As filed with the Securities and Exchange Commission on February 24, 1997
Registration No. 33-46924
811-6618
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 11 X
-
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 13 X
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FIRST INVESTORS SERIES FUND II, INC.
(Exact name of Registrant as specified in charter)
Ms. Concetta Durso
Secretary and Vice President
First Investors Series Fund II, Inc.
95 Wall Street
New York, New York 10005
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable
after the effective date of this Registration Statement
It is proposed that this filing will become effective on February 28, 1997
pursuant to paragraph (b) of Rule 485.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
previously elected to register an indefinite number of shares of common stock,
par value $.001 per share, under the Securities Act of 1933. Registrant filed a
Rule 24f-2 Notice for its fiscal year ending October 31, 1996 on December 19,
1996.
<PAGE>
FIRST INVESTORS SERIES FUND II, INC.
CROSS-REFERENCE SHEET
N-1A Item No. Location
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PART A: PROSPECTUS
1. Cover Page.................................. Cover Page
2. Synopsis.................................... Fee Table
3. Condensed Financial Information............. Financial Highlights
4. General Description of Registrant........... Investment Objectives and
Policies; General
Information
5. Management of the Fund...................... Management
5A. Management's Discussion of
Fund Performance........................... Performance Information
6. Capital Stock and Other Securities.......... Description of Shares;
Dividends and Other
Distributions; Taxes;
Determination of Net
Asset Value
7. Purchase of Securities Being Offered........ Alternative Purchase
Plan; How to Buy Shares
8. Redemption or Repurchase.................... How to Exchange Shares;
How to Redeem Shares;
Telephone Transactions
9. Pending Legal Proceedings................... Management
PART B: STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page.................................. Cover Page
11. Table of Contents........................... Table of Contents
12. General Information and History............. General Information
13. Investment Objectives and Policies.......... Investment Policies;
Investment Restrictions
14. Management of the Fund...................... Directors and Officers
15. Control Persons and Principal
Holders of Securities...................... Not Applicable
16. Investment Advisory and Other Services Management
17. Brokerage Allocation........................ Allocation of Portfolio
Brokerage
18. Capital Stock and Other Securities.......... Determination of Net
Asset Value
19. Purchase, Redemption and Pricing
of Securities Being Offered................ Reduced Sales Charges,
Additional Exchange and
Redemption Information
and Other Services;
Determination of Net
Asset Value
<PAGE>
N-1A Item No. Location
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20. Tax Status.................................. Taxes
21. Underwriters................................ Underwriter
22. Performance Data............................ Performance Information
23. Financial Statements........................ Financial Statements;
Report of Independent
Accountants
PART C: OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
item so numbered, in Part C hereof.
<PAGE>
First Investors Series Fund II, Inc.
Growth & Income Fund
U.S.A. 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
U.S.A. 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.
U.S.A. Mid-Cap Opportunity Fund seeks long-term capital growth. This Fund
seeks to achieve its objective by investing, under normal market conditions, at
least 75% of its total assets in common and preferred stocks of companies that
its investment adviser considers to have potential for capital growth. In
addition, under normal market conditions, at least 65% of the Fund's total
assets will be invested in securities of companies that have a medium market
capitalization and are incorporated and have their principal place of business
in the United States.
Utilities Income Fund primarily seeks high current income. Long-term
capital appreciation is a secondary objective. This Fund seeks to achieve its
objectives by investing, under normal market conditions, at least 65% of its
total assets in equity and debt securities issued by companies primarily engaged
in the public utilities industry.
There can be no assurance that any Fund will achieve its investment
objective.
This Prospectus sets forth concisely the information about the Funds that a
prospective investor should know before investing and should be retained for
future reference. First Investors Management Company, Inc. ("FIMCO" or
"Adviser") serves as investment adviser to the Funds and First Investors
Corporation ("FIC" or "Underwriter") serves as distributor of the Funds' shares.
A Statement of Additional Information ("SAI"), dated February 28, 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 February 28, 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. Shares of
the Funds issued prior to January 12, 1995 have been designated as Class A
shares.
Shareholder Transaction Expenses
Class A Class B
Shares Shares
------- -------
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
Annual Fund Operating Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
U.S.A. 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(2).......... 0.30 1.00 0.30 1.00 0.30 1.00
Other Expenses (3)..... 0.45 0.45 0.45+ 0.45+ 0.45 0.45
Total Fund Operating
Expenses (4).......... 1.50 2.20 1.50+ 2.20+ 1.50 2.20
</TABLE>
* A contingent deferred sales charge of 1.00% will be assessed on certain
redemptions of Class A shares that are purchased without a sales charge.
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, 1996, the Adviser waived certain Management Fees for
each Fund. Absent the waiver, such fees would have been 1.00% for U.S.A.
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
U.S.A. Mid-Cap Opportunity Fund for a minimum period ending October 31,
1997.
(2) 12b-1 Fees for Class A Shares of Growth & Income Fund have been restated to
reflect current fees.
(3) Other Expenses for U.S.A. Mid-Cap Opportunity Fund have been restated to
reflect current expenses. For the fiscal year ended October 31, 1996, the
Adviser reimbursed U.S.A. Mid-Cap Opportunity Fund for certain Other
Expenses. Absent such reimbursement, Other Expenses for each class of
shares of U.S.A. Mid-Cap Opportunity Fund would have been 0.86%. The
Adviser will reimburse each class of shares for Other Expenses in excess of
0.45% for U.S.A. Mid-Cap Opportunity Fund for a minimum period ending
October 31, 1997.
(4) If management fees and expenses had not been waived or reimbursed, Total
Fund Operating Expenses for U.S.A. Mid-Cap Opportunity Fund would have been
as follows: Class A shares--2.16%; and Class B shares--2.86%.
2
<PAGE>
For a more complete description of the various costs and expenses, see
"Alternative Purchase Plans," "How to Buy Shares," "How to Redeem Shares,"
"Management" and "Distribution Plans." Due to the imposition of 12b-1 fees, it
is possible that long-term shareholders of a Fund may pay more in total sales
charges than the economic equivalent of the maximum front-end sales charge
permitted by the rules of the National Association of Securities Dealers, Inc.
The Example below is based on Class A and Class B expense data for each
Fund's fiscal year ended October 31, 1996, except that certain Operating
Expenses have been restated, as noted above.
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Growth & Income Fund
Class A $77 $107 $139 $230
Class B 63 100 139 235*
U.S.A. Mid-Cap Opportunity Fund
Class A 77 107 139 230
Class B 63 100 139 235*
Utilities Income Fund
Class A 77 107 139 230
Class B 63 100 139 235*
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:
<CAPTION>
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Growth & Income Fund
Class A $77 $107 $139 $230
Class B 22 69 118 235*
U.S.A. Mid-Cap Opportunity Fund
Class A 77 107 139 230
Class B 22 69 118 235*
Utilities Income Fund
Class A 77 107 139 230
Class B 22 69 118 235*
</TABLE>
* Assumes conversion to Class A shares eight years after purchase.
The expenses in the Example should not be considered a representation by
the Funds of past or future expenses. Actual expenses in future years may be
greater or less than those shown.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth the per share operating performance data for a
share outstanding, total return, ratios to average net assets and other
supplemental data for each period indicated. The table has been derived from
financial statements which have been examined by Tait, Weller & Baker,
independent certified public accountants, whose report thereon appears in the
SAI. This information should be read in conjunction with the Financial
Statements and Notes thereto, which also appear in the SAI, available at no
charge upon request to the Funds.
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PER SHARE DATA
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<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS FROM
--------------------------------- -----------------------
NET REALIZED
NET ASSET AND
--------- UNREALIZED
VALUE NET GAIN (LOSS) TOTAL FROM NET NET
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL
OF PERIOD INCOME INVESTMENTS 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
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
U.S.A. 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
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
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
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
</TABLE>
* Commencement of operations of Class A shares or date Class B shares were
first offered.
** Calculated without sales charges.
*** Prior to February 15, 1996, known as Made In The U.S.A. Fund.
+ Annualized.
++ Some or all expenses have been waived or assumed from commencement of
operations through October 31, 1996.
+++ Average commission rate (per share of security) as required by amended
disclosure requirements effective September 1, 1995.
4
<PAGE>
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R A T I O S / S U P P L E M E N T A L D A T A~
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<TABLE>
<CAPTION>
RATIO TO AVERAGE NET
RATIO TO AVERAGE NET ASSET BEFORE EXPENSES
ASSETS++ WAIVED OR ASSUMED
-------- ---------------------
NET ASSET NET NET PORTFOLIO
VALUE TOTAL NET ASSETS INVESTMENT INVESTMENT TURNOVER AVERAGE
END RETURN** END OF PERIOD EXPENSES INCOME EXPENSES INCOME RATE COMMISSION
OF PERIOD (%) (IN THOUSANDS) (%) (%) (%) (%) (%) RATE+++
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 6.56 .99+ 3,407 - 1.02+ 1.37+ (.35)+ 0 $ N/A
6.69 3.67 34,489 .67 2.26 1.83 1.11 6 N/A
7.81 19.51 63,493 .98 2.34 1.59 1.74 19 N/A
9.39 21.82 111,896 1.31 1.20 1.49 1.02 25 .0530
7.78 22.73 3,602 1.90+ 2.23+ 2.61+ 1.52+ 19 N/A
9.33 20.92 12,141 2.03 .48 2.19 .31 25 .0530
11.70 3.86+ 8,150 .06+ 1.87+ 2.64+ (.72)+ 0 N/A
12.15 4.23 15,586 .81 .96 2.03 (.26) 52 N/A
11.78 (2.05) 7,651 .90 .45 2.32 (.97) 29 N/A
14.58 24.59 8,818 1.34 .48 2.36 (.55) 106 N/A
15.29 11.64 14,478 1.57 .36 2.15 (.21) 118 .0704
14.51 2.62 298 2.29+ (.03)+ 3.79+ (1.53)+ 106 N/A
15.10 10.80 1,168 2.30 (.37) 3.03 (1.10) 118 .0704
5.92 11.28+ 58,373 .35+ 3.84+ 1.80+ 2.39+ 17 N/A
5.08 (10.15) 62,671 .80 4.59 1.59 3.80 58 N/A
5.90 21.35 83,691 1.04 4.37 1.57 3.84 16 N/A
6.41 12.45 104,029 1.20 3.49 1.49 3.19 38 .0706
5.86 21.99 3,209 1.82+ 4.93+ 2.53+ 4.21+ 16 N/A
6.35 11.61 7,670 1.91 2.77 2.28 2.40 38 .0706
</TABLE>
5
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Growth & Income Fund
The investment objective of Growth & Income Fund is to seek long-term
growth of capital and current income. The Fund seeks its objective by investing,
under normal market conditions, at least 65% of its total assets in securities
that provide the potential for growth and offer income, such as dividend-paying
stocks and securities convertible into common stock. The portion of the Fund's
assets invested in equity securities and in debt securities may vary from time
to time due to changes in interest rates and economic and other factors. The
Fund is not designed for investors seeking a steady flow of income
distributions. Rather, the Fund's policy of investing in income producing
securities is intended to provide investors with a more consistent total return
than may be achieved by investing solely in growth stocks.
The convertible securities in which the Fund may invest are not subject to
any limitations as to ratings and may include high, medium, lower and unrated
securities. However, the Fund may not invest more than 20% of its total assets
in convertible securities rated below Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's Ratings Group ("S&P") (including
convertible securities that have been downgraded), or in unrated convertible
securities that are of comparable quality as determined by the Fund's
subadviser, Wellington Management Company, LLP ("WMC" or "Subadviser").
Convertible securities rated lower than BBB by S&P or Baa by Moody's, commonly
referred to as "junk bonds," are speculative and generally involve a higher risk
of loss of principal and income than higher-rated securities. See "Debt
Securities-Risk Factors," below, and Appendix A to the SAI for a description of
convertible security ratings.
The Fund may invest up to 35% of its total assets in the following
instruments: money market instruments, including U.S. bank certificates of
deposit, bankers' acceptances, commercial paper issued by domestic corporations
and repurchase agreements; fixed income securities, including obligations issued
or guaranteed as to principal and interest by the U.S. Government, its agencies
or instrumentalities ("U.S. Government Obligations"), including mortgage-backed
securities, and corporate debt securities rated at least Baa by Moody's or BBB
by S&P, commonly known as "investment grade securities" or unrated securities
that are of comparable quality as determined by the Subadviser; and common stock
and securities convertible into common stock of companies that are not paying a
dividend if there exists the potential for growth of capital or future income.
See "Description of Certain Securities, Other Investment Policies and Risk
Factors," below, and the SAI for additional information concerning these
securities. It is the Fund's policy to attempt to sell, within a reasonable time
period, a debt security which has been downgraded below investment grade (other
than convertible securities, as previously discussed), provided that such
disposition is in the best interests of the Fund and its shareholders. See "Debt
Securities-Risk Factors," below, and Appendix A to the SAI for a description of
corporate bond ratings.
Generally, the prices of equity securities could be affected by such
factors as a change in a company's earnings, fluctuations in interest rates or
changes in the rate of economic growth. To the extent the Fund invests in
issuers with small capitalizations, the Fund would be subject to greater risk
than may be involved in investing in companies with larger capitalizations.
These securities generally include newer and less seasoned companies which are
more speculative than securities issued by well-established issuers. Other risks
may include less available information about the 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.
6
<PAGE>
The Fund may invest up to 20% of its total assets in securities of
well-established foreign companies in developed countries which are traded on a
recognized domestic or foreign securities exchange. Although such foreign
securities may be denominated in foreign currencies, the Fund anticipates that
the majority of its foreign investments will be in American Depository Receipts
("ADRs") and Global Depository Receipts ("GDRs"). See "Foreign Securities-Risk
Factors" and "American Depository Receipts and Global Depository Receipts." The
Fund may enter into forward currency contracts to protect against uncertainty in
the level of future exchange rates. The Subadviser will not attempt to time
actively either short-term market trends or short-term currency trends in any
market. See "Hedging and Option Income Strategies" in the SAI.
The Fund may also borrow money for temporary or emergency purposes in
amounts not exceeding 5% of its net assets, make loans of portfolio securities
and invest in securities issued on a "when-issued" or delayed delivery basis. In
addition, in any period of market weakness or of uncertain market or economic
conditions, the Fund may establish a temporary defensive position to preserve
capital by having up to 100% of its assets invested in short-term fixed income
securities or retained in cash or cash equivalents. See "Description of Certain
Securities, Other Investment Policies and Risk Factors" for additional
information concerning these securities.
U.S.A. Mid-Cap Opportunity Fund
U.S.A. Mid-Cap Opportunity Fund seeks long-term capital growth by
investing, under normal market conditions, at least 75% of its total assets in
common and preferred stocks of companies that the Adviser considers to have
potential for capital growth. In addition, under normal market conditions, at
least 65% of the Fund's total assets will be invested in securities of companies
that have a medium market capitalization and are incorporated and have their
principal place of business in the United States, irrespective of whether they
have most of their operations in the United States. This could result in the
Fund investing in companies that do not actually manufacture products or perform
services in the United States. An investment in the Fund will not necessarily
promote manufacturing or employment in the United States since many companies
that are incorporated and have their principal place of business in the United
States have significant operations outside of the United States.
The Fund seeks to invest in growth equity securities, including securities
of companies with above-average earnings growth as compared to the average of
the stocks in the Standard & Poor's 500 Composite Stock Price Index, other
companies that the Adviser believes demonstrate changing or accelerating growth
records, and companies with outstanding growth records and potential based on
the Adviser's fundamental analysis of the company. The companies in which the
Fund invests will be primarily those with medium market capitalization (often
known as "mid-cap"), which is currently defined 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. 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, as discussed under "Investment Objectives and Policies-Growth &
Income Fund."
7
<PAGE>
The majority of the Fund's equity investments are securities listed on the
New York Stock Exchange ("NYSE"), other national securities exchanges or
securities that have an established over-the-counter ("OTC") market, although
the depth and liquidity of the OTC market may vary from time to time and from
security to security. The Fund's policy of investing in seasoned companies with
above-average earnings growth, other companies with changing or accelerating
growth profiles and companies with outstanding growth records and potential
subjects the Fund to greater risk than may be involved in investing in
securities that are not selected for such growth characteristics.
The Fund may invest up to 25% of its total assets in U.S. Government
Obligations, including mortgage-backed securities, and investment grade debt
securities or unrated securities that are of comparable quality as determined by
the Adviser, repurchase agreements, investment grade securities convertible into
common stock, warrants to purchase common stock and zero coupon and pay-in-kind
securities. See "Description of Certain Securities, Other Investment Policies
and Risk Factors," below, and "Investment Policies" in the SAI for information
on these securities. The Fund only invests in securities of U.S. issuers. The
Fund may borrow money for temporary or emergency purposes in an amount not
exceeding 5% of its net assets, invest in securities issued on a "when-issued"
or delayed delivery basis and engage in short sales "against the box." The
Adviser continually monitors the investments in the Fund's portfolio and
carefully evaluates on a case-by-case basis whether to dispose of or retain a
debt security that has been downgraded below investment grade. No more than 5%
of the Fund's net assets will remain invested in such downgraded securities. See
Appendix A to the SAI for a description of corporate bond ratings.
