As filed with the Securities and Exchange Commission on November 25, 1998
1933 Act File No. 33-46924
1849 Act File No. 811-6618
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
----
Post-Effective Amendment No. 15 [X]
----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 15
----
(Check appropriate box or boxes.)
FIRST INVESTORS SERIES FUND II, INC.
(Exact name of Registrant as specified in charter)
95 Wall Street
New York, New York 10005
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code): (212) 858-8000
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)
Copy to:
Robert J. Zutz, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, NW
Washington, D.C. 20036
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[x] on February __, 1999 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
<PAGE>
FIRST INVESTORS SERIES FUND II, INC.
CONTENTS OF REGISTRATION STATEMENT
This registration document is comprised of the following:
Cover Sheet
Contents of Registration Statement
Prospectus for the First Investors Growth & Income Fund,
Prospectus for the First Investors Mid-Cap Opportunity Fund, and
Prospectus for the First Investors Utilities Income Fund
Combined Statement of Additional Information for the First
Investors Series Fund II, Inc., the First Investors Series Fund
and the First Investors Global Fund, Inc.
Part C of Form N-1A
Signature Page
Exhibits
<PAGE>
[FIRST INVESTORS LOGO]
FIRST INVESTORS GROWTH & INCOME FUND
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
The date of this prospectus is February ___, 1999
<PAGE>
CONTENTS
OVERVIEW OF THE GROWTH & INCOME FUND
o What is the Growth & Income Fund?
oo Objectives
oo Primary Investment Strategies
oo Primary Risks
o Who should consider buying the Growth & Income Fund?
o How has the Growth & Income Fund performed?
o What are the fees and expenses of the Growth & Income Fund?
THE GROWTH & INCOME FUND IN DETAIL
o What are the Growth & Income Fund's objectives, principal investment
strategies and principal risks?
o Who manages the Growth & Income Fund?
o How and when does the Growth & Income Fund price its shares?
BUYING AND SELLING SHARES
o How do I buy shares?
o Which class of shares is best for me?
o How do I sell shares?
o Can I exchange my shares for the shares of other First Investors Funds?
ACCOUNT POLICIES
o What about dividends and capital gain distributions?
o What about taxes?
o How do I obtain a complete explanation of all account privileges and
policies?
FINANCIAL HIGHLIGHTS
2
<PAGE>
OVERVIEW OF THE GROWTH & INCOME FUND
What is the Growth & Income Fund?
Objectives: The Fund seeks long-term growth of capital and current income.
Primary
Investment
Strategies: The Fund primarily invests in dividend-paying common stocks and
securities that are convertible into common stocks ("convertible
securities") of large, well-established domestic and foreign
companies ("Fortune 1000-type companies"). By investing in
dividend-paying common stocks and convertible securities, the
Fund attempts to provide a more consistent total return than may
be achieved by investing solely in growth stocks.
Primary
Risks: While dividend-paying common stocks and convertible securities
are expected to hold up better than other stocks in a declining
market, like all stocks they fluctuate in price in response to
movements in the overall securities markets, general economic
conditions, and changes in interest rates or investor sentiment.
Fluctuations in the prices of these stocks at times can be
substantial. Accordingly, the value of your investment in the
Fund will go up and down, which means that you could lose money.
Who should consider buying the Growth & Income Fund?
The Growth & Income Fund can be used as a core holding for an
investment portfolio or as a base on which to build a portfolio.
It may be appropriate for you if you:
. Are primarily seeking growth of capital,
. Are willing to accept a moderate degree of market volatility,
and
. Have a long-term investment horizon and are able to ride out
market cycles.
You should keep in mind that the Growth & Income Fund is not a
complete investment program. For most investors, a complete
program should include not only stock funds but also bond and
money market funds. While stocks have historically outperformed
other categories of investments over long periods of time, they
generally carry higher risks. There have also been extended
periods during which bonds and money market instruments have
outperformed stocks. By allocating your assets among different
types of funds, you can reduce the overall risk of your portfolio
and benefit when bonds and money market instruments outperform
stocks. Of course, even a diversified investment program can
result in a loss.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
3
<PAGE>
How has the Growth & Income Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The Fund has two classes of shares, Class A shares and Class B shares. The bar
chart shows changes in the performance of the Fund's Class A shares from year to
year over the life of the Fund. The performance of Class B shares differs from
the performance of Class A shares shown in the bar chart only to the extent that
it does not have the same expenses. The bar chart does not reflect sales charges
that you may pay upon purchase or redemption of Fund shares. If they were
included, the returns would be less than those shown.
