity Fund and Utilities Income Fund in the amounts of
$114,393, $46,369 and $105,954, respectively.
For the fiscal year ended October 31, 1996, Mid-Cap Opportunity Fund paid
$86,930 in advisory fees. For the same period, the Adviser voluntarily waived an
additional $28,977 in advisory fees. For the fiscal year ended October 31, 1996,
Growth & Income Fund paid $561,048 in advisory fees. For the same period, the
Adviser voluntarily waived an additional $125,042 in advisory fees. For the
fiscal year ended October 31, 1996, Utilities Income Fund paid $601,030 in
advisory fees. For the same period, the Adviser voluntarily waived an additional
$169,147 in advisory fees. In addition, for the fiscal year ended October 31,
1996, the Advisor voluntarily assumed or reimbursed expenses for Growth & Income
Fund, Mid-Cap Opportunity Fund and Utilities Income Fund in the amounts of
$17,942, $38,900 and $137,128, respectively.
26
<PAGE>
For the fiscal year ended October 31, 1997, Mid-Cap Opportunity Fund paid
$158,941 in advisory fees. For the same period, the Adviser voluntarily waived
an additional $52,981 in advisory fees. For the fiscal year ended October 31,
1997, Growth & Income Fund paid $1,231,649 in advisory fees. For the same
period, the Adviser voluntarily waived an additional $70,218 in advisory fees.
For the fiscal year ended October 31, 1997, Utilities Income Fund paid $779,429
in advisory fees. For the same period, the Adviser voluntarily waived an
additional $56,849 in advisory fees. In addition, for the fiscal year ended
October 31, 1997, the Advisor voluntarily assumed or reimbursed expenses for
Mid-Cap Opportunity Fund and Utilities Income Fund in the amounts of $38,900 and
$26,987, respectively.
The Adviser has an Investment Committee composed of George V. Ganter, Glenn
O. Head, Nancy W. Jones, Patricia D. Poitra, Michael O'Keefe, Dennis T.
Fitzpatrick, 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.
Prior to January 1, 1998, Wellington Management Company, LLP was the
subadviser to Growth & Income Fund. For the fiscal years ended October 31, 1995,
1996 and 1997, the Adviser paid Wellington Management Company, LLP fees of
$157,067, $257,037 and $489,484, respectively.
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 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, 1995, FIC received underwriting
commissions with respect to Growth & Income Fund, Mid-Cap Opportunity 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 Mid-Cap Opportunity Fund
and $7,080 with respect to Utilities Income Fund.
For the fiscal year ended October 31, 1996, FIC received underwriting
commissions with respect to Growth & Income Fund, Mid-Cap Opportunity Fund and
Utilities Income Fund of $1,741,985, $244,548 and $1,275,372, respectively. For
the same period, FIC allowed to unaffiliated dealers an additional $3,902 with
respect to Growth & Income Fund, $2,805 with respect to Mid-Cap Opportunity Fund
and $8,212 with respect to Utilities Income Fund.
27
<PAGE>
For the fiscal year ended October 31, 1997, FIC received underwriting
commissions with respect to Growth & Income Fund, Mid-Cap Opportunity Fund and
Utilities Income Fund of $2,689,581, $365,416 and $586,037, respectively. For
the same period, FIC allowed to unaffiliated dealers an additional $8,575 with
respect to Growth & Income Fund, $1,353 with respect to Mid-Cap Opportunity Fund
and $770 with respect to Utilities Income Fund.
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 by 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
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 adopting each Plan, the Board of Directors considered all relevant
information and determined that there is a reasonable likelihood that each Plan
will benefit each Fund and their class of shareholders. The Board believes that
the amounts spent pursuant to each Plan have assisted each Fund in providing
ongoing servicing to shareholders, in competing with other providers of
financial services and in promoting sales, thereby increasing the net assets of
each Fund.
For the fiscal year ended October 31, 1997, Growth & Income Fund, Mid-Cap
Opportunity Fund and Utilities Income Fund paid $462,388, $58,074 and $309,426,
respectively, in fees pursuant to the Class A Plan. For the same period, the
Underwriter incurred the following Class A Plan-related expenses with respect to
each Fund:
28
<PAGE>
Compensation to Compensation to Compensation to
Fund Underwriter Dealers Sales Personnel
- ---- ----------- ------- ---------------
Growth & Income Fund $294,964 $-0- $167,424
Mid-Cap Opportunity Fund 37,371 -0- 20,703
Utilities Income Fund 198,551 -0- 110,875
For the fiscal year ended October 31, 1997, Growth & Income Fund, Mid-Cap
Opportunity Fund, and Utilities Income Fund paid $191,490, $17,899 and $83,756,
respectively, in fees pursuant to the Class B Plan. For the same period, the
Underwriter incurred the following Class B Plan-related expenses with respect to
each Fund:
Compensation to Compensation to Compensation to
Fund Underwriter Dealers Sales Personnel
- ---- ----------- ------- ---------------
Growth & Income Fund $183,735 $1,419 $6,336
Mid-Cap Opportunity Fund 17,478 -0- 421
Utilities Income Fund 77,279 155 6,322
DETERMINATION OF NET ASSET VALUE
Except as provided herein, a security listed or traded on an exchange or
the Nasdaq Stock Market is valued at its last sale price on the exchange or
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 ("OTC") (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. Interactive Data Corporation provides pricing
services for corporate debt securities and foreign equity securities. Short-term
debt securities which are purchased at a discount 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 and other
assets 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,
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.
29
<PAGE>
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 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 by such member
or broker. In addition, upon the instruction of the Board of Directors of Series
Fund II, the Adviser may use dealer concessions available in fixed price
underwritings to pay for research services. Such services may include, but are
not limited to, any one or more of the following: information as to the
availability of securities for purchase or sale and statistical or factual
information or opinions pertaining to investments. The Adviser may use research
and services provided to it by brokers in servicing all the funds in the First
Investors Group of Funds; however, not all such services may be used by the
Adviser in connection with a Fund. No portfolio orders are placed with an
affiliated broker, nor does any affiliated broker-dealer participate in these
commissions.
The Adviser may combine transaction orders placed on behalf of a Fund and
any other fund in the First Investors Group of Funds, any Fund of Executive
Investors Trust and First Investors Life Insurance Company, affiliates of the
Funds for the purpose of negotiating brokerage commissions or obtaining a more
favorable transaction price; and where appropriate, securities purchased or sold
may be allocated in accordance with written procedures approved by the Board of
Directors.
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
30
<PAGE>
who furnished research services on portfolio transactions in the amount of
$3,545,732. For the fiscal year ended October 31, 1995, Mid-Cap Opportunity 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.
For the fiscal year ended October 31, 1996, Growth & Income Fund paid
$92,694 in brokerage commissions. Of that amount, $35,498 was paid in brokerage
commissions to brokers who furnished research services on portfolio transactions
in the amount of $28,859,209. For the fiscal year ended October 31, 1996,
Mid-Cap Opportunity Fund paid $39,267 in brokerage commissions. Of that amount,
$21,766 was paid in brokerage commissions to brokers who furnished research
services on portfolio transactions in the amount of $5,012,732. For the fiscal
year ended October 31, 1996, Utilities Income Fund paid $210,594 in brokerage
commissions. Of that amount, $62,273 was paid in brokerage commissions to
brokers who furnished research services on portfolio transactions in the amount
of $26,793,286.
For the fiscal year ended October 31, 1997, Growth & Income Fund paid
$146,190 in brokerage commissions. Of that amount, $46,196 was paid in brokerage
commissions to brokers who furnished research services on portfolio transactions
in the amount of $50,452,086. For the fiscal year ended October 31, 1997,
Mid-Cap Opportunity Fund paid $111,995 in brokerage commissions. Of that amount,
$17,242 was paid in brokerage commissions to brokers who furnished research
services on portfolio transactions in the amount of $6,861,292. For the fiscal
year ended October 31, 1997, Utilities Income Fund paid $277,318 in brokerage
commissions. Of that amount, $13,624 was paid in brokerage commissions to
brokers who furnished research services on portfolio transactions in the amount
of $6,820,235.
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's 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.
31
<PAGE>
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 within 90 days of 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 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 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.