In any period of market weakness or of uncertain market or economic
conditions, the Fund may establish a temporary defensive position to preserve
capital by having all or part of its assets invested in short-term fixed income
securities or retained in cash or cash equivalents, including U.S. Government
Obligations, mortgage-backed securities, bank certificates of deposit, bankers'
acceptances and commercial paper issued by domestic corporations. See
"Description of Certain Securities, Other Investment Policies and Risk Factors."
Utilities Income Fund
The primary investment objective of Utilities Income Fund is to seek high
current income. Long-term capital appreciation is a secondary objective. The
Fund seeks its objectives by investing, under normal market conditions, at least
65% of its total assets in equity and debt securities issued by companies
primarily engaged in the public utilities industry. Equity securities in which
the Fund may invest include common stocks, preferred stocks, securities
convertible into common stocks or preferred stocks and warrants to purchase
common or preferred stocks. Debt securities in which the Fund may invest will be
rated at the time of investment at least A by Moody's or S&P or will be of
comparable quality as determined by the Adviser. The Fund's policy is to attempt
to sell, within a reasonable time period, a debt security in its portfolio which
has been downgraded below A, provided that such disposition is in the best
interests of the Fund and its shareholders. See Appendix A to the SAI for a
description of corporate bond ratings. The portion of the Fund's assets invested
in equity securities and in debt securities will vary from time to time due to
changes in interest rates and economic and other factors.
8
<PAGE>
The utilities companies in which the Fund will invest include companies
primarily engaged in the ownership or operation of facilities used to provide
electricity, gas, water or telecommunications (including telephone, telegraph
and satellite, but not companies engaged in public broadcasting or cable
television). For these purposes, "primarily engaged" means that (1) more than
50% of the company's assets are devoted to the ownership or operation of one or
more facilities as described above, or (2) more than 50% of the company's
operating revenues are derived from the business or combination of any of the
businesses described above. It should be noted that based on this definition,
the Fund may invest in companies which are also involved to a significant degree
in non-public utilities activities.
Utilities stocks generally offer dividend yields that exceed those of
industrial companies and their prices tend to be less volatile than stocks of
industrial companies. However, utilities stocks can still be affected by the
risks of the stock of industrial companies. Because the Fund concentrates its
investments in public utilities companies, the value of its shares will be
especially affected by factors peculiar to the utilities industry, and may
fluctuate more widely than the value of shares of a fund that invests in a
broader range of industries. See "Utilities Industries--Risk Factors."
The Fund may invest up to 35% of its total assets in the following
instruments: debt securities (rated at least A by Moody's or S&P) and common and
preferred stocks of non-utilities companies; U.S. Government Obligations;
mortgage-backed securities; cash; and money market instruments consisting of
prime commercial paper, bankers' acceptances, certificates of deposit and
repurchase agreements. The Fund may invest in securities on a "when-issued" or
delayed delivery basis, engage in short sales "against the box" and make loans
of portfolio securities. The Fund may invest up to 10% of its net assets in
ADRs. The Fund may borrow money for temporary or emergency purposes in amounts
not exceeding 5% of its net assets. The Fund also may invest in zero coupon and
pay-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 stock
includes 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.
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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 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. Thus, these
securities are not denominated in the same currency as the securities into which
they may be converted. In addition, the issuers of the securities underlying
unsponsored ADRs are not obligated to disclose material information in the
United States and, therefore, there may be less information available regarding
such issuers and there may not be a correlation between such information and the
market value to the ADRs. GDRs are issued globally and evidence a similar
ownership arrangement. Generally, GDRs are designed for trading in non-U.S.
securities markets. ADRs and GDRs are considered to be foreign securities by the
Funds. See "Foreign Securities--Risk Factors."
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or
dividends paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Convertible securities have unique investment
characteristics in that they generally (1) have higher yields than common
stocks, but lower yields than comparable non-convertible securities, (2) are
less subject to fluctuation in value than the underlying stock because they have
fixed income characteristics, and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases.
Lower-rated and certain unrated convertible securities are subject to certain
risks that may not be present with investments in higher-grade securities. See
"Debt Securities-Risk Factors," below, and "Risk Factors of High Yield
Securities" in the SAI.
Debt Securities--Risk Factors. The market value of debt securities,
including convertible securities, is influenced primarily by changes in the
level of interest rates. Generally, as interest rates rise, the market value of
debt securities decreases. Conversely, as interest rates fall, the market value
of debt securities increases. Factors which could result in a rise in interest
rates, and a decrease in the market value of debt securities, include an
increase in inflation or inflation expectations, an increase in the rate of U.S.
economic growth, an expansion in the Federal budget deficit, or an increase in
the price of commodities such as oil. In addition to interest rate risk, there
is also credit risk involved in investing in debt securities. Debt obligations
rated lower than Baa by Moody's or BBB by S&P, commonly referred to as "junk
bonds," are speculative and generally involve a higher risk of loss of principal
and income than higher-rated securities. See Appendix A to the SAI for a
description of corporate bond and convertible security ratings.
The prices of lower-rated debt obligations, including convertible
securities, tend to be less sensitive to interest rate changes than higher-rated
investments, but may be more sensitive to adverse economic changes or individual
corporate developments. Thus, there could be a higher incidence of default. This
would affect the value of such securities and thus a Fund's net asset value.
Further, if the issuer of a security owned by a Fund defaults, the Fund might
incur additional expenses to seek recovery. Generally, when interest rates rise,
the value of fixed rate debt obligations tends to decrease; when interest rates
fall, the value of fixed rate debt obligations tends to increase. If a Fund
experiences unexpected net redemptions in a rising interest rate market, it
might be forced to sell certain securities, regardless of investment merit. This
could result in decreasing the assets to which Fund expenses could be allocated
and in a reduced rate of return for the Fund. While it is impossible to protect
entirely against this risk, diversification of a Fund's portfolio and the
careful analysis by the Adviser or the Subadviser, as applicable, of prospective
portfolio securities should minimize the impact of a decrease in value of a
particular security or group of securities in a Fund's portfolio.
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The credit ratings issued by credit rating services may not fully reflect
the true risks of an investment. For example, credit ratings typically evaluate
the safety of principal and interest payments, not market value risk, of
lower-rated debt securities. Also, credit rating agencies may fail to change on
a timely basis a credit rating to reflect changes in economic or company
conditions that affect a security's market value. Although the Adviser or the
Subadviser consider ratings of recognized rating services such as Moody's and
S&P, the Adviser or the Subadviser primarily rely on their own credit analyses,
which include a study of existing debt, capital structure, ability to service
debt and to pay dividends, the issuers sensitivity to economic conditions, its
operating history and the current trend of earnings. Growth & Income Fund may
invest in securities rated B by S&P or Moody's or, if unrated, deemed to be of
comparable quality by the Subadviser. Debt obligations with these ratings, while
currently having the capacity to meet interest payments and principal
repayments, have a greater vulnerability to default. The Subadviser continually
monitors the investments in the Fund's portfolio and carefully evaluates whether
to dispose of or retain lower-rated debt securities whose credit ratings have
changed. See Appendix A to the SAI for a description of corporate bond ratings.
Lower-rated debt securities are typically traded among a smaller number of
broker-dealers than in a broad secondary market. Purchasers of such securities
tend to be institutions, rather than individuals, which is a factor that further
limits the secondary market. To the extent that no established retail secondary
market exists, many lower-rated debt securities may not be as liquid as
higher-grade securities. A less active and thinner market for such securities
than that available for higher quality securities may result in more volatile
valuations of a Fund's holdings and more difficulty in executing trades at fair
value during unsettled market conditions. The ability of a Fund to value or sell
lower-rated debt securities will be adversely affected to the extent that such
securities are thinly traded or illiquid. See "Risks Factors of High Yield
Securities" in the SAI.
Foreign Securities--Risk Factors. Growth & Income Fund may sell a security
denominated in a foreign currency and retain the proceeds in that foreign
currency to use at a future date (to purchase other securities denominated in
that currency) or the Fund may buy foreign currency outright to purchase
securities denominated in that foreign currency at a future date. Because the
Fund does not presently intend to hedge its foreign investments against the risk
of foreign currency fluctuations, changes in the value of these currencies can
significantly affect the Fund's share price. In addition, the Fund will be
affected by changes in exchange control regulations and fluctuations in the
relative rates of exchange between the currencies of different nations, as well
as by economic and political developments. Other risks involved in foreign
securities include the following: there may be less publicly available
information about foreign companies comparable to the reports and ratings that
are published about companies in the United States; foreign companies are not
generally subject to uniform accounting, auditing and financial reporting
standards and requirements comparable to those applicable to U.S. companies;
some foreign stock markets have substantially less volume than U.S. markets, and
securities of some foreign companies are less liquid and more volatile than
securities of comparable U.S. companies; there may be less government
supervision and regulation of foreign stock exchanges, brokers and listed
companies than exist in the United States; and there may be the possibility of
expropriation or confiscatory taxation, political or social instability or
diplomatic developments which could affect assets of the Fund held in foreign
countries.
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Hedging and Option Income Strategies. Utilities Income Fund may attempt to
reduce the overall risk of its investments (hedge) by using options and futures
contracts and may engage in certain strategies involving options to attempt to
enhance income. Growth & Income Fund may use forward currency contracts to
protect against uncertainty in the level of future exchange rates. A Fund's
ability to use these instruments may be limited by market conditions, regulatory
limits and tax considerations. Neither Fund presently intends to engage in these
strategies. See the SAI for more information regarding hedging and option income
strategies.
Money Market Instruments. Investments in commercial paper are limited to
obligations rated Prime-1 by Moody's or A-1 by S&P. Commercial paper includes
notes, drafts, or similar instruments payable on demand or having a maturity at
the time of issuance not exceeding nine months, exclusive of days of grace or
any renewal thereof. Investments in certificates of deposit will be made only
with domestic institutions with assets in excess of $500 million. See the SAI
for more information regarding money market instruments and Appendix B to the
SAI for a description of commercial paper ratings.
Mortgage-Backed Securities. Mortgage loans often are assembled into pools,
the interests in which are issued and guaranteed by an agency or instrumentality
of the U.S. Government, though not necessarily by the U.S. Government itself.
Interests in such pools are referred to herein as "mortgage-backed securities."
The market value of these securities can and will fluctuate as interest rates
and market conditions change. In addition, prepayment of principal by the
mortgagees which often occurs with mortgage-backed securities when interest
rates decline, can significantly change the realized yield of these securities.
See the SAI for more information concerning mortgage-backed securities.
Preferred Stock. A preferred stock is a blend of the characteristics of a
bond and common stock. It can offer the higher yield of a bond and has priority
over common stock in equity ownership, but does not have the seniority of a bond
and, unlike common stock, its participation in the issuer's growth may be
limited. Preferred stock has preference over common stock in the receipt of
dividends and in any residual assets after payment to creditors should the
issuer be dissolved. Although the dividend is set at a fixed annual rate, in
some circumstances it can be changed or omitted by the issuer.
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Repurchase Agreements. Repurchase agreements are transactions in which a
Fund purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank or dealer at an
agreed-upon date and price reflecting a market rate of interest unrelated to the
coupon rate or maturity of the purchased securities. Each Fund's risk is limited
to the ability of the seller to repurchase the securities at the agreed-upon
price upon the delivery date. See the SAI for more information regarding
repurchase agreements.
Restricted and Illiquid Securities. Each Fund may invest up to 15% of its
net assets in illiquid securities, including (1) securities that are illiquid
due to the absence of a readily available market or due to legal or contractual
restrictions on resale and (2) repurchase agreements maturing in more than seven
days. However, illiquid securities for purposes of this limitation do not
include securities eligible for resale under Rule 144A under the Securities Act
of 1933, as amended, which the Board of Directors or the Adviser or the
Subadviser, as applicable, has determined are liquid under Board-approved
guidelines. See the SAI for more information regarding restricted and illiquid
securities.
U.S. Government Obligations. Securities issued or guaranteed as to
principal and interest by the U.S. Government include (1) U.S. Treasury
obligations which differ only in their interest rates, maturities and times of
issuance as follows: U.S. Treasury bills (maturities of one year or less), U.S.
Treasury notes (maturities of one to ten years) and U.S. Treasury bonds
(generally maturities of greater than ten years), and (2) obligations issued or
guaranteed by U.S. Government agencies and instrumentalities that are backed by
the full faith and credit of the U.S., such as securities issued by the Federal
Housing Administration, Government National Mortgage Association, the Department
of Housing and Urban Development, the Export-Import Bank, the General Services
Administration and the Maritime Administration and certain securities issued by
the Farmers Home Administration and the Small Business Administration. The range
of maturities of U.S. Government Obligations is usually three months to thirty
years.
Utilities Industries--Risk Factors. Many utilities companies, especially
electric and gas and other energy-related utilities companies, have historically
been subject to the risk of increases in fuel and other operating costs, changes
in interest rates on borrowings for capital improvement programs, changes in
applicable laws and regulations, and costs and operating constraints associated
with compliance with environmental regulations. In particular, regulatory
changes with respect to nuclear and conventionally-fueled power generating
facilities could increase costs or impair the ability of utilities companies to
operate such facilities or obtain adequate return on invested capital.
Certain utilities, especially gas and telephone utilities, have in recent
years been affected by increased competition, which could adversely affect the
profitability of such utilities companies. In addition, expansion by companies
engaged in telephone communication services of their non-regulated activities
into other businesses (such as cellular telephone services, data processing,
equipment retailing, computer services and financial services) has provided the
opportunity for increases in earnings and dividends at faster rates than have
been allowed in traditional regulated businesses. However, technological
innovations and other structural changes also could adversely affect the
profitability of such companies.
Because securities issued by utilities companies are particularly sensitive
to movement in interest rates, the equity securities of such companies are more
affected by movement in interest rates than are the equity securities of other
companies.
Each of these risks could adversely affect the ability and inclination of public
utilities companies to declare or pay dividends and the ability of holders of
common stock, such as Utilities Income Fund, to realize any value from the
assets of the company upon liquidation or bankruptcy.
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Other Investment Policies--Portfolio Turnover
U.S.A. Mid-Cap Opportunity Fund had an increase in trading activity in 1996
because the Adviser restructured the Fund's portfolio after the change in its
name and certain investment policies. This resulted in a portfolio turnover rate
of 118% for the Fund for the fiscal year ended October 31, 1996. A high rate of
portfolio turnover generally leads to increased transaction costs and may result
in a greater number of taxable transactions. See the SAI for the portfolio
turnover rates for Growth & Income Fund and Utilities Income Fund and for more
information on portfolio turnover.
ALTERNATIVE PURCHASE PLANS
Each Fund has two classes of shares, Class A and Class B, which represent
interests in the same portfolio of securities and have identical voting,
dividend, liquidation and other rights and the same terms and conditions, except
that each class (i) is subject to a different sales charge and bears its
separate distribution and certain other class expenses; (ii) has exclusive
voting rights with respect to matters affecting only that class; and (iii) has
different exchange privileges.
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 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.
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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. 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. 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 to
FIC. 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.
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.
Initial Investment in a Fund. You may open a Fund account with as little as
$1,000. This account minimum is waived if you open an account for a particular
class of shares through a full exchange of shares of the same class of another
"Eligible Fund," as defined below. Class A share accounts opened through an
exchange of shares from First Investors Cash Management Fund, Inc. or First
Investors Tax-Exempt Money Market Fund, Inc. (collectively, "Money Market
Funds") may be subject to an initial sales charge. You may open a Fund account
with $250 for individual retirement accounts ("IRAs") or, at the Fund's
discretion, a lesser amount for Simplified Employee Pension Plans ("SEPs"),
salary reduction SEPs ("SARSEPs"), 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."
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<PAGE>
Additional Purchases. After you make your first investment in a Fund, you
may purchase additional shares of a Fund by mailing a check made payable to FIC,
directly to First Investors Corporation, 581 Main Street, Woodbridge, NJ
07095-1198, Attn: Dept. CP. Include your account number on the face of the
check. There is no minimum on additional purchases of Fund shares.
Eligible Funds. 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. The Money
Market Funds, unless otherwise noted, are not Eligible Funds. The funds of
Executive Investors Trust ("Executive Investors") 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.
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 invest in Class A shares of a Fund at net asset value all the cash
distributions or Systematic Withdrawal Plan payments from the same class of
shares of an existing account in another Eligible Fund. If you wish to
participate in any of these systematic investment plans, please call Shareholder
Services at 1-800-423-4026 or see the SAI.
Fund/SERV Purchases. If there is a Dealer of record on your Fund account,
the Fund is authorized to execute electronic purchase orders received directly
from this Dealer. Electronic purchase orders may be processed through the
services of the National Securities Clearing Corp. ("NSCC") "Fund/SERV" system.