[Bar Chart of Changes in Performance of Class A Shares From 1993 to 1998,
With Following Plot Points:
10/4/93 - 12/31/93* 1.54%
1994 -0.76%
1995 30.61%
1996 19.96%
1997 27.96%
1998 -]
During the periods shown, the highest quarterly return was [15.91%] (for the
quarter ended [June 30, 1997]) and the lowest quarterly return was [-3.17%] (for
the quarter ended [March 31, 1994]). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
*This is the total return for the period shown. The total return has not been
annualized.
The table below shows how the Fund's average annual total returns for Class A
shares and Class B shares compare to those of the Standard & Poor's 500
Composite Stock Price Index ("S&P 500 Index"). This table assumes that the
maximum sales charge or CDSC was paid. The S&P 500 Index is an unmanaged index
generally representative of the market for the stocks of large-sized U.S.
companies. The S&P 500 Index does not take into account fees and expenses that
an investor would incur in holding the securities in the index. If it did so,
the returns would be lower than those shown.
4
<PAGE>
Inception Inception
Class A Shares Class B Shares
1 Year* (10/4/93) (1/12/95)
Class A Shares 18.26% 15.29% N/A
Class B Shares 20.21 N/A 23.43%
S&P 500 33.37 [ ] [ ]
*The annual returns are based upon calendar years.
What are the fees and expenses of the Growth & Income Fund?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Class A Class B
Shares Shares
------- -------
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price).......... 6.25% None
Maximum deferred sales charge (load)
(as a percentage of the lower of purchase
price or redemption price)................... None* 4%**
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
Distribution Total Fee Waiver
and Service Annual Fund And/or
Management (12b-1) Other Operating Expense Net
Expenses Fees (1) Expenses Expenses(2) Assumption Expenses
---------- ------------ -------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Class A Shares ...... 0.75% 0.30% 0.38% 1.43% N/A N/A
Class B Shares ...... 0.75 1.00 0.38 2.13 N/A N/A
</TABLE>
*A contingent deferred sales charge of 1.00% will be assessed on certain
redemptions of Class A shares that are purchased without a sales charge.
**4% in the first year; declining to 0% after the sixth year.
(1) Because the Fund pays Rule 12b-1 fees, long-term shareholders could pay more
than the economic equivalent of the maximum front-end sales charge permitted by
the National Association of Securities Dealers, Inc.
EXAMPLE
This example helps you to compare the costs of investing in the Fund with the
cost of investing in other mutual funds. The example assumes that (1) you invest
$10,000 in the Fund for the time periods indicated; (2) your investment has a 5%
return each year; and (3) the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, under these assumptions your
costs would be:
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
If you redeem your shares:
Class A shares $761 $1,049 $1,358 $2,231
Class B shares 616 967 1,344 2,289*
5
<PAGE>
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
If you do not redeem your shares:
Class A shares $761 $1,049 $1,358 $2,231
Class B shares 216 667 1,144 2,289*
*Assumes conversion to Class A shares eight years after purchase.
THE GROWTH & INCOME FUND IN DETAIL
What are the Growth & Income Fund's objectives, principal investment
strategies, and principal risks?
OBJECTIVES: The Fund seeks long-term growth of capital and current income.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in dividend-paying common stocks and convertible securities of domestic
and foreign Fortune 1000-type companies. The Fund also invests in corporate
bonds to increase the income component of its total return. The convertible
bonds purchased by the Fund may include high yield, below-investment grade bonds
(so-called "junk bonds"). These are bonds that are rated lower than BBB by
Standard & Poor's Ratings Group or Baa by Moody's Investors Service, Inc.
However, no more than 5% of the Fund's assets may be invested in junk bonds. The
Fund's investments in income-producing securities are intended to provide
investors with a more consistent total return than may be achieved by investing
solely in growth stocks.