32
<PAGE>
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 in the minimum amount of $50 may be made on a bi-weekly,
semi-monthly, monthly, quarterly, semi-annual or annual basis. The maximum
amount which may be invested through First Investors Money Line is $10,000 a
month. 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. You
may change 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. It takes between
three and five business days to process any changes you request be made to your
Money Line service. 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 in the minimum amount of $50 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. 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
or Class B 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 or Class B shares into the same class of another Eligible Fund,
including the Money Market Funds. 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. Cash distributions from a Fund's Class B shares may only be
invested into an existing Class B share account. If your distributions are to be
invested in Class A shares in a new account, you must invest a minimum of $50
per month. To arrange for cross-investing, call Shareholder Services at
1-800-423-4026.
Systematic Withdrawal Plan. Shareholders who own noncertificated Class A or
Class B shares may establish a Systematic Withdrawal Plan ("Withdrawal Plan").
If you have a Fund account with a 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. The $5,000 minimum account balance is currently being waived for
required minimum distributions on retirement plan accounts. Additionally,
regardless of the amount of your Class A or Class B Fund account, you may also
elect to have the Systematic Plan payments automatically (i) invested at net
asset value in the same class of shares 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 invested in a new Class A Eligible Fund
account, you must invest a minimum of $600 per year. Systematic Plan payments
from a Class B account must be invested in an existing Class B Eligible Fund
account. 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
33
<PAGE>
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.
Shareholders who own Class B shares may establish a Withdrawal Plan and
elect to receive up to 8% of the 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
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) 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 value of their account. For example, if the value of the
account is $15,000 at the time of payment, the shareholder will receive $100
free of the CDSC (8% of $15,000 divided by 12 monthly payments). However, if at
the time of a payment the value of the account has fallen to $14,000, the
shareholder will receive $93.33 free of any CDSC (8% of $14,000 divided by 12
monthly payments) and $6.67 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.
Electronic Fund Transfer. Shareholders may establish Electronic Fund
Transfers ("EFT") between Fund accounts and a predesignated bank account by
completing an application and having all shareholders' signatures guaranteed. If
the bank account registration is not identical to the Fund account, a signature
guarantee of the bank account holder is required for Money Line purchases.
Shareholders may choose EFT privileges for Money Line purchases or redemptions
or both. The minimum EFT amount is $500 and the maximum is $50,000. The total
EFT redemptions during a 30 day period may not exceed $100,000. Each Fund has
the right, at its sole discretion, to limit or terminate your ability to
exercise the EFT privileges at any time. Fund shares will be purchased on the
day the Fund receives the funds, which is normally two days after the EFT is
initiated. The EFT normally will be initiated on the next bank business day
after the redemption request is received and will ordinarily be received by the
predesignated bank account within two days after transmission. However, once the
funds are transmitted, the time of receipt and the availability of the funds are
not within the Funds' control. No dividends are paid on the proceeds of redeemed
shares awaiting EFT. Shareholders may not use EFT to redeem shares unless they
have been owned for at least 15 days.
34
<PAGE>
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 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 the
availability of 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 either 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, a new target class into which Class B shares will convert will be
established, 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 individual retirement account ("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;
(f) any redemption of shares purchased during the period April 29, 1996 through
June 30, 1996 with the proceeds from a redemption of shares of a fund in another
fund group for which no sales charge was paid, other than a money market fund or
shares held in a retirement plan account; and (g) certain redemptions pursuant
to a Withdrawal Plan (see "Systematic Withdrawal Plan"). 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. Members of the STAMP
(Securities Transfer Agents Medallion Program), MSP (New York Stock Exchange
Medallion Signature Program),
35
<PAGE>
SEMP (Stock Exchanges Medallion Program) and FIC are eligible signature
guarantors. A notary public is not an acceptable 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 over
$50,000, (2) a redemption check is to be made payable to someone other than the
registered accountholder, other than major financial institutions, as determined
solely by the Fund and its agent, on behalf of the shareholder, (3) a redemption
check is to be mailed to an address other than the address of record,
preauthorized bank account, or to a major financial institution for the benefit
of a shareholder, (4) an account registration is being transferred to another
owner, (5) a transaction requires additional legal documentation; (6) the
redemption request is for certificated shares; (7) your address of record has
changed within 60 days prior to a redemption request; (8) multiple owners have a
dispute or give inconsistent instructions; (9) the authority of a representative
of a corporation, partnership, association or other entity has not been
established to the satisfaction of a Fund or its agents; and (10) you elect EFT
privileges.
Reinvestment after Redemption. If you redeem Class A or Class B shares in
your Fund account, you can reinvest within six months 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 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 account 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 six months from the date of your redemption. Include your
account number and a statement that you are taking advantage of the
"Reinvestment Privilege."
Telephone Transactions. Fund shares not held in certificate form may be
exchanged or redeemed by telephone provided you have not declined telephone
privileges. Telephone exchanges are available between non-retirement accounts.
Telephone exchanges are also available between participant directed 401(k)
accounts where First Financial Savings (as defined below) acts as Custodian, IRA
accounts or 403(b) accounts of the same class of shares registered in the same
name. Telephone exchanges are also available from an individually registered
non-retirement account to an IRA account of the same class of shares in the same
name (provided an IRA application is on file).
As stated in the Funds' 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,
36
<PAGE>
address, social security number and such other information as may be deemed
necessary; (2) recording all telephone instructions; and (3) sending written
confirmation of each transaction to the shareholder's address of record.
Cancelled Checks. Copies of cancelled purchase, liquidation or dividend
checks will be provided to shareholders upon request. Shareholders will be
charged $10.00 per check.
Redemptions-in-Kind. If the Board of Directors should determine that it
would be detrimental to the best interests of the remaining shareholders of a
Fund to make payment wholly or partly in cash, the Fund may pay redemption
proceeds in whole or in part by a distribution in kind of securities from the
portfolio of the Fund, in compliance with Series Fund II's election on behalf of
the Funds to be governed by Rule 18f-1 under the 1940 Act. Pursuant to Rule
18f-1 the Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund during any 90-day period for
any one shareholder. If shares are redeemed in kind, the redeeming shareholder
will likely incur brokerage costs in converting the assets into cash. The method
of valuing portfolio securities for this purpose is described under
"Determination of Net Asset Value."
Emergency Pricing Procedures. In the event that the Funds must halt
operations during any day that they would normally be required to price under
Rule 22c-1 under the Investment Company of 1940 due to an emergency ("Emergency
Closed Day"), the Funds will apply the following procedures:
1. The Funds will make every reasonable effort to segregate orders received
on the Emergency Closed Day and give them the price that they would have
received but for the closing. The Emergency Closed Day price will be calculated
as soon as practicable after operations have resumed and will be applied equally
to sales, redemptions and repurchases that were in fact received in the mail or
otherwise on the Emergency Closed Day.
2. For purposes of paragraph 1, an order will be deemed to have been
received by the Funds on an Emergency Closed Day, even if neither the Funds nor
the Transfer Agent is able to perform the mechanical processing of pricing on
that day, under the following circumstances:
(a) In the case of a mail order the order will be considered received
by a Fund when the postal service has delivered it to FIC's Woodbridge
offices prior to the close of regular trading on the NYSE; and
(b) In the case of a wire order, including a Fund/SERV order, the
order will be considered received when it is received in good form by a FIC
branch office or an authorized dealer prior to the close of regular trading
on the NYSE.
3. If the Funds are unable to segregate orders received on the Emergency
Closed Day from those received on the next day the Funds are open for business,
the Funds may give all orders the next price calculated after operations resume.
4. Notwithstanding the foregoing, on business days in which the NYSE is not
open for regular trading, the Funds may determine not to price their portfolio
securities if such prices would lead to a distortion for the Funds and their
shareholders.
37
<PAGE>
Retirement Plans
Profit-Sharing/Money Purchase Pension/401(k) Plans. FIC offers prototype
Profit-Sharing, Money Purchase Pension and 401(k) Retirement Plans ("Retirement
Plans"), approved by the IRS for corporations, sole proprietorships and
partnerships. Custodial Agreements can be utilized for such Retirement Plans
that provide 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 and profit-sharing plans.
Currently, there are no annual service fees chargeable to participants in
connection with a Retirement Plan account. Each Fund currently pays the annual
$10.00 custodian fee 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 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 IRA or, as an employee of a qualified employer, through a
simplified employee pension-IRA ("SEP-IRA"), a salary reduction simplified
employee pension-IRA ("SARSEP-IRA") or a Savings Incentive Match Plan for
Employees ("SIMPLE-IRAs") furnished by FIC. Under the related Custodial
Agreements, First Financial Savings acts as custodian of each of these
retirement plans. The custodian fees are disclosed in the IRA documents.