Purchase 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
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There is no sales charge on transactions of $1 million or more.
Additionally, there is no sales charge on purchases that qualify for the
Cumulative Purchase Privilege if they total at least $1 million or on 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."
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
purchase of shares of Growth & Income Fund by any partner or employee of the
Subadviser, or by the spouse, or by the children or grandchildren under the age
of 21 of any such person; (4) any reinvestment of the loan repayments by a
participant in a loan program of any First Investors sponsored qualified
retirement plan; (5) a purchase with proceeds from the liquidation of a First
Investors Life Variable Annuity Fund A contract or a First Investors Life
Variable Annuity Fund C contract during the one-year period preceding the
maturity date of the contract; (6) 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 (7)
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 (6) and (7) 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 ("FIL"), an affiliate of the Adviser
and Underwriter, may elect to invest dividends earned on such policies in Class
A shares of a Fund at net asset value, provided the annual dividend is at least
$50 and the policyholder has an existing account with the Fund.
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%. Each Fund's initial minimum investment requirement is waived for purchases
of Class A shares with Unit Distributions. Shares of a Fund purchased by
Unitholders may be exchanged for Class A shares of any Eligible Fund subject to
the terms and conditions set forth under "How to Exchange Shares."
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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 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.
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As an example, assume an investor purchased 100 shares of Class B shares at
$10 per share for a total cost of $1,000 and in the second year after purchase,
the net asset value per share is $12 and, during such time, the investor has
acquired 10 additional Class B shares as dividends. If at such time the investor
makes his or her first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to a CDSC charge because redemptions are first made of
shares acquired through dividend reinvestment. With respect to the remaining 40
shares, the charge is applied only to the original cost of $10 per share and not
to the increase in net asset value of $2 per share. Therefore, $400 of the $600
redemption proceeds will be charged at a rate of 4.00% (the applicable rate in
the second year after purchase).
For purposes of determining the CDSC on Class B shares, all purchases made
during a calendar month will be deemed to have been made on the first business
day of that month at the average cost of all purchases made during that month.
The holding period of Class B shares acquired through an exchange with another
Eligible Fund will be calculated from the first business day of the month that
the Class B shares were initially acquired in the other Eligible Fund. The
amount of any CDSC will be paid to FIC. The CDSC imposed on the purchase of
Class B shares will be waived under certain circumstances. See "Waivers of CDSC
on Class B Shares" in the SAI.
Conversion of Class B Shares. A shareholder's Class B shares will
automatically convert to Class A shares approximately eight years after the date
of purchase, together with a pro rata portion of all Class B shares representing
dividends and other distributions paid in additional Class B shares. The Class B
shares so converted will no longer be subject to the higher expenses borne by
Class B shares. The conversion will be effected at the relative net asset values
per share of the two classes on the first business day of the month following
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."
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, cooperative 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.
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HOW TO EXCHANGE SHARES
Should your investment needs change, you may exchange, at net asset value,
shares of a Fund for shares of any Eligible Fund, including the Money Market
Funds. In addition, Class A shares of a Fund may be exchanged at net asset value
for units of any single payment plan ("plan") sponsored by the Underwriter.
Shares of a particular class may be exchanged only for shares of the same class
of another fund. Exchanges can only be made into accounts registered to
identical owners. If your exchange is into a new account, it must meet the
minimum investment and other requirements of the fund or plan into which the
exchange is being made. Additionally, the fund or plan must be available for
sale in the state where you reside. Before exchanging Fund shares for shares of
another fund or plan, you should read the Prospectus of the fund or plan into
which the exchange is to be made. You may obtain Prospectuses and information
with respect to which funds or plans qualify for the exchange privilege free of
charge by calling Shareholder Services at 1-800-423-4026. Exchange requests
received in "good order," 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 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, normally not more than
fifteen days. For a discussion of pricing practices when FIC's Woodbridge
offices are unable to open due to an emergency, see the SAI.
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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 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, please see the SAI or call
Shareholder Services at 1-800-423-4026.
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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 an added commission for handling any
redemption transaction.
Redemption of Low Balance Accounts. Because each Fund incurs certain fixed
costs in maintaining shareholder accounts, each Fund may redeem without your
consent, on at least 60 days' prior written notice (which may appear on your
account statement), any Fund account of Class A or Class B shares which has a
net asset value of less than $500. To avoid such redemption, you may, during
such 60-day period, purchase additional Fund shares of the same class so as to
increase your account balance to the required minimum. There will be no CDSC
imposed on such redemptions of Class B shares. A Fund will not redeem accounts
that fall below $500 solely as a result of a reduction in net asset value.
Accounts established under a Systematic Investment Plan 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.
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. 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
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; and (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. Telephone redemption
instructions will be accepted from any one owner or authorized individual.
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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,
for U.S.A. Mid-Cap Opportunity Fund and Utilities Income Fund, determines those
Funds' portfolio transactions. The Adviser is a New York corporation located at
95 Wall Street, New York, NY 10005. The Adviser presently acts as investment
adviser to 14 mutual funds. First Investors Consolidated Corporation ("FICC")
owns all of the voting common stock of the Adviser and all of the outstanding
stock of FIC and the Transfer Agent. Mr. Glenn O. Head 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, 1996, advisory fees, net of waiver for Growth & Income Fund, U.S.A. Mid-Cap
Opportunity Fund and Utilities Income Fund were 0.60%, 0.75% and 0.59%,
respectively, of each Fund's average daily net assets.
Each Fund bears all expenses of its operations other than those incurred by
the Adviser or Underwriter under the terms of its advisory or underwriting
agreements. Fund expenses include, but are not limited to: the advisory fee;
shareholder servicing fees and expenses; custodian fees and expenses; legal and
auditing fees; expenses of communicating to existing shareholders, including
preparing, printing and mailing prospectuses and shareholder reports to such
shareholders; and proxy and shareholder meeting expenses.
Subadviser-Growth & Income Fund. Wellington Management Company, LLP has
been retained by the Adviser and Series Fund II as the investment subadviser to
Growth & Income Fund. The Adviser has delegated discretionary trading authority
to WMC with respect to all of the Fund's assets, subject to the continuing
oversight and supervision by the Adviser. As compensation for its services, WMC
is paid by the Adviser, and not by the Fund, a fee which is computed daily and
paid monthly. For the fiscal year ended October 31, 1996, the Subadviser's fees
amounted to 0.27% of Growth & Income Fund's average daily net assets, all of
which was paid by the Adviser and not by the Fund.
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WMC, located at 75 State Street, Boston, MA 02109, is a Massachusetts
limited liability partnership of which Robert W. Doran, Duncan M. McFarland and
John R. Ryan are Managing Partners. WMC is a professional investment counseling
firm which provides investment services to investment companies, employee
benefit plans, endowment funds, foundations and other institutions and
individuals. As of December 31, 1996, WMC held investment management authority
with respect to approximately $133 billion of assets. Of that amount, WMC acted
as investment adviser or subadviser to approximately 84 registered investment
companies or series of such companies, with net assets of approximately $90
billion as of December 31, 1996. WMC is not affiliated with the Adviser or any
of its affiliates.
Portfolio Managers. Patricia D. Poitra, Director of Equities, has been
primarily responsible for the day-to-day management of the U.S.A. Mid-Cap
Opportunity Fund since October 1994. Mr. Poitra is assisted by a team of
portfolio analysts. Ms. Poitra also is responsible for the management of the
Special Situations Fund and the small capitalization 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 co-manages 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. Ms. Poitra joined FIMCO in 1985 as a Senior
Equity Analyst.
Margaret R. Haggerty has been Portfolio Manager for Utilities Income Fund
since its inception in February 1993. Ms. Haggerty joined FIMCO in 1990 as an
analyst for several First Investors equity funds. In addition, she monitored the
management of several First Investors Funds for which WMC was the subadviser.
Ms. Haggerty has been Portfolio Manager of the Utilities Income Fund of First
Investors Life Series Fund since its inception in November 1993.
Growth & Income Fund has been managed since its inception in 1993 by Laura
J. Allen, Vice President of WMC. Ms. Allen joined WMC in 1981 as a portfolio
assistant and became a portfolio manager in 1984.
Brokerage. Each Fund may allocate brokerage commissions, if any, to
broker-dealers in consideration of Fund share distribution, but only when
execution and price are comparable to that offered by other broker-dealers. See
the SAI for more information on allocation of portfolio brokerage.
Underwriter. Series Fund II has entered into an Underwriting Agreement with
First Investors Corporation, 95 Wall Street, New York, NY 10005, as Underwriter.
The Underwriter receives all sales charges in connection with the sale of each
Fund's Class A shares and all contingent deferred sales charges in connection
with each Fund's Class B shares and may receive payments under a plan of
distribution. See "How to Buy Shares" and "Distribution Plans."
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DISTRIBUTION PLANS
Pursuant to separate distribution plans pertaining to each Fund's Class A
and Class B shares ("Class A Plan" or "Class B Plan," and collectively,
"Plans"), each Fund is authorized to compensate the Underwriter for certain
expenses incurred in the distribution of that Fund's shares ("distribution
fees") and the servicing or maintenance of existing Fund shareholder accounts
("service fees"). Pursuant to the Plans, distribution fees are paid for
activities relating to the distribution of Fund shares, including costs of
printing and dissemination of sales material or literature, prospectuses and
reports used in connection with the sale of Fund shares. Service fees are paid
for the ongoing maintenance and servicing of existing shareholder accounts,
including payments to Representatives who provide shareholder liaison services
to their customers who are holders of that Fund, provided they meet certain
criteria.
Pursuant to the Class A Plan, each Fund is authorized to pay the
Underwriter a distribution fee at the annual rate of 0.05% of that Fund's
average daily net assets attributable to Class A shares and a service fee of
0.25% of that Fund's average daily net assets attributable to Class A shares.
Pursuant to the Class B Plan, each Fund is authorized to pay the Underwriter a
distribution fee at the annual rate of 0.75% of 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 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,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
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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
U.S.A. 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.
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.
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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 is distributed to its
shareholders.
Dividends from a Fund's investment company taxable income are taxable to
you as ordinary income, to the extent of the Fund's earnings and profits,
whether paid in cash or in additional Fund shares. Distributions of a Fund's net
capital gain, when designated as such, are taxable to you as long-term capital
gain, whether paid in cash or in additional Fund shares, regardless of the
length of time you have owned your shares. If you purchase shares shortly before
the record date for a dividend or other distribution, you will pay full price
for the shares and receive some portion of the price back as a taxable
distribution. You will receive an annual statement following the end of each
calendar year describing the tax status of distributions paid by your Fund
during that year.
Each Fund is required to withhold 31% of all dividends, capital gain
distributions and redemption proceeds payable to you (if you are an individual
or certain other non-corporate shareholder) if the Fund is not furnished with
your correct taxpayer identification number, and that percentage of dividends
and such distributions in certain other circumstances.
Your redemption of Fund shares will result in a taxable gain or loss to
you, depending on whether the redemption proceeds are more or less than your
adjusted basis for the redeemed shares (which normally includes any initial
sales charge paid on Class A shares). An exchange of Fund shares for shares of
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 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.
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PERFORMANCE INFORMATION
For purposes of advertising, each Fund's performance may be calculated for
each class of its shares based on average annual total return and total return.
Each of these figures reflects past performance and does not necessarily
indicate future results. Average annual total return shows the average annual
percentage change in an assumed $1,000 investment. It reflects the hypothetical
annually compounded return that would have produced the same total return if a
Fund's performance had been constant over the entire period. Because average
annual total return tends to smooth out variations in a Fund's return, you
should recognize that it is not the same as actual year-by-year results. Average
annual total return includes the effect of paying the maximum sales charge (in
the case of Class A shares) or the deduction of any applicable CDSC (in the case
of Class B shares) and payment of dividends and other distributions in
additional shares. One, five and ten year periods will be shown unless the class
has been in existence for a shorter period. Total return is computed using the
same calculations as average annual total return. However, the rate expressed is
the percentage change from the initial $1,000 invested to the value of the
investment at the end of the stated period. Total return calculations assume
reinvestment of dividends and other distributions.
Each of the above performance calculations may be based on investment at
reduced sales charge levels or at net asset value. Any quotation of performance
figures not reflecting the maximum sales charge 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. Prior to February 15, 1996, U.S.A. Mid-Cap Opportunity Fund was called
Made In The U.S.A. Fund. 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
meeting of shareholders for any purpose, including the removal of Directors.
Each share of each Fund has equal voting rights except as noted above.
Custodian. The Bank of New York, 48 Wall Street, New York, NY 10286, is
custodian of the securities and cash of each Fund 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.
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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.
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TABLE OF CONTENTS
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Fee Table................................................................ 2
Financial Highlights..................................................... 4
Investment Objectives and Policies....................................... 6
Alternative Purchase Plans............................................... 14
How to Buy Shares........................................................ 15
How to Exchange Shares................................................... 19
How to Redeem Shares..................................................... 20
Telephone Transactions................................................... 22
Management............................................................... 23
Distribution Plans....................................................... 24
Determination of Net Asset Value......................................... 25
Dividends and Other Distributions........................................ 26
Taxes.................................................................... 27
Performance Information.................................................. 27
General Information...................................................... 28
Investment Adviser
First Investors Management
Company, Inc.
95 Wall Street
New York, NY 10005
Subadviser
Wellington Management
Company, LLP
75 State Street
Boston, MA 02109
Underwriter
First Investors Corporation
95 Wall Street
New York, NY 10005
Transfer Agent
Administrative Data
Management Corp
581 Main Street
Woodbridge, NJ 07095-1198
Custodian
The Bank of New York
48 Wall Street
New York, NY 10286
Auditors
Tait, Weller & Baker
Two Penn Center Plaza
Philadelphia, PA 19102-1707
Legal Counsel
Kirkpatrick & Lockhart LLP
1800 Massachusetts
Avenue, N.W.
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.
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First Investors
Series Fund II, Inc.
- ---------------------------
Growth & Income Fund
U.S.A. Mid-Cap Opportunity Fund
Utilities Income Fund
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Prospectus
- ----------------------------
February 28, 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
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FIRST INVESTORS SERIES FUND II, INC.
Growth & Income Fund
U.S.A. Mid-Cap Opportunity Fund
Utilities Income Fund
95 Wall Street 1-800-423-4026
New York, New York 10005
Statement of Additional Information
dated February 28, 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 U.S.A. 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.
U.S.A. Mid-Cap Opportunity Fund seeks long-term capital growth. 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 February 28, 1997 which may be obtained free of cost
from the Funds at the address or telephone number noted above.
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TABLE OF CONTENTS
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Page
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Investment Policies.................................. 3
Hedging and Option Income Strategies................. 9
Investment Restrictions.............................. 17
Directors and Officers............................... 23
Management........................................... 25
Underwriter.......................................... 27
Distribution Plans................................... 28
Determination of Net Asset Value..................... 30
Allocation of Portfolio Brokerage.................... 30
Reduced Sales Charges, Additional Exchange and
Redemption Information and Other Services ......... 32
Taxes................................................ 41
Performance Information.............................. 43
General Information.................................. 47
Appendix A........................................... 48
Appendix B........................................... 51
Appendix C........................................... 51
Appendix D........................................... 53
Financial Statements................................. 59
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INVESTMENT POLICIES
Bankers' Acceptances. Each Fund may invest in bankers' acceptances.
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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
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risk, investments in convertible securities generally entail less risk than the
issuer's common stock, although the extent to which such risk is reduced depends
in large measure upon the degree to which the convertible security sells above
its value as a fixed income security. First Investors Management Company, Inc.
("FIMCO" or "Adviser"), or for Growth & Income Fund, its subadviser, Wellington
Management Company, LLP ("WMC" or "Subadviser"), will decide to invest based
upon a fundamental analysis of the long-term attractiveness of the issuer and
the underlying common stock, the evaluation of the relative attractiveness of
the current price of the underlying common stock, and the judgment of the value
of the convertible security relative to the common stock at current prices.
Loans of Portfolio Securities. Growth & Income Fund and Utilities
-------------------------------
Income Fund may loan securities to qualified broker-dealers or other
institutional investors provided: the borrower pledges to a Fund and agrees to
maintain at all times with the Fund collateral equal to not less than 100% of
the value of the securities loaned (plus accrued interest or dividend, if any);
the loan is terminable at will by the Fund; the Fund pays only reasonable
custodian fees in connection with the loan; and the Adviser or the Subadviser
monitors the creditworthiness of the borrower throughout the life of the loan.
Such loans may be terminated by a Fund at any time and the Fund may vote the
proxies if a material event affecting the investment is to occur. The market
risk applicable to any security loaned remains a risk of the Fund. The borrower
must add to the collateral whenever the market value of the securities rises
above the level of such collateral. A Fund could incur a loss if the borrower
should fail financially at a time when the value of the loaned securities is
greater than the collateral.
Mortgage-Backed Securities. Each Fund may invest in mortgage-backed
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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
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specified periods of time, such as twenty to thirty years, the borrowers can,
and typically do, repay them sooner. Thus, the security holders frequently
receive prepayments of principal, in addition to the principal which is part of
the regular monthly payments. A borrower is more likely to prepay a mortgage
which bears a relatively high rate of interest. Thus, in times of declining
interest rates, some higher yielding mortgages might be repaid resulting in
larger cash payments to a Fund, and the Fund will be forced to accept lower
interest rates when that cash is used to purchase additional securities.
Interest rate fluctuations may significantly alter the average maturity
of mortgage-backed securities, 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
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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, U.S.A. Mid-Cap Opportunity Fund and
Utilities Income Fund do not currently intend to do so. The period of these
repurchase agreements will usually be short, from overnight to one week, and at
no time will a Fund invest in repurchase agreements with more than one year in
time to maturity. The securities which are subject to repurchase agreements,
however, may have maturity dates in excess of one year from the effective date
of the repurchase agreement. Each Fund will always receive, as collateral,
securities whose market value, including accrued interest, 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 and Illiquid Securities. No Fund will purchase or otherwise
----------------------------------
acquire any security if, as a result, more than 15% of its net assets (taken at
current value) would be invested in securities that are illiquid by virtue of
the absence of a readily available market or
5
<PAGE>
legal or contractual restrictions on resale. This policy includes foreign
issuers' unlisted securities with a limited trading market and repurchase
agreements maturing in more than seven days. This policy does not include
restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933, as amended ("1933 Act"), which the Board of Directors or
the Adviser or the Subadviser has determined under 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.
Risk Factors of High Yield Securities. High yield, high risk securities
-------------------------------------
(commonly referred to as "junk bonds"), are subject to certain risks that may
not be present with investments of higher grade securities. These risks also
apply to lower-rated and certain unrated convertible securities.
Effect of Interest Rate and Economic Changes. The prices of
----------------------------------------------
High Yield Securities tend to be less sensitive to interest rate changes than
higher-rated investments, but may be more sensitive to adverse economic changes
or individual corporate developments. Periods of economic uncertainty and
changes generally result in increased volatility in the market prices and yields
of High Yield Securities and thus in a Fund's net asset value. A strong economic
downturn or a substantial period of rising interest rates could severely affect
the market for High Yield Securities. In these circumstances, highly leveraged
companies might have greater difficulty in making principal and interest
payments, meeting projected business goals, and obtaining additional financing.
Thus, there could be a higher incidence of default.
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This would affect the value of such securities and thus a Fund's net asset
value. Further, if the issuer of a security owned by a Fund defaults, that Fund
might incur additional expenses to seek recovery.
Generally, when interest rates rise, the value of fixed rate debt
obligations, including High Yield Securities, tends to decrease; when interest
rates fall, the value of fixed rate debt obligations tends to increase. If an
issuer of a High Yield Security containing a redemption or call provision
exercises either provision in a declining interest rate market, a Fund would
have to replace the security, which could result in a decreased return for
shareholders. Conversely, if a Fund experiences unexpected net redemptions in a
rising interest rate market, it might be forced to sell certain securities,
regardless of investment merit. This could result in decreasing the assets to
which Fund expenses could be allocated and in a reduced rate of return for that
Fund. While it is impossible to protect entirely against this risk,
diversification of a Fund's portfolio and the Adviser's careful analysis of
prospective portfolio securities should minimize the impact of a decrease in
value of a particular security or group of securities in a Fund's portfolio.
The High Yield Securities Market. The market for below
------------------------------------
investment grade bonds expanded rapidly in recent years and its growth
paralleled a long economic expansion. In the past, the prices of many
lower-rated debt securities declined substantially, reflecting an expectation
that many issuers of such securities might experience financial difficulties. As
a result, the yields on lower-rated debt securities rose dramatically. However,
such higher yields did not reflect the value of the income streams that holders
of such securities expected, but rather the risk that holders of such securities
could lose a substantial portion of their value as a result of the issuers'
financial restructuring or default. There can be no assurance that such declines
in the below investment grade market will not reoccur. The market for below
investment grade bonds generally is thinner and less active than that for higher
quality bonds, which may limit a Fund's ability to sell such securities at fair
value in response to changes in the economy or the financial markets. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may also decrease the values and liquidity of lower rated securities,
especially in a thinly traded market.
Liquidity and Valuation. Lower-rated bonds are typically
-------------------------
traded among a smaller number of broker-dealers than in a broad secondary
market. Purchasers of High Yield Securities tend to be institutions, rather than
individuals, which is a factor that further limits the secondary market. To the
extent that no established retail secondary market exists, many High Yield
Securities may not be as liquid as higher-grade bonds. A less active and thinner
market for High Yield Securities than that available for higher quality
securities may result in more volatile valuations of a Fund's holdings and more
difficulty in executing trades at favorable prices during unsettled market
conditions.
The ability of a Fund to value or sell High Yield Securities will be
adversely affected to the extent that such securities are thinly traded or
illiquid. During such periods, there may be less reliable objective information
available and thus the responsibility of the Board of Directors to value High
Yield Securities becomes more difficult, with judgment playing a greater role.
Further, adverse publicity about the economy or a particular issuer may
adversely affect the public's perception of the value, and thus liquidity, of a
High Yield Security, whether or not such perceptions are based on a fundamental
analysis. See "Determination of Net Asset Value."
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Legislation. Provisions of the Revenue Reconciliation Act of
-----------
1989 limit a corporate issuer's deduction for a portion of the original issue
discount on "high yield discount" obligations (including certain pay-in-kind
securities). This limitation could have a materially adverse impact on the
market for certain High Yield Securities. From time to time, legislators and
regulators have proposed other legislation that would limit the use of high
yield debt securities in leveraged buyouts, mergers and acquisitions. It is not
certain whether such proposals, which also could adversely affect High Yield
Securities, will be enacted into law.
Short Sales. Although they do not intend to do so in the foreseeable
-----------
future, U.S.A. Mid-Cap Opportunity Fund and Utilities Income Fund may borrow
securities for cash sale to others. This type of transaction is commonly known
as a "short sale." Each Fund will only make short sales "against the box," which
occurs when a Fund enters into a short sale with a security identical to one it
already owns or has the immediate and unconditional right, at no cost, to obtain
the identical security.
Warrants. Each Fund may purchase warrants, which are instruments that
--------
permit a Fund to acquire, by subscription, the capital stock of a corporation at
a set price, regardless of the market price for such stock. Warrants may be
either perpetual or of limited duration. There is a greater risk that warrants
might drop in value at a faster rate than the underlying stock. Each Fund's
investments in warrants and stock rights will be limited to 5% of its total
assets, of which no more than 2% may not be listed on the New York or American
Stock Exchange.
When-Issued Securities. Each Fund may invest up to 10% of its net
-----------------------
assets in securities issued on a when-issued or delayed delivery basis at the
time the purchase is made. A Fund generally would not pay for such securities or
start earning interest on them until they are issued or received. However, when
a Fund purchases debt obligations on a when-issued basis, it assumes the risks
of ownership, including the risk of price fluctuation, at the time of purchase,
not at the time of receipt. Failure of the issuer to deliver a security
purchased by the Fund on a when-issued basis may result in the Fund's incurring
a loss or missing an opportunity to make an alternative investment. When a Fund
enters into a commitment to purchase securities on a when-issued basis, it
establishes a separate account with its custodian consisting of cash or liquid
high-grade debt securities equal to the amount of the Fund's commitment, which
are valued at their fair market value. If on any day the market value of this
segregated account falls below the value of the Fund's commitment, the Fund will
be required to deposit additional cash or qualified securities into the account
until equal to the value of the Fund's commitment. When the securities to be
purchased are issued, a Fund will pay for the securities from available cash,
the sale of securities in the segregated account, sales of other securities and,
if necessary, from sale of the when-issued securities themselves although this
is not ordinarily expected. Securities purchased on a when-issued basis are
subject to the risk that yields available in the market, when delivery takes
place, may be higher than the rate to be received on the securities a Fund is
committed to purchase. Sale of 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, U.S.A. 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
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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 or the Subadviser investment considerations warrant such action.
Portfolio turnover rate is calculated by dividing (1) the lesser of purchases or
sales of portfolio securities for the fiscal year by (2) the monthly average of
the value of portfolio securities owned during the fiscal year. A 100% turnover
rate would occur if all the securities in a Fund's portfolio, with the exception
of securities whose maturities at the time of acquisition were one year or less,
were sold and either repurchased or replaced within one year. A high rate of
portfolio turnover generally leads to transaction costs and may result in a
greater number of taxable transactions. See "Allocation of Portfolio Brokerage."
For the fiscal year ended October 31, 1995, the portfolio turnover rate
for Growth & Income Fund, Utilities Income Fund and U.S.A. Mid-Cap Opportunity
Fund was 19%, 16% and 106%, respectively. 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. See the Prospectus for the portfolio
turnover rate for U.S.A. Mid-Cap Opportunity Fund.
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 engage in certain options and futures contract
strategies to hedge its portfolio and in other circumstances permitted by the
Commodity Futures Trading Commission ("CFTC") and may engage in certain options
strategies to enhance income. The instruments described below are sometimes
referred to collectively as "Hedging Instruments" and are defined in Appendix C.
Certain special characteristics of and risks associated with using Hedging
Instruments are discussed below. In addition to the investment guidelines
(described below) adopted by the Board of Directors to govern the Fund's
investments in Hedging Instruments, use of these instruments is subject to the
applicable regulations of the Securities and Exchange Commission ("SEC"), the
several options and futures exchanges upon which options and futures contracts
are traded, the CFTC and various state regulatory authorities. In addition, the
Fund's ability to use Hedging Instruments will be limited by tax considerations.
See "Taxes."
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Participation in the options or futures markets involves investment
risks and transaction costs to which the Fund would not be subject absent the
use of these strategies. If the Adviser's prediction of movements in the
direction of the securities and interest rate markets are inaccurate, the
adverse consequences to the Fund may leave the Fund in a worse position than if
such strategies were not used. The Fund might not employ any of the strategies
described below, and there can be no assurance that any strategy will succeed.
The use of these strategies involve certain special risks, including (1)
dependence on the Adviser's ability to predict correctly movements in the
direction of interest rates and securities prices; (2) imperfect correlation
between the price of options, futures contracts and options thereon and
movements in the prices of the securities being hedged; (3) the fact that skills
needed to use these strategies are different from those needed to select
portfolio securities; (4) the possible absence of a liquid secondary market for
any particular instrument at any time; and (5) the possible need to defer
closing out certain hedged positions to avoid adverse tax consequences.
The Fund may buy and sell put and call options on stock indices and
securities that are traded on national securities exchanges or in the
over-the-counter ("OTC") market to enhance income or to hedge the Fund's
portfolio. The Fund also may write put and covered call options to generate
additional income through the receipt of premiums, purchase put options in an
effort to protect the value of a security that it owns against a decline in
market value and purchase call options in an effort to protect against an
increase in the price of securities it intends to purchase. The Fund also may
purchase put and call options to offset previously written put and call options
of the same 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 stock indices,
financial indices or debt securities. However, as a non-fundamental policy,
Series Fund II has undertaken to a certain state securities commission that the
Fund will not purchase interest rate futures contracts or options thereon.
Cover for Hedging and Option Income Strategies. The Fund will not use
-----------------------------------------------
leverage in its hedging and option income strategies. The Fund will not enter
into a hedging or option income strategy that exposes the Fund to an obligation
to another party unless it owns either (1) an offsetting ("covered") position in
securities, or other options or futures contracts or (2) cash 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 hedging and option income strategies by mutual funds and,
if required, will set aside cash and/or liquid assets in a segregated account
with its custodian in the prescribed amount. Securities or other options or
futures positions used for cover and 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.
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<PAGE>
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 when the
Adviser believes that the premium received by the Fund, plus anticipated
appreciation in the market price of the underlying security up to the exercise
price of the option, will be greater than the total appreciation in the price of
the security. The strategy may be used to provide limited protection against a
decrease in the market price of the security in an amount equal to the premium
received for writing the call option less any transaction costs. Thus, if the
market price of the underlying security held by the Fund declines, the amount of
such decline will be offset wholly or in part by the amount of the premium
received by the Fund. If, however, there is an increase in the market price of
the underlying security and the option is exercised, the Fund will be obligated
to sell the security at less than its market value. The Fund gives up the
ability to sell the portfolio securities used to cover the call option while the
call option is outstanding. Such securities may also be considered illiquid in
the case of OTC options written by the Fund and therefore subject to investment
restrictions. See "Restricted and Illiquid Securities." In addition, the Fund
could lose the ability to participate in an increase in the value of such
securities above the exercise price of the call option because such an increase
would likely be offset by an increase in the cost of closing out the call option
(or could be negated if the buyer chose to exercise the call option at an
exercise price below the securities' current market value).
The Fund may purchase put and call options and write covered call
options on stock indices in much the same manner as the more traditional equity
and debt options discussed above, except that stock index options may serve as a
hedge against overall fluctuations in the securities markets (or a market
sector) rather than anticipated increases or decreases in the value of a
particular security. A stock index assigns relative values to the stock included
in the index and fluctuates with changes in such values. Stock index options
operate in the same way as the more traditional equity options, except that
settlements of stock index options are effected with cash payments and do not
involve delivery of securities. Thus, upon settlement of a stock index option,
the purchaser will realize, and the writer will pay, an amount based on the
difference between the exercise price and the closing price of the stock index.
The effectiveness of hedging techniques using stock index options will depend on
the extent to which price movements in the stock index selected correlate with
price movements of the securities in which the Fund invests.
The Fund may write put options on securities or on a stock index. A put
option on a security gives the purchaser of the option the right to sell, and
the writer (seller) the obligation
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<PAGE>
to buy, the underlying security at the exercise price during the option period.
So long as the obligation of the writer continues, the writer may be assigned an
exercise notice by the broker-dealer through which such option was sold,
requiring it to make payment of the exercise price against delivery of the
underlying security. A written put option on a stock index is similar to a
written put option on a security except that, on exercise, the writer pays the
buyer a settlement payment in cash equal to the difference between the exercise
price and the value of the index. The operation of put options in other
respects, including their related risks and rewards, is substantially identical
to that of call options. The Fund may write covered put options in circumstances
when the Adviser believes that the market price of the securities will not
decline below the exercise price less the premiums received. If the put option
is not exercised, the Fund will realize income in the amount of the premium
received. This technique could be used to enhance current return during periods
of market uncertainty. The risk in such a transaction would be that the market
price of the underlying security would decline below the exercise price less the
premiums received, in which case the Fund would expect to suffer a loss.
Currently, many options on equity securities are exchange-traded,
whereas options on debt securities are primarily traded on the OTC market.
Exchange-traded options in the U.S. are issued by a clearing organization
affiliated with the exchange on which the option is listed which, in effect,
guarantees completion of every exchange-traded option transaction. In contrast,
OTC options are contracts between the Fund and the opposite party with no
clearing organization guarantee. Thus, when the Fund purchases an OTC option, it
relies on the dealer from which it has purchased the OTC option to make or take
delivery of the securities underlying the option. Failure by the dealer to do so
would result in the loss of the premium paid by the Fund as well as the loss of
the expected benefit of the transaction.
Options Guidelines. In view of the risks involved in using options, the
------------------
Board of Directors has adopted non-fundamental investment guidelines to govern
the Fund's use of options that may be modified by the Board without shareholder
vote: (1) options will be purchased or written only when the Adviser believes
that there exists a liquid secondary market in such options; and (2) the Fund
may not purchase a put or call option if the value of the option's premium, when
aggregated with the premiums on all other options held by the Fund, exceeds 5%
of the Fund's total assets. However, this does not limit the amount of the
Fund's assets at risk to 5%.
Special Characteristics and Risks of Options Trading. The Fund may
--------------------------------------------------------
effectively terminate its right or obligation under an option by entering into a
closing transaction. If the Fund wishes to terminate its obligation to sell
securities under a call option it has written, the Fund may purchase a call
option of the same series (that is, a call option identical in its terms to the
call option previously written); this is known as a closing purchase
transaction. Conversely, in order to terminate its right to purchase or sell
specified securities under a call or put option it has purchased, the Fund may
write an option of the same series, as the option held; this is known as a
closing sale transaction. Closing transactions essentially permit the Fund to
realize profits or limit losses on its options positions prior to the exercise
or expiration of the option.
The value of an option position will reflect, among other things, the
current market price of the underlying security or stock index, the time
remaining until expiration, the relationship of the exercise price to the market
price, the historical price volatility of the underlying security or stock index
and general market conditions. For this reason, the successful use of options
depends upon the Adviser's ability to forecast the direction of price
fluctuations in the underlying securities or, in the case of stock index
options, fluctuations in the market sector represented by the index selected.