A taxpayer generally may make an annual individual IRA contribution no
greater than the lesser of (a) 100% of his or her compensation or (b) $2,000 (or
$4,000 when also contributing to a spousal IRA). However, contributions are
deductible only under certain conditions. The requirements as to SEP-IRAs,
SARSEP-IRAs and SIMPLE-IRAs are described in IRS Forms 5305-SEP, 5305A-SEP and
5305-SIMPLE, respectively, which are provided to employers. Employers are
required to provide copies of these forms to their eligible employees. A
disclosure statement setting forth complete details of the IRA should be given
to each participant before the contribution is invested.
As of January 1, 1997, no new employee-sponsored SARSEP-IRA may be
established. Newly eligible participants in a SARSEP-IRA established prior to
that date, may open a new account. Additionally, participants in an established
SARSEP-IRA may continue to make contributions.
Currently, there are no annual service fees chargeable to a participant in
connection with an IRA, SEP-IRA, SARSEP-IRA or SIMPLE-IRA. Each Fund currently
pays the annual $10.00 custodian fee for each IRA account maintained with such
Fund. This policy may be changed at any time by a Fund on 45 days' written
notice to the holder of any IRA, SEP-IRA, SARSEP-IRA or SIMPLE-IRA. First
Financial Savings has reserved the right to waive its fees at any time or to
change the fees on 45 days' prior written notice to the holder of any IRA.
38
<PAGE>
An application and other documents necessary to establish an IRA, SEP-IRA
or SIMPLE-IRA are available from your Representative. Prior to establishing an
IRA, SEP-IRA or SIMPLE-IRA, you are advised to consult with your legal and tax
advisers.
Retirement Benefit Plans for Employees of Eligible Organizations. FIC makes
available model custodial accounts under Section 403(b)(7) of the Code
("Custodial Accounts") to provide retirement benefits for employees of certain
eligible public educational institutions and other eligible non-profit
charitable, religious and humane organizations. The Custodial Accounts are
designed to permit contributions (up to a "maximum exclusion allowance") by
employees through salary reduction. First Financial Savings acts as custodian of
these accounts.
Contributions may be made to a Custodial Account under the Optional
Retirement Program for Employees of Texas Institutions of Higher Education
("ORP"), either by salary reduction agreement or otherwise, in accordance with
the terms and conditions of the ORP, and under the Texas Deferred Compensation
Plan Program for eligible state employees by salary reduction agreement. In
addition, contributions may also be made to other deferred compensation plans
maintained by state or local governments, or their agencies, commonly referred
to as Section 457 plans.
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 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 on
"eligible rollover" distributions made from any of the foregoing retirement
plans (other than IRAs, including SEP-IRAs, SARSEP-IRAs and SIMPLE-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.
39
<PAGE>
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, for Utilities Income Fund, gains from options or
futures and, for Growth & Income Fund, gains from forward contracts) derived
with respect to its business of investing in securities or, for Growth & Income
Fund, those currencies ("Income Requirement"); (2) at the close of each quarter
of the Fund's taxable year, at least 50% of the value of its total assets must
be represented by cash and cash items, U.S. Government securities, securities of
other RICs and other securities, with those other securities limited, in respect
of any one issuer, to an amount that does not exceed 5% of the value of the
Fund's total assets and that does not represent more than 10% of the issuer's
outstanding voting securities; and (3) at the close of each quarter of the
Fund's taxable year, not more than 25% of the value of its total assets may be
invested in securities (other than U.S. Government securities or the securities
of other RICs) of any one issuer.
Dividends and other distributions declared by a Fund in October, November
or December of any year and payable to shareholders of record on a date in any
of those months are deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if the distributions are paid by the
Fund during the following January. Accordingly, those distributions will be
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, and gains realized
by that Fund, may be subject to income, withholding or other taxes imposed by
foreign countries that would reduce the yield and/or total return on its
securities. Tax conventions between certain countries and the United States may
reduce or eliminate these foreign taxes, however, and many foreign countries do
not impose taxes on capital gains in respect of investments by foreign
investors.
40
<PAGE>
Growth & Income Fund may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation - other than a "controlled
foreign corporation" (i.e., a foreign corporation in which, on any day during
its taxable year, more than 50% of the total voting power of all voting stock
therein or the total value of all stock therein is owned, directly, indirectly,
or constructively, by "U.S. shareholders," defined as U.S. persons that
individually own, directly, indirectly, or constructively, at least 10% of that
voting power) as to which the Fund is a U.S. shareholder ( effective after
October 31, 1998) - that, in general, meets either of the following tests: (1)
at least 75% of its gross income is passive or (2) an average of at least 50% of
its assets produce, or are held for the production of, passive income. Under
certain circumstances, if the Fund holds stock of a PFIC, it will be subject to
Federal income tax on a portion of any "excess distribution" received on the
stock or of any gain on disposition of the stock (collectively "PFIC income"),
plus interest thereon, even if the Fund distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be included in
the Fund's investment company taxable income and, accordingly, will not be
taxable to it to the extent that income is distributed to its shareholders.
If Growth & Income Fund invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund" ("QEF") then in lieu of the foregoing tax and interest
obligation, the Fund would be required to include in income each year its pro
rata share of the QEF's annual ordinary earnings and net capital gain (the
excess of net long-term capital gain over net short-term capital loss) - which
probably would have to be distributed by the Fund to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax - even if those earnings and
gain were not distributed to the Fund by the QEF. In most instances it will be
very difficult, if not impossible, to make this election because of certain
requirements thereof.
Effective for its taxable year beginning November 1, 1998, Growth & Income
Fund may elect to "mark-to-market" its stock in any PFICs. "Marking-to-market,"
in this context, means including in ordinary income each taxable year the
excess, if any, of the fair market value of the PFIC's stock over the Fund's
adjusted basis in that stock as of the end of that year. Pursuant to the
election, the Fund also will be allowed to deduct (as an ordinary, not capital,
loss) the excess, if any, of its adjusted basis in PFIC stock over the fair
market value thereof as of the taxable year-end, but only to the extent of any
net mark-to-market gains with respect to that stock included by the Fund for
prior taxable years. The Fund's adjusted basis in each PFIC's stock with respect
to which it makes this election will be adjusted to reflect the amounts of
income included and deductions taken under the election. Regulations proposed in
1992 would provide a similar election with respect to the stock of certain
PFICs.
Mid-Cap Opportunity Fund and Utilities Income Fund may acquire zero coupon
or other securities issued with original issue discount. As a holder of those
securities, each such Fund must include in its income the portion of the
original issue discount that accrues on the securities during the taxable year,
even if the Fund receives no corresponding payment on them during the year.
Similarly, each such Fund must include in its gross income securities it
receives as "interest" on pay-in-kind securities. Because each Fund annually
must distribute substantially all of its investment company taxable income,
including any original issue discount and other non-cash income, to satisfy the
Distribution Requirement and avoid imposition of the Excise Tax, a Fund may be
required in a particular year to distribute as a dividend an amount that is
greater than the total amount of cash it actually receives. Those distributions
will be made from a Fund's cash assets or from the proceeds of sales of
portfolio securities, if necessary. 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.
41
<PAGE>
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 amount, character
and timing of recognition of the gains and losses Utilities Income Fund and
Growth & Income Fund realize in connection therewith. Gains from options and
futures derived by Utilities Income Fund with respect to its business of
investing in securities and gains from the disposition by Growth & Income Fund
of foreign currencies (except certain gains therefrom that may be excluded by
future regulations) -- will qualify as permissible income under the Income
Requirement.
If a Fund has an "appreciated financial position" - generally, an interest
(including an interest through an option, futures or forward contract, or short
sale) with respect to any stock, debt instrument (other than "straight debt"),
or partnership interest the fair market value of which exceeds its adjusted
basis - and enters into a "constructive sale" of the same or substantially
similar property, the Fund will be treated as having made an actual sale
thereof, with the result that gain will be recognized at that time. A
constructive sale generally consists of a short sale, an offsetting notional
principal contract or futures or forward contract entered into by the Fund or a
related person with respect to the same or substantially similar property. In
addition, if the appreciated financial position is itself a short sale or such a
contract, acquisition of the underlying property or substantially similar
property will be deemed a constructive sale.