12
<PAGE>
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 Fund will be able to liquidate an OTC option at a favorable price at any
time prior to expiration. In the event of insolvency of the opposite party, the
Fund may be unable to liquidate an OTC option. Accordingly, it may not be
possible to effect closing transactions with respect to certain options, with
the result that the Fund would have to exercise those options that it has
purchased in order to realize any profit. With respect to options written by the
Fund, the inability to enter into a closing transaction may result in material
losses to the Fund. For example, because the Fund must maintain a covered
position with respect to any call option it writes, the Fund may not sell the
underlying assets used to cover an option during the period it is obligated
under the option. This requirement may impair the Fund's ability to sell a
portfolio security or make an investment at a time when such a sale or
investment might be advantageous.
Stock index options are settled exclusively in cash. If the Fund
purchases an option on a stock index, the option is settled based on the closing
value of the index on the exercise date. Thus, a holder of a stock index option
who exercises it before the closing index value for that day is available runs
the risk that the level of the underlying index may subsequently change. For
example, in the case of a call option, if such a change causes the closing index
value to fall below the exercise price of the option on the index, the
exercising holder will be required to pay the difference between the closing
index value and the exercise price of the option.
The Fund's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs; however, the Fund also
may save on commissions by using options as a hedge rather than buying or
selling individual securities in anticipation or as a result of market
movements.
Futures Strategies. The Fund may engage in futures strategies to
-------------------
attempt to reduce the overall investment risk that would normally be expected to
be associated with ownership of the securities in which it invests. The Fund may
sell stock index futures contracts in anticipation of a general market or market
sector decline that could adversely affect the market value of the Fund's
portfolio. To the extent that a portion of the Fund's portfolio correlates with
a given stock index, the sale of futures contracts on that index could reduce
the risks associated with a market decline and thus provide an alternative to
the liquidation of securities positions. The Fund may purchase a stock index
futures contract if a significant market or market sector advance is
anticipated. Such a purchase would serve as a temporary substitute for the
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<PAGE>
purchase of individual stocks, which stocks may then be purchased in an orderly
fashion. This strategy may minimize the effect of all or part of an increase in
the market price of securities that the Fund intends to purchase. A rise in the
price of the securities should be partially or wholly offset by gains in the
futures position.
The Fund may purchase a call option on a stock index future to hedge
against a market advance in equity securities that the Fund plans to purchase at
a future date. The Fund may also write put options on a stock index futures
contract as a partial hedge against a market advance in equity securities the
Fund plans to purchase at a future date. The Fund may write covered call options
on stock index futures as a partial hedge against a decline in the prices of
stocks held in the Fund's portfolio. The Fund also may purchase put options on
stock index futures contracts.
The Fund may use interest rate futures contracts and options thereon to
hedge the debt portion of its portfolio against changes in the general level of
interest rates. The Fund may purchase an interest rate futures contract when it
intends to purchase debt securities but has not yet done so. This strategy may
minimize the effect of all or part of an increase in the market price of those
securities because a rise in the price of the securities prior to their purchase
may either be offset by an increase in the value of the futures contract
purchased by the Fund or avoided by taking delivery of the debt securities under
the futures contract. Conversely, a fall in the market price of the underlying
debt securities may result in a corresponding decrease in the value of the
futures position. The Fund may sell an interest rate futures contract in order
to continue to receive the income from a debt security, while endeavoring to
avoid part or all of the decline in the market value of that security that would
accompany an increase in interest rates.
The Fund may purchase a call option on an interest rate futures
contract to hedge against a market advance in debt securities that the Fund
plans to acquire at a future date. The seller may also write a put option on an
interest rate futures contract as a partial hedge against a market advance in
debt securities that the Fund plans to acquire at a future date. The Fund also
may write covered call options on interest rate futures contracts as a partial
hedge against a decline in the price of debt securities held in the Fund's
portfolio or purchase put options on interest rate futures contracts in order to
hedge against a decline in the value of debt securities held in the Fund's
portfolio. Series Fund II, on behalf of the Fund, has undertaken to a certain
state securities commission that the Fund will not purchase interest rate
futures contracts or options thereon.
Futures Guidelines. In view of the risks involved in using futures
------------------
strategies described above, the Board of Directors has adopted non-fundamental
investment guidelines to govern the Fund's use of such investments that may be
modified by the Board without shareholder vote. 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 with its custodian in a segregated
account in the name of the futures broker through which the transaction is
effected an amount of cash, U.S. Government securities or
14
<PAGE>
other liquid, high-grade debt instruments generally equal to 10% or less of the
contract value. This amount is known as "initial margin." When writing a call or
put option on a futures contract, margin also must be deposited in accordance
with applicable exchange rules. Initial margin on futures contracts is in the
nature of a performance bond or good-faith deposit that is returned to the Fund
upon termination of the transaction, assuming all obligations have been
satisfied. Under certain circumstances, such as periods of high volatility, the
Fund may be required by an exchange to increase the level of its initial margin
payment. Additionally, initial margin requirements may be increased generally in
the future by regulatory action. Subsequent payments, called "variation margin,"
to and from the broker, are made on a daily basis as the value of the futures
position varies, a process known as "marking to market." Variation margin does
not involve borrowing to finance the futures transactions, but rather represents
a daily settlement of the Fund's obligation to or from a clearing organization.
The Fund is also obligated to make initial and variation margin payments when it
writes options on futures contracts.
Holders and writers of futures positions and options thereon can enter
into offsetting closing transactions, similar to closing transactions on options
on securities, by selling or purchasing, respectively, a futures position or
options position with the same terms as the position or option held or written.
Positions in futures contracts and options thereon may be closed only on an
exchange or board of trade providing a secondary market for such futures or
options.
Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a futures contract or related option may
vary either up or down from the previous day's settlement price. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit. The daily limit governs only price movements
during a particular trading day and therefore does not limit potential losses
because prices could move to the daily limit for several consecutive trading
days with little or no trading and thereby prevent prompt liquidation of
unfavorable positions. In such event, it may not be possible for the Fund to
close a position and, in the event of adverse price movements the Fund would
have to make daily cash payments of variation margin (except in the case of
purchased options). However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the contracts
can be terminated. In such circumstances, an increase in the price of the
securities, if any, may partially or completely offset losses on the futures
contract. However, there is no guarantee that the price of the securities will,
in fact, correlate with the price movements in the contracts and thus provide an
offset to losses on the contracts.
Successful use by the Fund of futures contracts and related options
will depend upon the Adviser's ability to predict movements in the direction of
the overall securities and interest rate markets, which requires different
skills and techniques than predicting changes in the prices of individual
securities. Moreover, futures contracts relate not to the current price level of
the underlying instrument but to the anticipated levels at some point in the
future. There is, in addition, the risk that the movements in the price of the
futures contract or related option will not correlate with the movements in
prices of the securities being hedged. In addition, if the Fund has insufficient
cash, it may have to sell assets from its portfolio to meet daily variation
margin requirements. Any such sale of assets may or may not be made at prices
that reflect the rising market. Consequently, the Fund may need to sell assets
at a time when such sales are disadvantageous to the Fund. If the price of the
futures contract or related option moves more than the price of the underlying
securities, the Fund will experience either a loss or
15
<PAGE>
a gain on the futures contract or related option that may or may not be
completely offset by movements in the price of the securities that are the
subject of the hedge.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between price movements in the futures
position or related option and the securities being hedged, movements in the
prices of futures contracts and related options may not correlate perfectly with
movements in the prices of the hedged securities because of price distortions in
the futures market. As a result, a correct forecast of general market trends may
not result in successful hedging through the use of futures contracts or related
options over the short term.
Positions in futures contracts and related options may be closed out
only on an exchange or board of trade that provides a secondary market for such
futures contracts or related options. Although the Fund intends to purchase or
sell futures and related options only on exchanges or boards of trade where
there appears to be a liquid secondary market, there is no assurance that such a
market will exist for any particular contract or option at any particular time.
In such event, it may not be possible to close a futures or option position and,
in the event of adverse price movements, the Fund would continue to be required
to make variation margin payments.
Like options on securities, options on futures contracts have a limited
life. A purchased option that expires unexercised has no value.
Purchasers of options on futures contracts pay a premium in cash at the
time of purchase. This amount and the transaction costs are all that is at risk.
Sellers of options on a futures contract, however, must post initial margin and
are subject to additional margin calls that could be substantial in the event of
adverse price movements. In addition, although the maximum amount at risk when
the Fund purchases an option is the premium paid for the option and the
transaction costs, there may be circumstances when the purchase of an option on
a futures contract would result in a loss to the Fund when the use of a futures
contract would not, such as when there is no movement in the level of the
underlying stock index or the value of the securities being hedged.
The Fund's activities in the futures and related options markets may
result in a higher portfolio turnover rate and additional transaction costs in
the form of added brokerage commissions; however, the Fund also may save on
commissions by using futures and related options as a hedge rather than buying
or selling individual securities in anticipation or as a result of market
movements.
Growth & Income Fund - Forward Currency Contracts
Growth & Income Fund may use forward currency contracts to protect
against uncertainty in the level of future exchange rates. The Fund will not
speculate with forward currency contracts or foreign currency exchange rates.
The Fund may enter into forward currency contracts with respect to
specific transactions. For example, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when the
Fund anticipates the receipt in a foreign currency of dividend or interest
payments on a security that it holds, the Fund may desire to "lock-in" the U.S.
dollar price of the security or the U.S. dollar equivalent of such payment, as
the case may be, by entering into a forward contract for the purchase or sale,
for a
16
<PAGE>
fixed amount of U.S. dollars or foreign currency, of the amount of foreign
currency involved in the underlying transaction. The Fund will thereby be able
to protect itself against a possible loss resulting from an adverse change in
the relationship between the currency exchange rates during the period between
the date on which the security is purchased or sold, or on which the payment is
declared, and the date on which such payments are made or received.
The precise matching of the forward 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, the Fund will enter
into a forward contract only if the Fund maintains cash 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 new forward
currency contracts or offsets always will be available for the Fund. Forward
currency contracts also involve a risk that the other party to the contract may
fail to deliver currency 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
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<PAGE>
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 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.
18
<PAGE>
(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.
(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.
U.S.A. Mid-Cap Opportunity Fund. U.S.A. 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.
19
<PAGE>
(3) Purchase more than 10% of the outstanding voting securities of any
one issuer or more than 10% of any class of securities of one issuer (all debt
and all preferred stock of an issuer are each considered a single class for this
purpose).
(4) Pledge, mortgage or hypothecate any of its assets, except that the
Fund may pledge its assets to secure borrowings made in accordance with
paragraph (1) above, provided the Fund maintains asset coverage of at least 300%
for all such borrowings.
(5) Buy or sell commodities or commodity contracts, including futures
contracts, or real estate or interests in real estate, although it may purchase
and sell securities which are secured by real estate, securities of companies
which invest or deal in real estate, and interests in real estate investment
trusts.
(6) Act as an underwriter, except to the extent that, in connection
with the disposition of portfolio securities, it may be deemed to be an
underwriter under certain Federal securities laws.
(7) Make investments for the purpose of exercising control or
management.
(8) Purchase any securities on margin.
(9) Make loans, except through repurchase agreements.
(10) Purchase or sell portfolio securities from or to the Adviser or
any director or officer thereof or of Series Fund II, as principals.
(11) Invest in any securities of any issuer if, to the knowledge of the
Fund, any officer or director of Series Fund II or of the Adviser owns more than
1/2 of 1% of the outstanding securities of such issuer, and such officers or
directors who own more than 1/2 of 1% own in the aggregate more than 5% of the
outstanding securities of such issuer.
The following investment restrictions are not fundamental and may be
changed without shareholder approval. The Fund will not:
(1) Invest more than 15% of its net assets in repurchase agreements
maturing in more than seven days or in other illiquid securities, including
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions as to resale. Securities that have
legal or contractual restrictions as to resale but have a readily available
market and securities eligible for resale under Rule 144A under the Securities
Act of 1933, as amended, are not deemed illiquid for purposes of this
limitation; the Adviser will monitor the liquidity of such restricted securities
under the supervision of the Board of Directors.
(2) 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.
20
<PAGE>
(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.
(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.
21
<PAGE>
(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 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.
22
<PAGE>
(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*+ (71), President and Director. Chairman of the Board and
Director, Administrative Data Management Corp. ("ADM"), FIMCO, Executive
Investors Management Company, Inc. ("EIMCO"), First Investors Corporation
("FIC"), Executive Investors Corporation ("EIC") and First Investors
Consolidated Corporation ("FICC").
James J. Coy (82), Director, 90 Buell Lane, East Hampton, NY 11937. Retired;
formerly Senior Vice President, James Talcott, Inc. (financial institution).
Roger L. Grayson* (40), Director. Director, FIC and FICC; President and
Director, First Investors Resources, Inc.; Commodities Portfolio Manager.
Kathryn S. Head*+ (41), Director, 581 Main Street, Woodbridge, NJ 07095.
President, FICC, EIMCO, ADM and FIMCO; Vice President, Chief Financial Officer
and Director, FIC and EIC; President and Director, First Financial Savings Bank,
S.L.A.
Rex R. Reed (74), Director, 259 Governors Drive, Kiawah Island, SC 29455.
Retired; formerly Senior Vice President, American Telephone & Telegraph Company.
Herbert Rubinstein (75), Director, 259 Governors Drive, Roslyn, NY 11576.
Retired; formerly President, Belvac International Industries, Ltd. and
President, Central Dental Supply.
James M. Srygley (64), 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 (67), Director, RR1, Box 2554, Upland Downs Road, Manchester
Center, VT 05255. Retired; formerly financial and planning executive with
American Telephone & Telegraph Company.
Joseph I. Benedek (39), Treasurer, 581 Main Street, Woodbridge, NJ 07095.
Treasurer, FIC, FIMCO, EIMCO and EIC; Comptroller and Treasurer, FICC.
23
<PAGE>
Concetta Durso (62), Vice President and Secretary. Vice President, FIMCO, EIMCO
and ADM; Assistant Vice President and Assistant Secretary, FIC and EIC.
Patricia D. Poitra (41), Vice President. Vice President, First Investors Series
Fund, First Investors U.S. Government Plus Fund and Executive Investors Trust;
Director of Equities, FIMCO.
Margaret Haggerty (32), Vice President. Portfolio Manager since November 1993;
Analyst from 1990 to 1993.
* These Directors may be deemed to be "interested persons," as defined in the
1940 Act.
+ Mr. Glenn O. Head and Ms. Kathryn S. Head are father and daughter.
All of the officers and Directors, except for Ms. Haggerty and Ms. Poitra,
hold identical or similar positions with 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, School Financial Management
Services, Inc. and Specialty Insurance Group, Inc. Ms. Head is also an officer
and/or Director of First Investors Life Insurance Company, First Investors
Credit Corporation, School Financial Management Services, Inc., First Investors
Credit Funding Corporation, N.A.K. Realty Corporation, Real Property Development
Corporation, First Investors Leverage Corporation, Route 33 Realty Corporation
and Specialty Insurance Group, Inc.
24
<PAGE>
The following table lists compensation paid to the Series Fund II
Directors for the fiscal year ended October 31, 1996.
<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 $1,800 $-0- $-0- $37,200
Roger L. Grayson -0- -0- -0- -0-
Glenn O. Head -0- -0- -0- -0-
Kathryn S. Head -0- -0- -0- -0-
Rex R. Reed 1,800 -0- -0- 37,200
Herbert Rubinstein 1,800 -0- -0- 37,200
James M. Srygley 1,650 -0- -0- 34,100
John T. Sullivan -0- -0- -0- -0-
Robert F. Wentworth 1,800 -0- -0- 37,200
</TABLE>
* Compensation to officers and interested Directors of Series Fund II is paid
by the Adviser. In addition, compensation to non-interested Directors of
Series Fund II is currently voluntarily paid by the Adviser.
MANAGEMENT
Adviser. Investment advisory services to each Fund are provided by
-------
First Investors Management Company, Inc. pursuant to an Investment Advisory
Agreement ("Advisory Agreement") dated June 13, 1994. The Advisory Agreement was
approved by the Board of Directors, including a majority of the Directors who
are not parties to the Funds' Advisory Agreement or "interested persons" (as
defined in the 1940 Act) of any such party ("Independent Directors"), in person
at a meeting called for such purpose and by a majority of the public
shareholders of each Fund.
Pursuant to the Advisory Agreement, FIMCO shall supervise and manage
each Fund's investments, determine each Fund's portfolio transactions and
supervise all aspects of each Fund's operations, subject to review by the
Directors. However, with respect to Growth & Income Fund, FIMCO has delegated
these duties to WMC. See "Subadviser." The Advisory Agreement also provides that
FIMCO shall provide the Funds with certain executive, administrative and
clerical personnel, office facilities and supplies, conduct the business and
details of the operation of Series Fund II and each Fund and assume certain
expenses thereof, other than obligations or liabilities of the Funds. The
Advisory Agreement may be terminated at any time, with respect to a Fund,
without penalty by the Directors or by a majority of the outstanding voting
securities of such Fund, or by FIMCO, in each instance on not less than 60 days'
written notice, and shall automatically terminate in the event of its assignment
(as defined in the 1940 Act). The Advisory Agreement also provides that it will
continue in effect, with respect to a Fund, for a period of over two years only
if such continuance is approved annually either by the Directors or by a
majority of the outstanding voting securities of such Fund, and, in either case,
by a vote of a majority of the Independent Directors voting in person at a
meeting called for the purpose of voting on such approval.