PERFORMANCE INFORMATION
A Fund may advertise its performance in various ways.
Each Fund's "average annual total return" ("T") is an average annual
compounded rate of return. The calculation produces an average annual total
return for the number of years measured. It is the rate of return based on
factors which include a hypothetical initial investment of $1,000 ("P") over a
number of years ("n") with an Ending Redeemable Value ("ERV") of that
investment, according to the following formula:
T=[(ERV/P)^(1/n)]-1
The "total return" uses the same factors, but does not average the rate of
return on an annual basis. Total return is determined as follows:
(ERV-P)/P = TOTAL RETURN
Total return is calculated by finding the average annual change in the
value of an initial $1,000 investment over the period. In calculating the ending
redeemable value for Class A shares, each Fund will deduct the maximum sales
charge of 6.25% (as a percentage of the offering price) from the initial $1,000
payment and, for Class B shares, the applicable CDSC imposed on a redemption of
Class B shares held for the period is deducted. All dividends and other
distributions are assumed to have been reinvested at net asset value on the
initial investment ("P").
Return information may be useful to investors in reviewing a Fund's
performance. However, certain factors should be taken into account before using
this information as a basis for comparison with alternative investments. No
adjustment is made for taxes payable on distributions. Return 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
42
<PAGE>
Adviser may reduce its compensation or assume expenses of a Fund in order to
reduce the Fund's expenses. Any such waiver or reimbursement would increase the
Fund's return during the period of the waiver or reimbursement.
Average annual return and total return computed at the public offering
price (maximum sales charge for Class A shares and applicable CDSC for Class B
shares) for the periods ended October 31, 1997 are set forth in the tables
below:
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN:
One Year Five Years Life of Fund(1)
------------------- ------------------- ---------------------
Class A Class B Class A Class B Class A Class B(2)
Shares Shares Shares Shares Shares Shares
------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mid-Cap Opportunity Fund 19.14% 21.12% 11.09% N/A 10.82% 19.20%
Utilities Income Fund 5.77 7.57 N/A N/A 7.18 15.02
Growth & Income Fund 18.26 20.21 N/A N/A 15.29 23.43
<CAPTION>
TOTAL RETURN:
Class A Class B Class A Class B Class A Class B(2)
Shares Shares Shares Shares Shares Shares
------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mid-Cap Opportunity Fund 19.14% 21.12% 69.21% N/A 70.39% 63.53%
Utilities Income Fund 5.77 7.57 N/A N/A 38.44 48.00
Growth & Income Fund 18.26 20.21 N/A N/A 78.63 80.34
</TABLE>
Average annual total return and total return may also be based on
investment at reduced sales charge levels or at net asset value. Any quotation
of return not reflecting the maximum sales charge will be greater than if the
maximum sales charge were used. Average annual return and total return computed
at net asset value for the periods ended October 31, 1997 are set forth in the
tables below:
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN:
One Year Five Years Life of Fund(1)
------------------- ------------------- ---------------------
Class A Class B Class A Class B Class A Class B(2)
Shares Shares Shares Shares Shares Shares
------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mid-Cap Opportunity Fund 27.09% 26.17% 12.54% N/A 12.21% 20.51%
Utilities Income Fund 12.86 12.08 N/A N/A 8.66 16.29
Growth & Income Fund 26.20 25.23 N/A N/A 17.14 24.77
<CAPTION>
TOTAL RETURN:
One Year Five Years Life of Fund(1)
------------------- ------------------- ---------------------
Class A Class B Class A Class B Class A Class B(2)
Shares Shares Shares Shares Shares Shares
------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mid-Cap Opportunity Fund 27.09% 26.17% 80.49% N/A 81.81% 68.61%
Utilities Income Fund 12.86 12.08 N/A N/A 47.61 52.60
Growth & Income Fund 26.20 25.23 N/A N/A 90.62 85.85
</TABLE>
- ----------
(1) The inception dates for Class A shares of the Funds are as follows: Mid-Cap
Opportunity 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>
Each Fund may include in advertisements and sales literature, information,
examples and statistics to illustrate the effect of compounding income at a
fixed rate of return to demonstrate the growth of an investment over a stated
period of time resulting from the payment of dividends and capital gain
distributions in additional shares. These examples may also include hypothetical
returns comparing taxable versus tax-deferred growth which would pertain to an
IRA, section 403(b)(7) Custodial Account or other qualified retirement program.
The examples used will be for illustrative purposes only and are not
representations by the Funds of past or future yield or return. Examples of
typical graphs and charts depicting such historical performances, compounding
and hypothetical returns are included in Appendix D.
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:
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.
44
<PAGE>
Lehman Brothers, Inc., "The Bond Market Report," a monthly publication
which tracks principal, coupon and total return on the Lehman Govt./Corp. Index
and Lehman Aggregate Bond Index, as well as all the components of these Indices.
Standard & Poor's 500 Composite Stock Price Index and the Dow Jones
Industrial Average of 30 stocks are unmanaged lists of common stocks frequently
used as general measures of stock market performance. Their performance figures
reflect changes of market prices and quarterly reinvestment of all distributions
but are not adjusted for commissions or other costs.
The Consumer Price Index, prepared by the U.S. Bureau of Labor Statistics,
is a commonly used measure of inflation. The Index shows changes in the cost of
selected consumer goods and does not represent a return on an investment
vehicle.
The NYSE composite of component indices--unmanaged indices of all
industrial, utilities, transportation, and finance stocks listed on the NYSE.
The Russell 2500 Index, prepared by the Frank Russell Company, consists of
U.S. publicly traded stocks of domestic companies that rank from 500 to 3000 by
market capitalization. The Russell 2500 tracks the return on these stocks based
on price appreciation or depreciation and does not include dividends and income
or changes in market values caused by other kinds of corporate changes.
The Russell 2000 Index, prepared by the Frank Russell Company, consists of
U.S. publicly traded stocks of domestic companies that rank from 1000 to 3000 by
market capitalization. The Russell 2000 tracks the return on these stocks based
on price appreciation or depreciation and does not include dividends and income
or changes in market values caused by other kinds of corporate changes.
The Russell 1000 Index, prepared by the Frank Russell Company, contains
those Russell 1000 securities with a less-than-average growth orientation. It
represents the universe of stocks from which value managers typically select.
Securities in this index tend to exhibit lower price-to-book and price-earnings
ratios, higher dividend yields and lower forecasted growth values than the
Growth universe.
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.
45
<PAGE>
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., 581 Main Street,
Woodbridge, NJ 07095-1198, an affiliate of FIMCO and FIC, acts as transfer agent
for the Funds and as redemption agent for regular redemptions. The fees charged
to each Fund by the Transfer Agent are $5.00 to open an account; $3.00 for each
certificate issued; $.75 per account per month; $10.00 for each legal transfer
of shares; $.45 per account per dividend declared; $5.00 for each exchange of
shares into a Fund; $5.00 for each partial withdrawal or complete liquidation;
$1.00 for each Systematic Withdrawal Plan check; $4.00 for each shareholder
services call; $20.00 for each item of correspondence; and $1.00 per account per
report required by any governmental authority. Additional fees charged to the
Funds by the Transfer Agent are assumed by the Underwriter. The Transfer Agent
reserves the right to change the fees on prior notice to the Funds. Upon request
from shareholders, the Transfer Agent will provide an account history. For
account histories covering the most recent three year period, there is no
charge. The Transfer Agent charges a $5.00 administrative fee for each account
history covering the period 1983 through 1994 and $10.00 per year for each
account history covering the period 1974 through 1982. Account histories prior
to 1974 will not be provided. If any communication from the Transfer Agent to a
shareholder is returned from the U.S. Postal Service marked as "Undeliverable"
two consecutive times, the Transfer Agent will cease sending any further
materials to the shareholder until the Transfer Agent is provided with a correct
address. Efforts to locate a shareholder will be conducted in accordance with
SEC rules and regulations prior to forfeiture of funds to the appropriate state
treasury. The Transfer Agent is not responsible for any fees that states and/or
their representatives may charge for processing the return of funds to investors
whose funds have been escheated. For the fiscal year ended October 31, 1997,
Growth & Income Fund, Mid-Cap Opportunity Fund and Utilities Income Fund paid
$414,010, $73,829 and $278,659, respectively, in transfer agent fees and
expenses. The Transfer Agent's telephone number is 1-800-423-4026.