25
<PAGE>
Under the Advisory Agreement, each Fund pays the Adviser an annual fee,
paid monthly, according to the following schedules:
U.S.A. 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, 1994, U.S.A. Mid-Cap Opportunity
Fund paid $31,266 in advisory fees. For the same period, the Adviser voluntarily
waived an additional $72,955 in advisory fees. For the fiscal year ended October
31, 1994, Growth & Income Fund paid $61,035 in advisory fees. For the same
period, the Adviser voluntarily waived an additional $95,778 in advisory fees.
For the fiscal year ended October 31, 1994, Utilities Income Fund paid $194,914
in advisory fees. For the same period, the Adviser voluntarily waived an
additional $266,649 in advisory fees. In addition, for the fiscal year ended
October 31, 1994, the Adviser voluntarily assumed or reimbursed expenses for
Growth & Income Fund, U.S.A. Mid-Cap Opportunity Fund and Utilities Income Fund
in the amounts of $10,831, $73,772 and $140,086, respectively.
For the fiscal year ended October 31, 1995, U.S.A. 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, U.S.A. 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, U.S.A. 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
October31, 1996, the Advisor voluntarily assumed or reimbursed expenses for
Growth & Income Fund, U.S.A. Mid-Cap Opportunity Fund and Utilities Income Fund
in the amounts of $17,942, $38,900 and $137,128, respectively.
26
<PAGE>
The Adviser has an Investment Committee composed of George V. Ganter,
Margaret Haggerty, Glenn O. Head, Nancy W. Jones, Patricia D. Poitra, Michael
O'Keefe, Clark D. Wagner and Richard Guinnessey. The Committee usually meets
weekly to discuss the composition of the portfolio of each Fund and to review
additions to and deletions from the portfolios.
Subadviser. Wellington Management Company, LLP has been retained by the
----------
Adviser and Series Fund II as the investment subadviser to Growth & Income Fund
under a subadvisory agreement dated June 13, 1994 ("Subadvisory Agreement"). The
Subadvisory Agreement was approved by the Board of Directors, including a
majority of Independent Directors in person at a meeting called for such purpose
and by a majority of the shareholders of the Growth & Income Fund.
The Subadvisory Agreement provides that it will continue for a period of
more than two years from the date of execution only so long as such continuance
is approved annually by either the Board of Directors or a majority of the
outstanding voting securities of the Growth & Income Fund and, in either case,
by a vote of a majority of the Independent Directors voting in person at a
meeting called for the purpose of voting on such approval. The Subadvisory
Agreement provides that it will terminate automatically if assigned or upon the
termination of the Advisory Agreement, and that it may be terminated at any time
without penalty by the Board of Directors or a vote of a majority of the
outstanding voting securities of the Growth & Income Fund or by the Subadviser
upon not more than 60 days' nor less than 30 days' written notice. The
Subadvisory Agreement provides that WMC will not be liable for any error of
judgment or for any loss suffered by the Growth & Income Fund in connection with
the matters to which the Subadvisory Agreement relates, except a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation or
from willful misfeasance, bad faith, gross negligence or reckless disregard of
its obligations and duties.
Under the Subadvisory Agreement, the Adviser will pay to the Subadviser a
fee at an annual rate of 0.325% of the average daily net assets of Growth &
Income Fund up to and including $50 million; 0.275% of the average daily net
assets in excess of $50 million up to and including $150 million; 0.225% of the
average daily net assets in excess of $150 million up to and including $500
million; and 0.200% of the average daily net assets in excess of $500 million.
For the fiscal years ended October 31, 1995 and 1996, the Adviser paid the
Subadviser fees of $157,067 and $257,037, 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
27
<PAGE>
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, 1994, FIC received underwriting
commissions with respect to Growth & Income Fund, U.S.A. Mid-Cap Opportunity
Fund and Utilities Income Fund of $1,187,272, $32,881 and $1,045,980,
respectively. For the same period, FIC allowed an additional $257 with respect
to Growth & Income Fund and $588 with respect to U.S.A. Mid-Cap Opportunity Fund
to unaffiliated dealers.
For the fiscal year ended October 31, 1995, FIC received underwriting
commissions with respect to Growth & Income Fund, U.S.A. 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
U.S.A. 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, U.S.A. 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
U.S.A. Mid-Cap Opportunity Fund and $8,212 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
28
<PAGE>
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, 1996, U.S.A. Mid-Cap Opportunity
Fund and Utilities Income Fund paid $32,909 and $290,420, respectively, in fees
pursuant to the Class A Plan. For the fiscal year ended October 31, 1996, Growth
& Income Fund accrued $257,997 in fees pursuant to the Class A Plan, of which
$22,647 was voluntarily waived by the Underwriter. For the same period, the
Underwriter incurred the following Class A Plan-related expenses with respect to
each Fund:
<TABLE>
<CAPTION>
Compensation Compensation to
Fund Advertising to sales personnel* Underwriter**
---- ----------- ------------------- ---------------
<S> <C> <C> <C>
U.S.A. Mid-Cap Opportunity Fund $-0- $ 11,381 $ 21,528
Growth & Income Fund -0- 92,171 143,179
Utilities Income Fund -0- 103,000 187,420
For the fiscal year ended October 31, 1996, U.S.A. Mid-Cap Opportunity
Fund, Growth & Income Fund and Utilities Income Fund paid $6,207, $75,084 and
$58,929, 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:
<CAPTION>
Compensation Compensation to
Fund Advertising to sales personnel* Underwriter**
---- ----------- ------------------- ---------------
<S> <C> <C> <C>
U.S.A. Mid-Cap Opportunity Fund $-0- $ 94 $ 6,113
Growth & Income Fund -0- 1,833 73,251
Utilities Income Fund -0- 1,381 57,548
</TABLE>
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<PAGE>
DETERMINATION OF NET ASSET VALUE
Except as provided herein, a security listed or traded on an exchange
or the Nasdaq national market system is valued at its last sale price on the
exchange or market system where the security is primarily traded, and lacking
any sales on a particular day, the security is valued at the mean between the
closing bid and asked prices on that day. Each security traded in the market
(including securities listed on exchanges whose primary market is believed to be
OTC) is valued at the mean between the last bid and asked prices based upon
quotes furnished by a market maker for such securities. In the absence of market
quotations, a 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. Muller Pricing Service provides pricing services for
municipal bonds. 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 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.
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
30
<PAGE>
paid. Each Fund may purchase fixed income securities on a "net" basis with
dealers acting as principal for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer.
Each Fund may deal in securities which are not listed on a national
securities exchange or the Nasdaq national market system but are traded in the
OTC market. Each Fund also may purchase listed securities through the "third
market." When transactions are executed in the OTC market, a Fund seeks to deal
with the primary market makers, but when advantageous it utilizes the services
of brokers.
In effecting portfolio transactions, the Adviser or the Subadviser
seeks best execution of trades either (1) at the most favorable and competitive
rate of commission charged by any broker or member of an exchange, or (2) with
respect to agency transactions, at a higher rate of commission if reasonable in
relation to brokerage and research services provided to a Fund or the Adviser or
the Subadviser by such member or broker. In addition, upon the instruction of
the Board of Directors of Series Fund II, the Adviser or Subadviser 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 or Subadviser may use research and services provided to
it by brokers in servicing all the funds in the First Investors Group of Funds;
however, not all such services may be used by the Adviser or the Subadviser in
connection with a Fund. No portfolio orders are placed with an affiliated
broker, nor does any affiliated broker-dealer participate in these commissions.
The Adviser or Subadviser may combine transaction orders placed on
behalf of a Fund and any other fund in the First Investors Group of Funds, any
Fund of Executive Investors Trust and First Investors Life Insurance Company,
affiliates of the Funds for the purpose of negotiating brokerage commissions or
obtaining a more favorable transaction price; and where appropriate, securities
purchased or sold may be allocated in accordance with written procedures
approved by the Board of Directors.
For the fiscal year ended October 31, 1994, U.S.A. Mid-Cap Opportunity
Fund and Utilities Income Fund paid $24,767 and $236,585, respectively, in
brokerage commissions. For the fiscal year ended October 31, 1994, Growth &
Income Fund paid $23,249 in brokerage commissions. Of that amount $6,732 was
paid in brokerage commissions to brokers who furnished research services on
portfolio transactions in the amount of $4,704,802.
For the fiscal year ended October 31, 1995, Growth & Income Fund paid
$40,513 in brokerage commissions. Of that amount, $4,973 was paid in brokerage
commissions to brokers who furnished research services on portfolio transactions
in the amount of $3,545,732. For the fiscal year ended October 31, 1995, U.S.A.
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.
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<PAGE>
For the fiscal year ended October 31, 1996, U.S.A. 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.
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.
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
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<PAGE>
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 pur chaser 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.
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.
33
<PAGE>
Cross-Investment of Cash Distributions. You may elect to invest in
----------------------------------------
Class A shares of a Fund at net asset value all the cash distributions from the
same class of shares of another Eligible Fund. The investment will be made at
the net asset value per share of the Fund, generally determined as of the close
of business, on the business day immediately following the record date of any
such distribution. You may also elect to invest cash distributions of a Fund's
Class A shares into the same class of another Eligible Fund, including the Money
Market Funds. If your distributions are to be invested in a new account, you
must invest a minimum of $50 per month. See "Dividends and Other Distributions"
in the Prospectus. To arrange for cross-investing, call Shareholder Services at
1-800-423-4026.
Systematic Withdrawal Plan. Shareholders who own noncertificated Class
A 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). The $5,000 minimum account balance is currently being waived for
required minimum distributions on retirement plan accounts and for Systematic
Plan payments which are made into certain affiliated entities (see (i) and (ii)
in the following sentence). You may have the payments sent directly to you or
persons you designate. Regardless of the amount of your Fund account, you may
also elect to the have the Systematic Plan payments automatically (i) invested
at net asset value in Class A 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 Eligible Fund account, you
must invest a minimum of $600 per year. Dividends and other distributions, if
any, are reinvested in additional Class A shares of the Fund. Shareholders may
add shares to the Withdrawal Plan or terminate the Withdrawal Plan at any time.
Withdrawal Plan payments will be suspended when a distributing Fund has received
notice of a shareholder's death on an individual account. Payments may
recommence upon receipt of written alternate payment instructions and other
necessary documents from the deceased's legal representative. Withdrawal
payments will also be suspended when a payment check is returned to the Transfer
Agent marked as undeliverable by the U.S. Postal Service after two consecutive
mailings.
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.
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<PAGE>
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.
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.
35
<PAGE>
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), 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) an exchange in the amount over $50,000 is
made into the Money Market Funds, (3) a redemption check is to be made payable
to someone other than the registered accountholder, other than major financial
institutions, as determined solely by the Fund and its agent, on behalf of the
shareholder, (4) 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, (5) an account registration is
being transferred to another owner, (6) a transaction requires additional legal
documentation; (7) the redemption request is for certificated shares; (8) your
address of record has changed within 60 days prior to a redemption request; (9)
multiple owners have a dispute or give inconsistent instructions; (10) 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 (11) you elect EFT privileges. ERISA Title I 403(b) Plans and 401(k)
Plans are exempt from the signature guarantee requirement except for exchanges
or redemption in amounts greater than $50,000.
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
36
<PAGE>
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). Telephone exchanges are not
available for exchanges of Fund shares for plan units.
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, 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
37
<PAGE>
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.
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") or a salary reduction
simplified employee pension-IRA ("SARSEP-
38
<PAGE>
IRA") furnished by FIC. Under the related Custodial Agreements, First Financial
Savings acts as custodian of each of these retirement plans.
Effective January 1, 1997, legislation enables certain eligible
employees to establish a Savings Incentive Match Plan for Employees of Small
Employers ("SIMPLE-IRAs"). FIC intends to offer a prototype SIMPLE-IRA plan for
eligible employers. First Financial Savings will act as Custodian for the
SIMPLE-IRA plan.
The Funds offer IRA accounts with specific provisions tailored to meet
the needs of certain groups of investors. The custodian fees are disclosed in
the IRA documents provided to investors in such accounts.
A taxpayer generally may make an annual 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.
Currently, there are no annual service fees chargeable to a participant
in connection with an IRA, SEP-IRA or SARSEP-IRA. Each Fund currently pays the
annual $10.00 custodian fee for each IRA account maintained with such Fund. This
policy may be changed at any time by a Fund on 45 days' written notice to the
holder of any IRA, SEP-IRA or SARSEP- IRA. First Financial Savings has reserved
the right to waive its fees at any time or to change the fees on 45 days' prior
written notice to the holder of any IRA.
An application and other documents necessary to establish an IRA,
SEP-IRA or SARSEP-IRA, are available from your Representative. SIMPLE-IRA
applications will also be available. Prior to establishing an IRA, SEP-IRA,
SARSEP-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
39
<PAGE>
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 applicable rate 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.
40
<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 gains from options, futures or forward contracts)
derived with respect to its business of investing in securities or, for Growth &
Income Fund, those currencies ("Income Requirement"); (2) the Fund must derive
less than 30% of its gross income each taxable year from the sale or other
disposition of securities, or any of the following, that were held for less than
three months -- options or futures, or foreign currencies (or forward contracts
thereon) that are not directly related to the Fund's principal business of
investing in securities (or options and futures with respect thereto)
("Short-Short Limitation"); (3) at the close of each quarter of the Fund's
taxable year, at least 50% of the value of its total assets must be represented
by cash and cash items, U.S. Government securities, securities of other RICs and
other securities, with those other securities limited, in respect of any one
issuer, to an amount that does not exceed 5% of the value of the Fund's total
assets and that does not represent more than 10% of the issuer's outstanding
voting securities; and (4) at the close of each quarter of the Fund's taxable
year, not more than 25% of the value of its total assets may be invested in
securities (other than U.S. Government securities or the securities of other
RICs) of any one issuer.
Dividends and other distributions declared by a Fund in October,
November or December of any year and payable to shareholders of record on a date
in any of those months are deemed to have been paid by the Fund and received by
the shareholders on December 31 of that year if the distributions are paid by
the Fund during the following January. Accordingly, those distributions will be
taxed to shareholders for the year in which that December 31 falls.
A portion of the dividends from a Fund's investment company taxable
income may be eligible for the dividends-received deduction allowed to
corporations. The eligible portion may not exceed the aggregate dividends
received by the Fund from U.S. corporations. However, dividends received by a
corporate shareholder and deducted by it pursuant to the dividends-received
deduction are subject indirectly to the alternative minimum tax.
If shares of a Fund are sold at a loss after being held for six months
or less, the loss will be treated as long-term, instead of short-term, capital
loss to the extent of any capital gain distributions received on those shares.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts.
Dividends and interest received by Growth & Income Fund may be subject
to income, withholding or other taxes imposed by foreign countries that would
reduce the yield on its securities. Tax conventions between certain countries
and the United States may reduce or
41
<PAGE>
eliminate these foreign taxes, however, and many foreign countries do not impose
taxes on capital gains in respect of investments by foreign investors.
Growth & Income Fund may invest in the stock of "passive foreign
investment companies" ("PFICs"). A PFIC is a foreign corporation that, in
general, meets either of the following tests: (1) at least 75% of its gross
income is passive or (2) an average of at least 50% of its assets produce, or
are held for the production of, passive income. Under certain circumstances, if
the Fund holds stock of a PFIC, it will be subject to Federal income tax on a
portion of any "excess distribution" received on the stock or of any gain on
disposition of the stock (collectively "PFIC income"), plus interest thereon,
even if the Fund distributes the PFIC income as a taxable dividend to its
shareholders. The balance of the PFIC income will be included in the Fund's
investment company taxable income and, accordingly, will not be taxable to it to
the extent that income is distributed to its shareholders.
If Growth & Income Fund invests in a PFIC and elects to treat the PFIC
as a "qualified electing fund," then in lieu of the foregoing tax and interest
obligation, the Fund would be required to include in income each year its pro
rata share of the qualified electing fund's annual ordinary earnings and net
capital gain (the excess of net long-term capital gain over net short-term
capital loss) -- which probably would have to be distributed to satisfy the
Distribution Requirement and avoid imposition of the Excise Tax -- even if those
earnings and gain were not received by the Fund. In most instances it will be
very difficult, if not impossible, to make this election because of certain
requirements thereof.
Proposed regulations have been published pursuant to which open-end
RICs, such as Growth & Income Fund, would be entitled to elect to
"mark-to-market" their stock in certain PFICs. "Marking-to-market," in this
context, means recognizing as gain for each taxable year the excess, as of the
end of that year, of the fair market value of such a PFIC's stock over the
adjusted basis in that stock (including mark-to-market gain for each prior year
for which an election was in effect).
U.S.A. 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. In addition, any such gains may be
realized on the disposition of securities held for less than three months.
Because of the Short-Short Limitation, any such gains would reduce a Fund's
ability to sell other securities, or options, futures or certain forward
contracts or foreign currency positions, held for less than three months that it
might wish to sell in the ordinary course of its portfolio management.
The use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts and entering into forward contracts, involves
complex rules that will
42
<PAGE>
determine for income tax purposes the character and timing of recognition of the
gains and losses Utilities Income Fund and Growth & Income Fund realize in
connection therewith. Gains from options and futures derived by a Fund with
respect to its business of investing in securities--and, for Growth & Income
Fund, gains from the disposition of foreign currencies (except certain gains
therefrom that may be excluded by future regulations)-- will qualify as
permissible income under the Income Requirement. However, income from Utilities
Income Fund's disposition of options and futures contracts, and from Growth &
Income Fund's disposition of foreign currencies and forward currency contracts
that are not directly related to its principal business of investing in
securities, will be subject to the Short-Short Limitation if they are held for
less than three months.
If a Fund satisfies certain requirements, then any increase in value of
a position that is part of a "designated hedge" will be offset by any decrease
in value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. Each
Fund intends that, when it engages in hedging strategies, it will qualify for
this treatment, but at the present time it is not clear whether this treatment
will be available for all of each Fund's hedging transactions. To the extent
this treatment is not available, a Fund may be forced to defer the closing out
of options, futures and certain forward contracts and foreign currency positions
beyond the time when it otherwise would be advantageous to do so, in order for
the Fund to continue to qualify as a RIC.
PERFORMANCE INFORMATION
A Fund may advertise its performance 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)/caret/(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
43
<PAGE>
indication or representation by a Fund of future rates of return on its shares.
At times, the Adviser may reduce its compensation or assume expenses of a Fund
in order to reduce the Fund's expenses. Any such waiver or reimbursement would
increase the Fund's return during the period of the waiver or reimbursement.
Average annual return and total return computed at the public offering
price (maximum sales charge for Class A shares and applicable CDSC for Class B
shares) for the periods ended October 31, 1996 are set forth in the tables
below:
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN:
One Year Life of Fund/1/
------------------- --------------------
Class A Class B Class A Class B/2/
Shares Shares Shares Shares
------- ------- ------- ----------
<S> <C> <C> <C> <C>
U.S.A. Mid-Cap Opportunity Fund 4.68% 6.39% 34.07% 14.83%
Utilities Income Fund 5.47 7.22 6.00 15.98
Growth & Income Fund 14.22 16.15 11.96 21.67
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN:
One Year Life of Fund/1/
------------------- --------------------
Class A Class B Class A Class B/2/
Shares Shares Shares Shares
------- ------- ------- ----------
<S> <C> <C> <C> <C>
U.S.A. Mid-Cap Opportunity Fund 4.68% 6.39% 34.07% 28.30%
Utilities Income Fund 5.47 7.22 23.97 30.61
Growth & Income Fund 14.22 16.15 41.55 42.42
</TABLE>
- --------
/1/ The inception dates for Class A shares of the Funds are as follows: U.S.A.
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.
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<PAGE>
Average annual total return and total return may also be based on
investment at reduced sales charge levels or at net asset value. Any quotation
of return not reflecting the maximum sales charge will be greater than if the
maximum sales charge were used. Average annual return and total return computed
at net asset value for the periods ended October 31, 1996 are set forth in the
tables below:
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN:
One Year Life of Fund/1/
------------------- --------------------
Class A Class B Class A Class B/2/
Shares Shares Shares Shares
------- ------- ------- ----------
<S> <C> <C> <C> <C>
U.S.A. Mid-Cap Opportunity Fund 15.34% 10.26% 8.92% 17.45%
Utilities Income Fund 7.63 10.85 7.85 18.98
Growth & Income Fund 21.82 20.92 14.34 24.48
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN:
One Year Life of Fund/1/
------------------- --------------------
Class A Class B Class A Class B/2/
Shares Shares Shares Shares
------- ------- ------- ----------
<S> <C> <C> <C> <C>
U.S.A. Mid-Cap Opportunity Fund 15.34% 10.26% 43.05% 33.64%
Utilities Income Fund 7.63 10.85 32.18 36.15
Growth & Income Fund 21.82 20.92 51.05 48.40
</TABLE>
- --------
/1/ The inception dates for Class A shares of the Funds are as follows: U.S.A.
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.
45
<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.
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.
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<PAGE>
The Consumer Price Index, prepared by the U.S. Bureau of Labor
Statistics, is a commonly used measure of inflation. The Index shows changes in
the cost of selected consumer goods and does not represent a return on an
investment vehicle.
The NYSE composite of component indices--unmanaged indices of all
industrial, utilities, transportation, and finance stocks listed on the NYSE.
The Russell 2500 Index, prepared by the Frank Russell Company, consists
of U.S. publicly traded stocks of domestic companies that rank from 500 to 3000
by market capitalization. The Russell 2500 tracks the return on these stocks
based on price appreciation or depreciation and does not include dividends and
income or changes in market values caused by other kinds of corporate changes.
The Russell 2000 Index, prepared by the Frank Russell Company, consists
of U.S. publicly traded stocks of domestic companies that rank from 1000 to 3000
by market capitalization. The Russell 2000 tracks the return on these stocks
based on price appreciation or depreciation and does not include dividends and
income or changes in market values caused by other kinds of corporate changes.
Reuters, a wire service that frequently reports on global business.
Standard & Poor's Utilities Index is an unmanaged capitalization
weighted index comprising common stock in approximately 40 electric, natural gas
distributors and pipelines, and telephone companies. The Index assumes the
reinvestment of dividends.
Moody's Stock Index, an unmanaged index of utility stock performance.
From time to time, in reports and promotional literature, performance
rankings and ratings reported periodically in national financial publications
such as MONEY, FORBES, BUSINESS WEEK, BARRON'S, FINANCIAL TIMES and FORTUNE may
also be used. In addition, quotations from articles and performance ratings and
ratings appearing in daily newspaper publications such as THE WALL STREET
JOURNAL, THE NEW YORK TIMES and NEW YORK DAILY NEWS may be cited.
GENERAL INFORMATION
Audits and Reports. The accounts of the Funds are audited twice a year
------------------
by Tait, Weller & Baker, independent certified public accountants, Two Penn
Center Plaza, Philadelphia, PA, 19102-1707. Shareholders of each Fund receive
semi-annual and annual reports, including audited financial statements, and a
list of securities owned.
Transfer Agent. Administrative Data Management Corp., 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
47
<PAGE>
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. Furthermore, if there is no
known address for a shareholder for at least one year, the Transfer Agent will
charge such shareholder's account $40 to cover the Transfer Agent's expenses in
trying to locate the shareholder's correct address. For the fiscal year ended
October 31, 1996, Growth & Income Fund, U.S.A. Mid-Cap Opportunity Fund and
Utilities Income Fund paid $233,013, $42,709 and $241,050, 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 have duplicate statements and transactions
confirmations reviewed by a compliance officer; and (d) are prohibited from
purchasing securities of initial public offerings.
APPENDIX A
DESCRIPTION OF CORPORATE BOND AND
CONVERTIBLE SECURITY RATINGS
STANDARD & POOR'S RATINGS GROUP
- -------------------------------
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
any audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default-capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
48
<PAGE>
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C Debt rated "BB," "B," "CCC," "CC" and "C" is
regarded, on balance, as predominantly speculative with respect to capacity to
pay interest and repay principal. "BB" indicates the least degree of speculation
and "C" the highest. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
BB Debt rated "BB" has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B Debt rated "B" has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"BB" or "BB-" rating.
CCC Debt rated "CCC" has a currently identifiable vulnerability to
default and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The "CCC" rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
CC The rating "CC" typically is applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
C The rating "C" typically is applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
CI The rating "CI" is reserved for income bonds on which no interest is
being paid.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace
49
<PAGE>
period. The "D" rating also will be used upon the filing of a bankruptcy
petition if debt service payments are jeopardized.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified
by the addition of a plus or minus sign to show relative standing within the
major categories.
MOODY'S INVESTORS SERVICE, INC.
- -------------------------------
Aaa Bonds which are rated "Aaa" are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat greater than the Aaa securities.
A Bonds which are rated "A" possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in the
future.
Baa Bonds which are rated "Baa" are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
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.
50
<PAGE>
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
APPENDIX B
DESCRIPTION OF COMMERCIAL PAPER RATINGS
STANDARD & POOR'S RATINGS GROUP
- -------------------------------
S&P's commercial paper rating is a current assessment of the likelihood
of timely payment of debt considered short-term in the relevant market. Ratings
are graded into several categories, ranging from "A-1" for the highest quality
obligations to "D" for the lowest.
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) designation.
MOODY'S INVESTORS SERVICE, INC.
- -------------------------------
Moody's short-term debt ratings are opinions of the ability of issuers
to repay punctually senior debt obligations which have an original maturity not
exceeding one year. Obligations relying upon support mechanisms such as
letters-of-credit and bonds of indemnity are excluded unless explicitly rated.
Prime-1 Issuers (or supporting institutions) rated Prime-1 (P-1) have a
superior ability for repayment of senior short-term debt obligations. P-1
repayment ability will often be evidenced by many of the following
characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
APPENDIX C
Although it does not presently intend to engage in these strategies in coming
year, Utilities Income Fund may use some or all of the following hedging
instruments:
Options on Equity and Debt Securities. A call option is a short-term
contract pursuant to which the purchaser of the option, in return for a premium,
has the right to buy the security underlying the option at a specified price at
any time during the term of the
51
<PAGE>
option. The writer of the call option, who receives the premium, has the
obligation, upon exercise of the option during the option term, to deliver the
underlying security against payment of the exercise price. A put option is a
similar contract that gives its purchaser, in return for a premium, the right to
sell the underlying security at a specified price during the option term. The
writer of the put option, who receives the premium, has the obligation, upon
exercise of the option during the option term, to buy the underlying security at
the exercise price.
Options on Stock Indices. A stock index assigns relative values to the
stocks included in the index and fluctuates with changes in the market values of
those stocks. A stock index option operates in the same way as a more
traditional stock option, except that exercise of a stock index option is
effected with cash payment and does not involve delivery of securities. Thus,
upon exercise of a stock index option, the purchaser will realize, and the
writer will pay, an amount based on the difference between the exercise price
and the closing price of the stock index.
Stock Index Futures Contracts. A stock index futures contract is a
bilateral agreement pursuant to which one party agrees to accept, and the other
party agrees to make, delivery of an amount of cash equal to a specified dollar
amount times the difference between the stock index value at the close of
trading of the contract and the price at which the futures contract is
originally struck. No physical delivery of the stocks comprising the index is
made. Generally, contracts are closed out prior to the expiration date of the
contract.
Interest Rate Futures Contracts. Interest rate futures contracts are
bilateral agreements pursuant to which one party agrees to make, and the other
party agrees to accept, delivery of a specified type of debt security at a
specified future time and at a specified price. Although such futures contracts
by their terms call for actual delivery or acceptance of debt securities, in
most cases the contracts are closed out before the settlement date without the
making or taking of delivery.
Options on Futures Contracts. Options on futures contracts are similar
to options on securities, except that an option on a futures contract gives the
purchaser the right, in return for the premium, to assume a position in a
futures contract (a long position if the option is a call and a short position
if the option is a put), rather than to purchase or sell a security, at a
specified price at any time during the option term. Upon exercise of the option,
the delivery of the futures position to the holder of the option will be
accompanied by delivery of the accumulated balance that represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
future. The writer of an option, upon exercise, will assume a short position in
the case of a call and a long position in the case of a put.
52
<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 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 chart in the printed document.]
The following chart illustrates the historical performance of the Dow Jones
Industrial Average from 1928 through 1995.
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
<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
1995........................ 1.00
1996........................ 1.03
1997........................ 1.06
1998 ....................... 1.09
1999 ....................... 1.13
2000 ....................... 1.16
2001 ....................... 1.19
2002 ....................... 1.23
2003 ....................... 1.27
2004 ....................... 1.30
2005 ....................... 1.34
2006 ....................... 1.38
2007 ....................... 1.43
2008 ....................... 1.47
2009 ....................... 1.51
2010 ....................... 1.56
2011 ....................... 1.60
2012 ....................... 1.65
2013 ....................... 1.70
2014 ....................... 1.75
2015 ....................... 1.81
2016 ....................... 1.86
2017 ....................... 1.92
2018 ....................... 1.97
2019 ....................... 2.03
2020 ....................... 2.09
2021 ....................... 2.16
2022 ....................... 2.22
2023 ....................... 2.29
2024 ....................... 2.36
2025 ....................... 2.43
Inflation erodes your buying power. $100 in 1966, could purchase the same amount
of goods and service as $21 in 1995.* Projecting inflation at 3%, goods and
services costing $100 today will cost $243 in the year 2025.
* 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 1995(1)
Total Number of Percentage of
Number of Positive Positive
Periods Periods Periods
------- ------- -------
1-Year Periods 70 50 71%
5-Year Periods 66 59 89%
10-Year Periods 61 59 97%
15-Year Periods 56 56 100%
20-Year Periods 51 51 100%
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. (2)
Compound Annual Return from 1981 -- 1995(1)
Inflation ..................... 3.93
U.S. Treasury Bills ........... 7.11
Large Company Stocks .......... 14.80
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 1981 -- 1995(1)
Inflation ..................... 3.93
U.S. Treasury Bills ........... 7.11
Long-Term Corp. bonds ......... 13.46
(1) Sources: Stocks, Bonds, Bill and Inflation 1996 Yearbook, Ibbotson
Associates, Chicago.
(2) 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.
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>
Financial Statements
as of October 31, 1996
Registrant incorporates by reference the financial statements and report of
independent auditors contained in the Annual Report to shareholders for the
fiscal year ended October 31, 1996 electronically filed with the Commission on
December 30, 1996 (Accession Number: 0000912057-96-030414).
53
<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. Amended Schedule A to Administration Agreement
c. Organization Expense Reimbursement Agreement
<PAGE>
(10)a./1/ Opinion of counsel
b. Consent of Accountants
(11)/2/ Powers of Attorney
(12) Not Applicable
(13) 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 Pre-Effective Amendment No. 1 to
Registrant's Registration Statement (File No. 33-46924) filed on June 17,
1992.
Item 25. Persons Controlled by or under common control with Registrant
There are no persons controlled by or under common control with the
Registrant.
Item 26. Number of Holders of Securities
<PAGE>
Number of Record
Holders as of
Title of Class January 15, 1997
Class A Class B
------- -------
U.S.A. Mid-Cap Opportunity Fund 3,297 210
Utilities Income Fund 14,187 979
Growth & Income Fund 15,297 1,707
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-exclusivity: The indemnification and advancement of
---------------
expenses provided by, or granted pursuant to, this Article X shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under the Articles of Incorporation,
these By-Laws, any agreement, vote of stockholders or directors, or otherwise,
both as to action in his or her official capacity and as to action in another
capacity while holding such office.
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
<PAGE>
First Investors Management Company, Inc., the Registrant's Investment
Adviser, also serves as Investment Adviser to:
First Investors Global Fund, Inc.
First Investors Cash Management Fund, Inc.
First Investors Series Fund
First Investors Fund For Income, Inc.
First Investors Government Fund, Inc.
First Investors High Yield Fund, Inc.
First Investors Insured Tax Exempt Fund, Inc.
First Investors Life Series Fund
First Investors Multi-State Insured Tax Free Fund
First Investors New York Insured Tax Free Fund, Inc.
First Investors Special Bond Fund, Inc.
First Investors Tax-Exempt Money Market Fund, Inc.
First Investors U.S. Government Plus Fund
Affiliations of the officers and directors of the Investment Adviser are
set forth in Part B, Statement of Additional Information, under "Directors and
Officers."
(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
<PAGE>
(b) The following persons are the officers and directors of the
Underwriter:
Position and Position and
Name and Principal Office with First Office with
Business Address Investors Corporation Registrant
- ------------------ --------------------- ------------
Glenn O. Head Chairman President
95 Wall Street and Director and Director
New York, NY 10005
Marvin M. Hecker President None
95 Wall Street
New York, NY 10005
John T. Sullivan Director Chairman of the
95 Wall Street Board of Directors
New York, NY 10005
Roger L. Grayson Director Director
95 Wall Street
New York, NY 10005
Joseph I. Benedek Treasurer Treasurer
581 Main Street
Woodbridge, NJ 07095
Robert Murphy Comptroller None
581 Main Street
Woodbridge, NJ 07095
Lawrence A. Fauci Senior Vice President None
95 Wall Street and Director
New York, NY 10005
Kathryn S. Head Vice President, Director
581 Main Street Chief Financial
Woodbridge, NJ 07095 Officer and Director
Louis Rinaldi Senior Vice None
581 Main Street President
Woodbridge, NJ 07095
Frederick Miller Vice President None
581 Main Street
Woodbridge, NJ 07095
Jane W. Kruzan Director None
15 Norwood Avenue
Summit, NJ 07901
Larry R. Lavoie Secretary and None
95 Wall Street General Counsel
New York, NY 10005
<PAGE>
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
(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
<PAGE>
the 1933 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The Registrant hereby undertakes to furnish a copy of its latest annual
report to shareholders, upon request and without charge, to each person to whom
a prospectus is delivered.