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 Funds. Among other things,
access persons, other than the disinterested Directors of Series Fund II: (a)
must have all non-exempt trades pre-cleared by the Adviser; (b) are restricted
from short-term trading; (c) must provide duplicate statements and confirmations
to 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
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
any audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C Debt rated "BB," "B," "CCC," "CC" and "C" is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal. "BB" indicates the least degree of speculation and "C" the
highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
47
<PAGE>
B Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"BB" or "BB-" rating.
CCC Debt rated "CCC" has a currently identifiable vulnerability to default
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
CC The rating "CC" typically is applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.
C The rating "C" typically is applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI The rating "CI" is reserved for income bonds on which no interest is
being paid.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The "D" rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
categories.
MOODY'S INVESTORS SERVICE, INC.
Aaa Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat greater than the Aaa securities.
A Bonds which are rated "A" possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.
48
<PAGE>
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
S&P's commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market. Ratings are
graded into several categories, ranging from "A-1" for the highest quality
obligations to "D" for the lowest.
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) designation.
MOODY'S INVESTORS SERVICE, INC.
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year. Obligations relying upon support mechanisms such as
letters-of-credit and bonds of indemnity are excluded unless explicitly rated.
49
<PAGE>
Prime-1 Issuers (or supporting institutions) rated Prime-1 (P-1) have a
superior ability for repayment of senior short-term debt obligations. P-1
repayment ability will often be evidenced by many of the following
characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
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
usually 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, 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
usually at the time during the option term. The writer of the put option, who
receives the premium, has the obligation, upon exercise of the option, to buy
the underlying security at the exercise price.
Options on Indices. An index assigns relative values to the securities
included in the index and fluctuates with changes in the market values of those
securities. An index option operates in the same way as a more traditional
option on a security, except that exercise of an index option is effected with
cash payment and does not involve delivery of securities. Thus, upon exercise of
an 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
index.
Index Futures Contracts. An 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 index value at the close of trading of the contract and
the price at which the futures contract is originally struck. No physical
delivery of the securities 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.
50
<PAGE>
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 or a futures contract, 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>
APPENDIX D
[The following tables are represented as graphs in the printed document.]
The following graphs and chart illustrate hypothetical returns:
INCREASE RETURNS
This graph shows over a period of time even a small increase in returns can make
a significant difference.
Years 10% 8% 6% 4%
----- ------- ------ ------ ------
5 16,453 14,898 13,489 12,210
10 27,070 22,196 18,194 14,908
15 44,539 33,069 24,541 18,203
20 73,281 49,268 33,102 22,226
25 120,569 73,402 44,650 27,138
INCREASE INVESTMENT
This graph shows the more you invest on a regular basis over time, the more you
can accumulate.
Years $100 $250 $500 $1,000
----- ------ ------- ------- -------
5 7,348 18,369 36,738 73,476
10 18,295 43,736 91,473 182,946
15 34,604 86,509 173,019 346,038
20 58,902 147,255 294,510 589,020
25 95,103 237,757 475,513 951,026
<PAGE>
[The following table is represented as a graph in the printed document.]
This chart illustrates the time value of money based upon the following
assumptions:
If you invested $2,000 each year for 20 years, starting at 25, assuming a 9%
investment return, you would accumulate $573,443 by the time you reach age 65.
However, had you invested the same $2,000 each year for 20 years, at that rate,
but waited until age 35, you would accumulate only $242,228 - a diference of
$331,215.
25 years old .............. 533,443
35 years old .............. 202,228
45 years old .............. 62,320
For each of the above graphs and chart it should be noted that systematic
investment plans do not assume a profit or protect against loss in declining
markets. Investors should consider their financial ability to continue purchases
through periods of both high and low price levels. Figures are hypothetical and
for illustrative purposes only and do not represent any actual investment or
performance. The value of a shareholder's investment and return may vary.
<PAGE>
[The following table is represented as a chart in the printed document.]
The following chart illustrates the historical performance of the Dow Jones
Industrial Average from 1928 through 1996.
1928 .................. 300.00
1929 .................. 248.48
1930 .................. 164.58
1931 .................. 77.90
1932 .................. 59.93
1933 .................. 99.90
1934 .................. 104.04
1935 .................. 144.13
1936 .................. 179.90
1937 .................. 120.85
1938 .................. 154.76
1939 .................. 150.24
1940 .................. 131.13
1941 .................. 110.96
1942 .................. 119.40
1943 .................. 136.20
1944 .................. 152.32
1945 .................. 192.91
1946 .................. 177.20
1947 .................. 181.16
1948 .................. 177.30
1949 .................. 200.10
1950 .................. 235.40
1951 .................. 269.22
1952 .................. 291.89
1953 .................. 280.89
1954 .................. 404.38
1955 .................. 488.39
1956 .................. 499.46
1957 .................. 435.68
1958 .................. 583.64
1959 .................. 679.35
1960 .................. 615.88
1961 .................. 731.13
1962 .................. 652.10
1963 .................. 762.94
1964 .................. 874.12
1965 .................. 969.25
1966 .................. 785.68
1967 .................. 905.10
1968 .................. 943.75
1969 .................. 800.35
1970 .................. 838.91
1971 .................. 890.19
1972 .................. 1,020.01
1973 .................. 850.85
1974 .................. 616.24
1975 .................. 858.71
1976 .................. 1,004.65
1977 .................. 831.17
1978 .................. 805.01
1979 .................. 838.74
1980 .................. 963.98
1981 .................. 875.00
1982 .................. 1,046.55
1983 .................. 1,258.64
1984 .................. 1,211.56
1985 .................. 1,546.67
1986 .................. 1,895.95
1987 .................. 1,938.80
1988 .................. 2,168.60
1989 .................. 2,753.20
1990 .................. 2,633.66
1991 .................. 3,168.83
1992 .................. 3,301.11
1993 .................. 3,754.09
1994 .................. 3,834.44
1995 .................. 5,000.00
1996 .................. 6,000.00
The performance of the Dow Jones Industrial Average is not indicative of
the performance of any particular investment. It does not take into account fees
and expenses associated with purchasing mutual fund shares. Individuals cannot
invest directly in any index. Please note that past performance does not
guarantee future results.
<PAGE>
[The following table is represented as a chart in the printed document.]
The following chart shows that inflation is constantly eroding the value of your
money.
THE EFFECTS OF INFLATION OVER TIME
1966 ....................... 96.61836
1967 ....................... 93.80423
1968 ....................... 89.59334
1969 ....................... 84.36285
1970 ....................... 79.88906
1971 ....................... 77.33694
1972 ....................... 74.79395
1973 ....................... 68.80768
1974 ....................... 61.27131
1975 ....................... 57.31647
1976 ....................... 54.63915
1977 ....................... 51.20820
1978 ....................... 46.98000
1979 ....................... 41.46514
1980 ....................... 36.85790
1981 ....................... 33.84564
1982 ....................... 32.60659
1983 ....................... 31.41290
1984 ....................... 30.23378
1985 ....................... 29.12696
1986 ....................... 28.81005
1987 ....................... 27.59583
1988 ....................... 26.43279
1989 ....................... 25.27035
1990 ....................... 23.81748
1991 ....................... 23.10134
1992 ....................... 22.45028
1993 ....................... 21.86006
1994 ....................... 21.28536
1995 ....................... 20.76620
1996 ....................... 20.16135
1996 ....................... 1.00
1997 ....................... 1.03
1998 ....................... 1.06
1999 ....................... 1.09
2000 ....................... 1.13
2001 ....................... 1.16
2002 ....................... 1.19
2003 ....................... 1.23
2004 ....................... 1.27
2005 ....................... 1.30
2006 ....................... 1.34
2007 ....................... 1.38
2008 ....................... 1.43
2009 ....................... 1.47
2010 ....................... 1.51
2011 ....................... 1.56
2012 ....................... 1.60
2013 ....................... 1.65
2014 ....................... 1.70
2015 ....................... 1.75
2016 ....................... 1.81
2017 ....................... 1.86
2018 ....................... 1.92
2019 ....................... 1.97
2020 ....................... 2.03
2021 ....................... 2.09
2022 ....................... 2.16
2023 ....................... 2.22
2024 ....................... 2.29
2025 ....................... 2.36
2026 ....................... 2.43
Inflation erodes your buying power. $100 in 1966, could purchase five times the
goods and service as in 1996 ($100 vs. $20).* Projecting inflation at 3%, goods
and services costing $100 today will cost $243 in the year 2026.
* Source: Consumer Price Index, U.S. Bureau of Labor Statistics.
<PAGE>
[The following tables are represented as graphs in the printed document.]
This chart illustrates that historically, the longer you hold onto stocks, the
greater chance that you will have a positive return.
1926 through 1996*
Total Number of Percentage of
Number of Positive Positive
Rolling Period Periods Periods Periods
-------------- ------- ------- -------
1-Year 71 51 72%
5-Year 67 60 90%
10-Year 62 60 97%
15-Year 57 57 100%
20-Year 52 52 100%
The following chart shows the compounded annual return of large company stocks
compared to U.S. Treasury Bills and inflation over the most recent 15 year
period. **
Compound Annual Return from 1982 -- 1996*
Inflation ..................... 3.55
U.S. Treasury Bills ........... 6.50
Large Company Stocks .......... 16.79
The following chart illustrates for the period shown that long-term corpoate
bonds have outpaced U.S. Treasury Bills and inflation.
Compound Annual Return from 1982 -- 1996*
Inflation ..................... 3.55
U.S. Treasury Bills ........... 6.50
Long-Term Corp. bonds ......... 13.66
* Source: Used with permission. (c)1997 Ibbotson Associates, Inc. All rights
reserved. [Certain provisions of this work were derived from copyrighted
works of Roger G. Ibbotson and Rex Sinquefield.]
** Please note that U.S. Treasury bills are guaranteed as to principal and
interest payments (although the funds that invest in them are not), while
stocks will fluctuate in share price. Although past performance cannot
guarantee future results, reeturns of U.S. Treasury bills historically have
not outpaced inflation by as great a margin as stocks.
<PAGE>
The accompanying table illustrates that if you are in the 36% tax bracket, a
tax-free yield of 3% is actually equivalent to a taxable investment earning
4.69%.
Your Taxable Equivalent Yield
Your Federal Tax Bracket
---------------------------------------------
28.0% 31.0% 36.0% 39.6%
your tax-free yield
3.00% 4.17% 4.35% 4.69% 4.97%
3.50% 4.86% 5.07% 5.47% 5.79%
4.00% 5.56% 5.80% 6.25% 6.62%
4.50% 6.25% 6.52% 7.03% 7.45%
5.00% 6.94% 7.25% 7.81% 8.25%
5.50% 7.64% 7.97% 8.59% 9.11%
This information is general in nature and should not be construed as tax advice.
Please consult a tax or financial adviser as to how this information affects
your particular circumstances.
<PAGE>
[The following table is represented as a graph in the printed document.]
The following graph illustrates how income has affected the gains from stock
investments since 1965.
S&P 500 Dividends Reinvested S&P 500 Principal Only
12/31/64 10,000 10,000
12/31/65 11,269 10,906
12/31/66 10,115 9,478
12/31/67 12,550 11,383
12/31/68 13,948 12,255
12/31/69 12,795 10,863
12/31/70 13,299 10,873
12/31/71 15,200 12,046
12/31/72 18,088 13,929
12/31/73 15,431 11,510
12/31/74 11,346 8,090
12/31/75 15,570 10,642
12/31/76 19,296 12,680
12/31/77 17,915 11,221
12/31/78 19,092 11,340
12/31/79 22,645 12,736
12/31/80 30,004 16,019
12/31/81 28,528 14,460
12/31/82 34,674 16,595
12/31/83 42,496 19,461
12/31/84 45,161 19,733
12/31/85 59,489 24,930
12/31/86 70,594 28,575
12/31/87 74,301 29,154
12/31/88 86,641 32,769
12/31/89 114,093 41,699
12/31/90 110,549 38,964
12/31/91 144,230 49,214
12/31/92 155,218 51,411
12/31/93 170,863 55,039
12/31/94 173,120 54,191
12/31/95 238,175 72,676
12/31/96 292,863 87,403
11/30/97 383,977 112,732
Source: First Investors Management Company, Inc. Standard & Poor's is a
registered trademark. The S&P 500 is an unmanaged index comprising 500 common
stocks spread across a variety of industries. The total returns represented
above compare the impact of reinvestment of dividends and illustrates past
performance of the index. The performance of any index is not indicative of the
performance of a particular investment and does not take into account the
effects of inflation or the fees and expenses associated with purchasing mutual
fund shares. Individuals cannot invest directly in any index. Mutual fund shares
will fluctuate in value, therefore, the value of your original investment and
your return may vary. Moreover, past performance is no guarantee of future
results.
<PAGE>
Financial Statements
as of October 31, 1997
Registrant incorporated by reference the financial statements and report of
independent auditors contained in the annual report to shareholders for the
fiscal year ended October 31, 1997 electronically filed with the Commission on
December 19, 1997 (Accession Number: 0001047489-97-008287).
<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.(2) Articles of Incorporation
b.(2) Articles Supplementary
(2)(2) By-laws
(3) Not Applicable
(4) Shareholders rights are contained in (a) Articles VI, VII
and VIII of Registrant's Articles of Incorporation,
previously filed as Exhibit 99.B1 to Registrant's
Registration Statement; and (b) Articles II and VII of
Registrant's By-laws, previously filed as Exhibit 99.B2 to
Registrant's Registration Statement
(5) a.(2) Investment Advisory Agreement between Registrant and First
Investors Management Company, Inc.
b.(2) Subadvisory Agreement between Registrant and Wellington
Management Company
(6)(3) Underwriting Agreement
(7) Not Applicable
(8)(3) Custodian Agreement between Registrant and The Bank of New
York
(9) a.(3) Administration Agreement between Registrant, First
Investors Management Company, Inc., First Investors
Corporation and Administrative Data Management Corp.
b.(4) Amended Schedule A to Administration Agreement
c.(4) Organization Expense Reimbursement Agreement
(10)(1) Opinion of counsel
(11) a. Consent of independent accounts
b.2,5 Powers of Attorney
<PAGE>
(12) Not Applicable
(13)(4) Undertakings
(14) a.(4) First Investors Profit Sharing/Money Purchase Pension
Retirement Plan for Sole Proprietorships, Partnerships and
Corporations
b.(4) First Investors Individual Retirement Account
c.(4) First Investors 403(b) Custodial Account
d.(4) First Investors SEP-IRA and SARSEP-IRA
(15) a.(3) Class A Distribution Plan
b.(3) Class B Distribution Plan
(16) Performance Calculations
(17) Financial Data Schedule (filed as Exhibit 27 for
electronic filing purposes)
(18)(2) Rule 18f-3 Plan
- ----------
(1) Incorporated by reference from Registrant's Rule 24f-2 Notice for
its fiscal year ended October 31, 1996 filed on December 19, 1996.
(2) Incorporated by reference from Post-Effective Amendment No. 9 to
Registrant's Registration Statement (File No. 33-46924) filed on November 13,
1995.
(3) Incorporated by reference from Post-Effective Amendment No. 10 to
Registrant's Registration Statement (File No. 33-46924) filed on January 12,
1997.
(4) Incorporated by reference from Post-Effective Amendment No. 12 to
Registrant's Registration Statement (File No. 33-46924) filed on May 15, 1997.
(5) Incorporated by reference from Post-Effective Amendment No. 13 to
Registrant's Registration Statement (File No. 33-46924) filed on October 31,
1997.
Item 25. Persons Controlled by or under common control with Registrant
There are no persons controlled by or under common control with the
Registrant.
<PAGE>
Item 26. Number of Holders of Securities
Number of Record
Holders as of
Title of Class October 29, 1997
-------------------------
Class A Class B
------- -------
Mid-Cap Opportunity Fund 4,236 394
Utilities Income Fund 12,688 1,016
Growth & Income Fund 21,270 2,752
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 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.
<PAGE>
(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-exclusively: 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.
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.
<PAGE>
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.
Item 28(a). Business and Other Connections of the 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
<PAGE>
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."
(b) Business and Other Connections of Subadviser.