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
99.B9.1 Amended Schedule A to Administration Agreement
99.B9.2 Organization Expense Reimbursement Agreement
99.B10 Consent of Accountants
99.B13.1 Undertaking-U.S.A. Mid-Cap Opportunity Fund
99.B13.2 Undertaking-Growth & Income Fund
99.B13.3 Undertaking-Utilities Income Fund
99.B16 Performance Calculations
27.011 FDS - U.S.A. Mid-Cap Opportunity Fund - Class A
27.012 FDS - U.S.A. 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
<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
21st day of February, 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 February 21, 1997
- ------------------------ Officer and Director
Glenn O. Head
/s/ Joseph I. Benedek Principal Financial February 21, 1997
- ------------------------ and Accounting Officer
Joseph I. Benedek
* Director February 21, 1997
- ------------------------
Kathryn S. Head
* Director February 21, 1997
- ------------------------
James J. Coy
* Director February 21, 1997
- ------------------------
Roger L. Grayson
* Director February 21, 1997
- ------------------------
Herbert Rubinstein
* Director February 21, 1997
- ------------------------
James M. Srygley
* Director February 21, 1997
- ------------------------
John T. Sullivan
* Director February 21, 1997
- ------------------------
Rex R. Reed
* Director February 21, 1997
- ------------------------
Robert F. Wentworth
*By: /s/ Larry R. Lavoie
-------------------
Larry R. Lavoie
Attorney-in-fact
ADMINISTRATION AGREEMENT
SCHEDULE A
Compensation and charges of Administrative Data Management Corp. for
services as Transfer Agent, Dividend Disbursing Agent and Plan Administration,
and for other services under the Administration Agreement.
Monthly Account Maintenance $0.75 per account
New Accounts $5.00 per account
Payments $0.75 per account
Exchanges $5.00 per transaction
Liquidations $5.00 per transactions
Transfers $10.00 per transaction
Certificates Issued $3.00 per certificate
Systematic Withdrawal Checks $1.00 per check
Dividend Processing $0.45 per dividend
Reports requested by a
Government Agency $1.00 per account
Shareholder Service Calls $4.00 per call
Correspondence $20.00 per item
OUT-OF-POCKET EXPENSES: In addition to the above charges, the Fund shall be
responsible for reimbursing Administrative Data Management Corp. for all
out-of-pocket costs including but not limited to postage, insurance, telephone
lines, forms relating to shareholders of the Fund, envelopes and other similar
items, and will also reimburse Administrative Data Management Corp. for counsel
fees, including fees for the preparation of the Administration Agreement and
review of prospectus and application forms, to the extent that ADM is not
otherwise reimbursed.
THE ABOVE FEES AND OUT-OF-POCKET EXPENSES APPLY TO THE FOLLOWING FUNDS:
FIRST INVESTORS FUND FOR INCOME, INC., FIRST INVESTORS GLOBAL FUND, INC., FIRST
INVESTORS GOVERNMENT FUND, INC., FIRST INVESTORS HIGH YIELD FUND, INC., FIRST
INVESTORS INSURED TAX EXEMPT FUND, INC., FIRST INVESTORS MULTI-STATE INSURED TAX
FREE FUND, FIRST INVESTORS NEW YORK INSURED TAX FREE FUND, INC., FIRST INVESTORS
SERIES FUND, FIRST INVESTORS SERIES FUND II, INC., FIRST INVESTORS U.S.
GOVERNMENT PLUS FUND - 1st, 2nd, & 3rd FUND, EXECUTIVE INVESTORS TRUST
FIRST INVESTORS SERIES FUND II, INC.
ORGANIZATION EXPENSE REIMBURSEMENT AGREEMENT
This Agreement is made this 10th day of August, 1992, between First
Investors Series Fund II, Inc. ("Fund") and First Investors Management Company,
Inc. ("FIMCO").
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended; and
WHEREAS, there have been and will be certain organizational expenses
incurred as a part of such organization, which are properly expenses of the
Fund, that have been and will in the future be paid by FIMCO by reason of the
fact that the Fund was not or will not be capitalized when such expenses
otherwise became or become due and payable; and
WHEREAS, such organizational expenses include expenses necessary to
organize and incorporate the Fund in the state of Maryland and its necessary
relationships and legal qualifications such as to allow it to commence business
and operations, including, but not limited to, such expenses as fees of the
Fun's outside legal counsel, Securities and Exchange Commission filing and
registration fees, and independent public accountant fees (such expenses
hereinafter referred to as "Organizational Expenses").
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein, it is agreed as follows:
1. The Fund shall reimburse and pay to FIMCO the amounts expended by FIMCO
as and for Organizational Expenses for the Fund.
2. Such reimbursement shall be paid by the Fund to FIMCO upon its demands,
without interest, and in no event later than five years from the commencement of
operations of the Fund. Upon demand for payment, FIMCO shall present copies of
invoices, receipts, canceled checks or other evidence of payment by them for the
Organization Expenses for which reimbursement is demanded.
FIRST INVESTORS SERIES FUND II, INC.
By: /s/David D. Grayson
-------------------
David D. Grayson, President
FIRST INVESTORS MANAGEMENT COMPANY, INC.
BY: /s/David D. Grayson
-------------------
David D. Grayson, President
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. 11 to the
Registration Statement on Form N-1A (File No. 33-46924) of our report dated
November 29, 1996 relating to the October 31, 1996 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
February 19, 1997
First Investors Management Company, Inc.
95 Wall Street
New York, New York 10005-4297
(212) 858-8000
May 12, 1992
First Investors Series Fund II, Inc.
First Investors Made in the USA Fund
95 Wall Street
New York, NY 10005
Gentlemen/Ladies:
Please be advised that the 8,591.065 shares of common stock of the First
Investors Made in the USA Fund series of First Investors Series Fund II, Inc.,
which we have today purchased from you in the aggregate amount of $100,000 were
purchased for investment purposes only with no present intention of redeeming or
selling such shares and we do not have any intention of redeeming or selling
such shares.
Very truly yours,
FIRST INVESTORS MANAGEMENT COMPANY, INC.
By: /s/ David Grayson
----------------------------
David Grayson, President
First Investors Management Company, Inc.
95 Wall Street
New York, New York 10005-4297
(212) 858-8000
July 14, 1993
First Investors Series Fund II, Inc.
First Investors Growth & Income Fund
95 Wall Street
New York, NY 10005
Gentlemen/Ladies:
Please be advised the 10 shares of common stock of the First Investors Growth &
Income Fund, a separate designated series of First Investors Series Fund II,
Inc., which we have today purchased from you in the aggregate amount of $65.60
were purchased for investment purposes only with no present intention of
redeeming or selling such shares and we do not have any intention of redeeming
or selling such shares.
Very truly yours,
By: /s/ David Grayson
------------------------
David Grayson, President
First Investors Corporation
95 Wall Street
New York, New York 10005-4297
(212) 858-8000
November 10, 1992
First Investors Series Fund II, Inc.
First Investors Utilities Income Fund
95 Wall Street
New York, NY 10005
Gentlemen/Ladies:
Please be advised the 10 shares of common stock of the First Investors Utilities
Income Fund, a separate designated series of First Investors Series Fund II,
Inc., which we have today purchased from you in the aggregate amount of $55.90
were purchased for investment purposes only with no present intention of
redeeming or selling such shares and we do not have any intention of redeeming
or selling such shares.
Very truly yours,
By: /s/ David Grayson
------------------------
David Grayson, President
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 $1,000
investment made at the beginning of 1, 5, or 10 year
periods (or fractional period there of.)
P = a hypothetical initial investment of $1,000
N = number of years
The following table lists the information used to calculate the average annual
total return and total return for First Investors Series Fund II, Inc. (Class A
shares) as of October 31, 1996.
<TABLE>
<CAPTION>
AVE. ANNUAL TOTAL
Class A ERV P N TOTAL RETURN RETURN
--- - - ------------ ------
<S> <C> <C> <C> <C> <C> <C>
Growth & Income Fund
--------------------
One Year: $1,140.79 $1,000.00 1.00 14.22% 14.22%
Life of Fund: $1,415,51 $1,000.00 3.07 11.96% 41.55%
U.S.A. Mid-Cap Opportunity Fund
- -------------------------------
One Year: $1,046.80 $1,000.00 1.00 4.68% 4.68%
Life of Fund: $1,340.73 $1,000.00 4.19 7.25% 34.07%
Utilities Income Fund
---------------------
One Year: $1,054.73 $1,000.00 1.00 5.47% 5.47%
Life of Fund: $1,239.71 $1,000.00 3.69 6.00% 23.97%
</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 $1,000
investment made at the beginning of 1, 5, or 10 year
periods (or fractional period there of.)
P = a hypothetical initial investment of $1,000
N = number of years
The following table lists the information used to calculate the average annual
total return and total return for First Investors Series Fund II, Inc. (Class B
shares) as of October 31, 1996.
<TABLE>
<CAPTION>
AVE. ANNUAL TOTAL
Class B ERV P N TOTAL RETURN RETURN
--- - - ------------ ------
<S> <C> <C> <C> <C> <C>
Growth & Income Fund
--------------------
One Year: $1,161.45 $1,000.00 1.00 16.15% 16.15%
Life of Fund: $1,424.22 $1,000.00 1.80 21.67% 42.42%
U.S.A. Mid-Cap Opportunity Fund
- -------------------------------
One Year: $1,063.95 $1,000.00 1.00 6.39% 6.39%
Life of Fund: $1,283.03 $1,000.00 1.80 14.83% 28.30%
Utilities Income Fund
---------------------
One Year: $1,072.17 $1,000.00 1.00 7.22% 7.22%
Life of Fund: $1,306.08 $1,000.00 1.80 15.98% 30.61%
</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 $1,000
investment made at the beginning of 1, 5, or 10 year
periods (or fractional period there of.)
P = a hypothetical initial investment of $1,000
N = number of years
The following table lists the information used to calculate the average annual
total return and total return for First Investors Series Fund II, Inc. (Class B
shares) as of October 31, 1996.
<TABLE>
<CAPTION>
AVE. ANNUAL TOTAL
Class B ERV P N TOTAL RETURN RETURN
--- - - ------------ ------
<S> <C> <C> <C> <C> <C>
Growth & Income Fund
--------------------
One Year: $1,209.22 $1,000.00 1.00 20.92% 20.92%
Life of Fund: $1,484.02 $1,000.00 1.80 24.48% 48.40%
U.S.A. Mid-Cap Opportunity Fund
- -------------------------------
One Year: $1,102.63 $1,000.00 1.00 10.26% 10.26%
Life of Fund: $1,336.37 $1,000.00 1.80 17.45% 33.64%
Utilities Income Fund
---------------------
One Year: $1,108.52 $1,000.00 1.00 10.85% 10.85%
Life of Fund: $1,361.49 $1,000.00 1.80 18.98% 36.15%
</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 $1,000
investment made at the beginning of 1, 5, or 10 year
periods (or fractional period there of.)
P = a hypothetical initial investment of $1,000
N = number of years
The following table lists the information used to calculate the average annual
total return and total return for First Investors Series Fund II, Inc. (Class A
shares) as of October 31, 1996.
<TABLE>
<CAPTION>
AVE. ANNUAL TOTAL
Class A ERV P N TOTAL RETURN RETURN
--- - - ------------ ------
<S> <C> <C> <C> <C> <C>
Growth & Income Fund
--------------------
One Year: $1,218.21 $1,000.00 1.00 21.82% 21.82%
Life of Fund: $1,479.58 $1,000.00 3.07 12.84% 47.96%
U.S.A. Mid-Cap Opportunity Fund
- -------------------------------
One Year: $1,153.43 $1,000.00 1.00 15.34% 15.34%
Life of Fund: $1,430.55 $1,000.00 4.19 8.92% 43.05%
Utilities Income Fund
---------------------
One Year: $1,076.29 $1,000.00 1.00 7.63% 7.63%
Life of Fund: $1,321.79 $1,000.00 3.69 7.85% 32.18%
</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-31-1996
<PERIOD-START> NOV-1-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 13681
<INVESTMENTS-AT-VALUE> 15146
<RECEIVABLES> 259
<ASSETS-OTHER> 331
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 15736
<PAYABLE-FOR-SECURITIES> 6
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 85
<TOTAL-LIABILITIES> 91
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12324
<SHARES-COMMON-STOCK> 947
<SHARES-COMMON-PRIOR> 605
<ACCUMULATED-NII-CURRENT> 41
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 676
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1437
<NET-ASSETS> 14478
<DIVIDEND-INCOME> 95
<INTEREST-INCOME> 110
<OTHER-INCOME> 0
<EXPENSES-NET> (165)
<NET-INVESTMENT-INCOME> 40
<REALIZED-GAINS-CURRENT> 673
<APPREC-INCREASE-CURRENT> 462
<NET-CHANGE-FROM-OPS> 1175
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (35)
<DISTRIBUTIONS-OF-GAINS> (501)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 424
<NUMBER-OF-SHARES-REDEEMED> 120
<SHARES-REINVESTED> 38
<NET-CHANGE-IN-ASSETS> 5660
<ACCUMULATED-NII-PRIOR> 36
<ACCUMULATED-GAINS-PRIOR> 503
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (110)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (229)
<AVERAGE-NET-ASSETS> 10970
<PER-SHARE-NAV-BEGIN> 14.58
<PER-SHARE-NII> .042
<PER-SHARE-GAIN-APPREC> 1.564
<PER-SHARE-DIVIDEND> (.058)
<PER-SHARE-DISTRIBUTIONS> (.838)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.29
<EXPENSE-RATIO> 1.57
<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-31-1996
<PERIOD-START> NOV-1-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 13681
<INVESTMENTS-AT-VALUE> 15146
<RECEIVABLES> 259
<ASSETS-OTHER> 331
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 15736
<PAYABLE-FOR-SECURITIES> 6
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 85
<TOTAL-LIABILITIES> 91
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1115
<SHARES-COMMON-STOCK> 77
<SHARES-COMMON-PRIOR> 21
<ACCUMULATED-NII-CURRENT> (4)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 29
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 28
<NET-ASSETS> 1168
<DIVIDEND-INCOME> 5
<INTEREST-INCOME> 6
<OTHER-INCOME> 0
<EXPENSES-NET> (14)
<NET-INVESTMENT-INCOME> (3)
<REALIZED-GAINS-CURRENT> 32
<APPREC-INCREASE-CURRENT> 31
<NET-CHANGE-FROM-OPS> 60
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1)
<DISTRIBUTIONS-OF-GAINS> (21)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 70
<NUMBER-OF-SHARES-REDEEMED> 15
<SHARES-REINVESTED> 2
<NET-CHANGE-IN-ASSETS> 871
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 18
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (6)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (17)
<AVERAGE-NET-ASSETS> 621
<PER-SHARE-NAV-BEGIN> 14.51
<PER-SHARE-NII> .013
<PER-SHARE-GAIN-APPREC> 1.468
<PER-SHARE-DIVIDEND> (.053)
<PER-SHARE-DISTRIBUTIONS> (.838)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.10
<EXPENSE-RATIO> 2.30
<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-31-1996
<PERIOD-START> NOV-1-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 96465
<INVESTMENTS-AT-VALUE> 109573
<RECEIVABLES> 629
<ASSETS-OTHER> 1806
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 112008
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 309
<TOTAL-LIABILITIES> 309
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 92659
<SHARES-COMMON-STOCK> 16228
<SHARES-COMMON-PRIOR> 14174
<ACCUMULATED-NII-CURRENT> 353
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1662)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12679
<NET-ASSETS> 104029
<DIVIDEND-INCOME> 3965
<INTEREST-INCOME> 558
<OTHER-INCOME> 0
<EXPENSES-NET> (1147)
<NET-INVESTMENT-INCOME> 3376
<REALIZED-GAINS-CURRENT> 3136
<APPREC-INCREASE-CURRENT> 4339
<NET-CHANGE-FROM-OPS> 10851
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3356)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4588
<NUMBER-OF-SHARES-REDEEMED> 3050
<SHARES-REINVESTED> 516
<NET-CHANGE-IN-ASSETS> 20338
<ACCUMULATED-NII-PRIOR> 333
<ACCUMULATED-GAINS-PRIOR> (4798)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (726)
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