Wellington Management Company, LLP ("Wellington Management") is an
investment adviser registered under the Investment Advisers Act of 1940, as
amended (the "Advisers Act"). The list required by this Item 28 of officers and
partners of Wellington Management, together with any information as to any
business profession, vocation or employment of a substantial nature engaged in
by such officers and partners during the past two years, is incorporated herein
by reference to Schedules A and D of Form ADV filed by Wellington Management
pursuant to the Advisers Act (SEC File No. 801-159089).
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
(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
<PAGE>
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 Senior Vice President None
581 Main Street
Woodbridge, NJ 07095
Jane W. Kruzan Director None
15 Norwood Avenue
Summit, NJ 07901
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
Anne Condon Vice President None
581 Main Street
Woodbridge, NJ 07095
Howard M. Factor Vice President None
95 Wall Street
New York, NY 10005
<PAGE>
Elizabeth Reilly Vice President None
581 Main Street
Woodbridge, NJ 07095
Robert Flanagan Vice President- None
95 Wall Street Sales Administration
New York, NY 10005
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
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>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant represents that this Amendment
meets all the requirements for effectiveness pursuant to Rule 485(b) under the
Securities Act of 1933, and has duly caused this Post-Effective Amendment to
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New York, on the
23rd day of December, 1997.
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.
/s/Glenn O. Head Principal Executive December 23, 1997
- ------------------------- Officer and Director
Glenn O. Head
/s/Joseph I. Benedek Principal Financial December 23, 1997
- ------------------------- and Accounting Officer
Joseph I. Benedek
* Director December 23, 1997
- -------------------------
Kathryn S. Head
* Director December 23, 1997
- -------------------------
Roger L. Grayson
* Director December 23, 1997
- -------------------------
Herbert Rubinstein
* Director December 23, 1997
- -------------------------
Nancy Schaenen
<PAGE>
* Director December 23, 1997
- -------------------------
James M. Srygley
* Director December 23, 1997
- -------------------------
John T. Sullivan
* Director December 23, 1997
- -------------------------
Rex R. Reed
* Director December 23, 1997
- -------------------------
Robert F. Wentworth
*By: /s/ Larry R. Lavoie
------------------------------
Larry R. Lavoie
Attorney-in-fact
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
99.B11 Consent of accountants
99.B16 Performance Calculations
27.011 FDS-Mid-Cap Opportunity Fund-
Class A
27.012 FDS-Mid-Cap Opportunity 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
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. 14 to the
Registration Statement on Form N-1A (File No. 33-46924) of our report dated
November 24, 1997 relating to the October 31, 1997 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
December 22, 1997
SEC Standardized Total Returns - Class A
Average Annual Total Return and Total Return for First Investors
Funds are calculated using the following standardized formula:
Average Annual
Total Return = ((ERV / P) ) - 1
Total Return = ((ERV - P) / P)
WHERE: ERV = Ending redeemable value of a hypothetical S1,000 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,
<TABLE>
<CAPTION>
AVE. ANNUAL TOTAL
Class A ERV P N TOTAL RETURN RETURN
--- - - ------------- ------
<S> <C> <C> <C> <C> <C>
Growth & Income Fund
--------------------
1 year: $1,182.60 $1,000.00 1.00 18.26% 18.26%
Life of Fund: $1,786.30 $1,000.00 4.07 15.29% 78.63%
U.S.A. Mid-Cap Opportunity Fund
-------------------------------
1 year: $1,191.40 $1,000.00 1.00 19.14% 19.14%
5 years: $1,692.10 $1,000.00 5.00 11.09% 69.21%
Life of Fund: $1,703.90 $1,000.00 5.19 10.82% 70.39%
Utilities Income Fund
---------------------
1 year: $1,057.70 $1,000.00 1.00 5.77% 5.77%
Life of Fund: $1,384.40 $1,000.00 4.69 7.18% 38.44%
</TABLE>
<PAGE>
SEC Standardized Total Returns - Class B
Average Annual Total Return and Total Return for First Investors
Funds are calculated using the following standardized formula:
Average Annual
Total Return = ((ERV / P) ) - 1
Total Return = ((ERV - P) / P)
WHERE: ERV = Ending redeemable value of a hypothetical S1,000 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,
<TABLE>
<CAPTION>
AVE. ANNUAL TOTAL
Class B ERV P N TOTAL RETURN RETURN
--- - - ------------- ------
<S> <C> <C> <C> <C> <C>
Growth & Income Fund
--------------------
One Year: $1,202.10 $1,000.00 1.00 20.21% 20.21%
Life of Fund: $1,803.40 $1,000.00 2.80 23.43% 80.34%
U.S.A. Mid-Cap Opportunity Fund
- -------------------------------
One Year: $1,211.20 $1,000.00 1.00 21.12% 21.12%
Life of Fund: $1,635.30 $1,000.00 2.80 19.20% 63.53%
Utilities Income Fund
---------------------
One Year: $1,075.70 $1,000.00 1.00 7.57% 7.57%
Life of Fund: $1,480.00 $1,000.00 2.80 15.02% 48.00%
</TABLE>
<PAGE>
NAV only Total Returns - Class A
Average Annual Total Return and Total Return for First Investors
Funds are calculated using the following standardized formula:
Average Annual
Total Return = ((ERV / P) ) - 1
Total Return = ((ERV - P) / P)
WHERE: ERV = Ending redeemable value of a hypothetical S1,000 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,
<TABLE>
<CAPTION>
AVE. ANNUAL TOTAL
Class A ERV P N TOTAL RETURN RETURN
--- - - ------------- ------
<S> <C> <C> <C> <C> <C>
Growth & Income Fund
--------------------
1 year: $1,262.00 $1,000.00 1.00 26.20% 26.20%
Life of Fund: $1,906.20 $1,000.00 4.07 17.14% 90.62%
U.S.A. Mid-Cap Opportunity Fund
-------------------------------
1 year: $1,270.90 $1,000.00 1.00 27.09% 27.09%
5 years: $1,804.90 $1,000.00 5.00 12.54% 80.49%
Life of Fund: $1,818.10 $1,000.00 5.19 12.21% 81.81%
Utilities Income Fund
---------------------
1 year: $1,128.60 $1,000.00 1.00 12.86% 12.86%
Life of Fund: $1,476.10 $1,000.00 4.69 8.66% 47.61%
</TABLE>
<PAGE>
NAV only Total Returns - Class B
Average Annual Total Return and Total Return for First Investors
Funds are calculated using the following standardized formula:
Average Annual
Total Return = ((ERV / P) ) - 1
Total Return = ((ERV - P) / P)
WHERE: ERV = Ending redeemable value of a hypothetical S1,000 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, 1997.
<TABLE>
<CAPTION>
AVE. ANNUAL TOTAL
Class B ERV P N TOTAL RETURN RETURN
--- - - ------------- ------
<S> <C> <C> <C> <C> <C>
Growth & Income Fund
--------------------
One Year: $1,252.30 $1,000.00 1.00 25.23% 25.23%
Life of Fund: $1,858.50 $1,000.00 2.80 24.77% 85.85%
U.S.A. Mid-Cap Opportunity Fund
-------------------------------
One Year: $1,261.70 $1,000.00 1.00 26.17% 26.17%
Life of Fund: $1,686.10 $1,000.00 2.80 20.51% 68.61%
Utilities Income Fund
---------------------
One Year: $1,120.80 $1,000.00 1.00 12.08% 12.08%
Life of Fund: $1,526.00 $1,000.00 2.80 16.29% 52.60%
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000886048
<NAME> FIRST INVESTORS SERIES FUND II, INC.
<SERIES>
<NUMBER> 011
<NAME> USA MID-CAP OPPORTUNITY FUND CLASS A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-1-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 23400
<INVESTMENTS-AT-VALUE> 27953
<RECEIVABLES> 895
<ASSETS-OTHER> 509
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 29357
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 114
<TOTAL-LIABILITIES> 114
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20231
<SHARES-COMMON-STOCK> 1416
<SHARES-COMMON-PRIOR> 947
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (37)
<ACCUMULATED-NET-GAINS> 1827
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4262
<NET-ASSETS> 26284
<DIVIDEND-INCOME> 156
<INTEREST-INCOME> 93
<OTHER-INCOME> 0
<EXPENSES-NET> (291)
<NET-INVESTMENT-INCOME> (42)
<REALIZED-GAINS-CURRENT> 1825
<APPREC-INCREASE-CURRENT> 2825
<NET-CHANGE-FROM-OPS> 4608
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (37)
<DISTRIBUTIONS-OF-GAINS> (674)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 611
<NUMBER-OF-SHARES-REDEEMED> 187
<SHARES-REINVESTED> 46
<NET-CHANGE-IN-ASSETS> 11806
<ACCUMULATED-NII-PRIOR> 41
<ACCUMULATED-GAINS-PRIOR> 676
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (191)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (377)
<AVERAGE-NET-ASSETS> 26284
<PER-SHARE-NAV-BEGIN> 15.29
<PER-SHARE-NII> (.033)
<PER-SHARE-GAIN-APPREC> 4.021
<PER-SHARE-DIVIDEND> (.037)
<PER-SHARE-DISTRIBUTIONS> (.681)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.56
<EXPENSE-RATIO> 1.54
<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> USA MID-CAP OPPORTUNITY FUND, CLASS B
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-1-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 23400
<INVESTMENTS-AT-VALUE> 27953
<RECEIVABLES> 895
<ASSETS-OTHER> 509
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 29357
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 114
<TOTAL-LIABILITIES> 114
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2542
<SHARES-COMMON-STOCK> 162
<SHARES-COMMON-PRIOR> 77
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (21)
<ACCUMULATED-NET-GAINS> 147
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 290
<NET-ASSETS> 2959
<DIVIDEND-INCOME> 14
<INTEREST-INCOME> 8
<OTHER-INCOME> 0
<EXPENSES-NET> (39)
<NET-INVESTMENT-INCOME> (17)
<REALIZED-GAINS-CURRENT> 172
<APPREC-INCREASE-CURRENT> 262
<NET-CHANGE-FROM-OPS> 417
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (53)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 93
<NUMBER-OF-SHARES-REDEEMED> 12
<SHARES-REINVESTED> 4
<NET-CHANGE-IN-ASSETS> 1790
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 29
<OVERDISTRIB-NII-PRIOR> (4)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (21)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (54)
<AVERAGE-NET-ASSETS> 2959
<PER-SHARE-NAV-BEGIN> 15.10
<PER-SHARE-NII> (.077)
<PER-SHARE-GAIN-APPREC> 3.888
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.681)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.23
<EXPENSE-RATIO> 2.25
<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 FUND, CLASS A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-1-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 94889
<INVESTMENTS-AT-VALUE> 110772
<RECEIVABLES> 659
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 111432
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 260
<TOTAL-LIABILITIES> 260
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 81000
<SHARES-COMMON-STOCK> 14487
<SHARES-COMMON-PRIOR> 16228
<ACCUMULATED-NII-CURRENT> 478
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5123
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15230
<NET-ASSETS> 101834
<DIVIDEND-INCOME> 4055
<INTEREST-INCOME> 455
<OTHER-INCOME> 0
<EXPENSES-NET> (1429)
<NET-INVESTMENT-INCOME> 3081
<REALIZED-GAINS-CURRENT> 6785
<APPREC-INCREASE-CURRENT> 2551
<NET-CHANGE-FROM-OPS> 12417
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2955)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1994
<NUMBER-OF-SHARES-REDEEMED> 4158
<SHARES-REINVESTED> 423
<NET-CHANGE-IN-ASSETS> (2195)
<ACCUMULATED-NII-PRIOR> 356
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (1662)
<GROSS-ADVISORY-FEES> (766)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (1510)
<AVERAGE-NET-ASSETS> 101834
<PER-SHARE-NAV-BEGIN> 6.41
<PER-SHARE-NII> .204
<PER-SHARE-GAIN-APPREC> .609
<PER-SHARE-DIVIDEND> (.193)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.03
<EXPENSE-RATIO> 1.40
<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> 022
<NAME> UTILITIES INCOME FUND, CLASS B
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-1-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 94889
<INVESTMENTS-AT-VALUE> 110772
<RECEIVABLES> 659
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 111432
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 260
<TOTAL-LIABILITIES> 260
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7941
<SHARES-COMMON-STOCK> 1341
<SHARES-COMMON-PRIOR> 1207
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (21)
<ACCUMULATED-NET-GAINS> 765
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 653
<NET-ASSETS> 9338
<DIVIDEND-INCOME> 329
<INTEREST-INCOME> 37
<OTHER-INCOME> 0
<EXPENSES-NET> (175)
<NET-INVESTMENT-INCOME> 191
<REALIZED-GAINS-CURRENT> 557
<APPREC-INCREASE-CURRENT> 224
<NET-CHANGE-FROM-OPS> 972
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (188)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 423
<NUMBER-OF-SHARES-REDEEMED> 316
<SHARES-REINVESTED> 27
<NET-CHANGE-IN-ASSETS> 1668
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 208
<OVERDISTRIB-NII-PRIOR> (23)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (70)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (194)
<AVERAGE-NET-ASSETS> 9338
<PER-SHARE-NAV-BEGIN> 6.35
<PER-SHARE-NII> .153
<PER-SHARE-GAIN-APPREC> .606
<PER-SHARE-DIVIDEND> (.149)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.96
<EXPENSE-RATIO> 2.11
<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> 031
<NAME> GROWTH & INOME FUND, CLASS A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-1-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 166275
<INVESTMENTS-AT-VALUE> 219937
<RECEIVABLES> 1153
<ASSETS-OTHER> 107
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 221197
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 443
<TOTAL-LIABILITIES> 443
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 139932
<SHARES-COMMON-STOCK> 16728
<SHARES-COMMON-PRIOR> 11914
<ACCUMULATED-NII-CURRENT> 74
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4774
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 49049
<NET-ASSETS> 193832
<DIVIDEND-INCOME> 2485
<INTEREST-INCOME> 502
<OTHER-INCOME> 0
<EXPENSES-NET> (2139)
<NET-INVESTMENT-INCOME> 848
<REALIZED-GAINS-CURRENT> 4743
<APPREC-INCREASE-CURRENT> 27777
<NET-CHANGE-FROM-OPS> 33368
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (817)
<DISTRIBUTIONS-OF-GAINS> (2001)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6494
<NUMBER-OF-SHARES-REDEEMED> 1963
<SHARES-REINVESTED> 283
<NET-CHANGE-IN-ASSETS> 81936
<ACCUMULATED-NII-PRIOR> 47
<ACCUMULATED-GAINS-PRIOR> 2031
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (1143)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (2182)
<AVERAGE-NET-ASSETS> 193832
<PER-SHARE-NAV-BEGIN> 9.39
<PER-SHARE-NII> .060
<PER-SHARE-GAIN-APPREC> 2.359
<PER-SHARE-DIVIDEND> (.059)
<PER-SHARE-DISTRIBUTIONS> (.160)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.59
<EXPENSE-RATIO> 1.39
<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> 032
<NAME> GROWTH & INCOME FUND CLASS B
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-1-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 166275
<INVESTMENTS-AT-VALUE> 219937
<RECEIVABLES> 1153
<ASSETS-OTHER> 107
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 221197
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 443
<TOTAL-LIABILITIES> 443
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21844
<SHARES-COMMON-STOCK> 2346
<SHARES-COMMON-PRIOR> 1302
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (82)
<ACCUMULATED-NET-GAINS> 547
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4613
<NET-ASSETS> 26922
<DIVIDEND-INCOME> 306
<INTEREST-INCOME> 62
<OTHER-INCOME> 0
<EXPENSES-NET> (400)
<NET-INVESTMENT-INCOME> (32)
<REALIZED-GAINS-CURRENT> 585
<APPREC-INCREASE-CURRENT> 3330
<NET-CHANGE-FROM-OPS> 3883
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (15)
<DISTRIBUTIONS-OF-GAINS> (234)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12213
<NUMBER-OF-SHARES-REDEEMED> 195
<SHARES-REINVESTED> 26
<NET-CHANGE-IN-ASSETS> 14781
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 196
<OVERDISTRIB-NII-PRIOR> (35)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (159)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (430)
<AVERAGE-NET-ASSETS> 26922
<PER-SHARE-NAV-BEGIN> 9.33
<PER-SHARE-NII> .002
<PER-SHARE-GAIN-APPREC> 2.318
<PER-SHARE-DIVIDEND> (.010)
<PER-SHARE-DISTRIBUTIONS> (.160)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.48
<EXPENSE-RATIO> 2.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