The Fund uses a "bottom-up" approach to selecting investments. This means that
the Fund identifies potential investments through fundamental research and
analysis and thereafter focuses on broader issues, such as economic trends,
interest rates, and industry diversification. The Fund focuses on companies
which have solid balance sheets, strong management, relatively consistent
earnings growth or potential earnings growth greater than that of the average
company included in the S&P 500. The Fund typically sells a security when the
reason for holding it is no longer valid, it shows deteriorating fundamentals or
falls short of the manager's expectations. Information on the Fund's recent
strategies and holdings can be found in the most recent annual report (see back
cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of the investment, the greater the risk. Here
are some of the risks of owning the Growth & Income Fund:
MARKET RISK: Because the Fund primarily invests in common stocks and convertible
securities, it is subject to market risk. Stock prices in general may decline
over short or even extended periods due to an economic downturn, a change in
interest rates, or a change in investor sentiment, regardless of the success or
failure of an individual company's operations. Stock markets tend to run in
cycles with periods when prices generally go up, known as "bull" markets, and
periods when stock prices generally go down, referred to as "bear" markets.
While dividend-paying stocks and convertible securities are expected to hold up
better than other stocks in a declining market, like all stocks they fluctuate
in price in response to movements in the overall securities markets, general
economic conditions, company-specific developments, and other factors.
Fluctuations in the prices of these stocks can be substantial. Moreover, under
certain conditions, the dividends paid on these stocks may not be sufficient to
provide a significant cushion against price declines. Accordingly, the value of
your investment in the Fund will go up and down, which means that you could lose
money.
GROWTH STOCK RISK: The Fund's focus on growth stocks increases the potential
volatility of its share price. Growth stocks are stocks of companies which are
expected to increase their earnings faster than the overall market. If
expectations are not met, the prices of these stocks may decline drastically
6
<PAGE>
even if earnings do increase. Investments in growth companies may lack the
dividend yield that can cushion stock prices in market downturns.
INTEREST RATE RISK: Because the Fund invests in bonds and convertible debt
securities, it is subject to interest rate risk. The market value of a bond or
convertible debt security is affected by changes in interest rates. When
interest rates rise, the market value of a bond declines. When interest rates
decline, the market value of a bond increases. Generally, the longer a bond's
maturity, the greater its sensitivity to interest rates. A bond's value can also
be affected by changes in the credit rating of the financial condition of its
issuer.
DEFAULT RISK: The Fund's investments in bonds are subject to the risk of
default. This risk is greater in the case of its investments in high yield
bonds. These bonds generally provide higher income in an effort to compensate
investors for their higher risk of default (failure to make required interest or
principal payments). High yield bond issuers include small or relatively new
companies lacking the history or capital to merit investment grade status,
former blue chip companies downgraded because of financial problems, and
companies which have elected to borrow heavily.
FOREIGN SECURITIES: To a limited degree, the Fund may invest in foreign
securities. Foreign investments involve additional risks, including currency
fluctuations, political instability, differences in financial reporting
standards, and less stringent regulation of securities markets.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
Who manages the Growth & Income Fund?
First Investors Management Company, Inc. ("FIMCO") is the investment adviser to
the Fund. Its address is 95 Wall Street, New York, NY 10005. FIMCO has been
managing mutual funds since [1948]. It currently serves as investment adviser to
15 mutual funds or series of funds with total net assets of approximately $5
billion. FIMCO supervises all aspects of the Fund's operations and determines
the Fund's portfolio transactions. For the fiscal year ended September 30, 1998,
FIMCO received advisory fees of [0.71%] of the Fund's average daily net assets.
Dennis T. Fitzpatrick serves as Portfolio Manager of the Fund. Mr. Fitzpatrick
has been a member of FIMCO's investment management team since October 1995.
During 1995, Mr. Fitzpatrick was a Regional Surety Manager at United States
Fidelity & Guaranty Co. From 1988 to 1995, he was Northeast Surety Manager at
American International Group.
In addition to the investment risks of the Year 2000 which are disclosed above,
the ability of FIMCO and its affiliates to price the Fund's shares, process
purchase and redemption orders, and render other services could be adversely
affected if the computers or other systems on which they rely are not properly
programmed to operate after January 1, 2000. Additionally, because the services
provided by FIMCO and its affiliates depend on the interaction of their computer
systems with the computer systems of brokers, information services and other
parties, any failure on the part of such third party computer systems to deal
with the Year 2000 may have a negative effect on the services provided to the
7
<PAGE>
Fund. FIMCO and its affiliates are taking steps that they believe are reasonably
designed to address the Year 2000 problem for computer and other systems used by
them and are obtaining assurances that comparable steps are being taken by the
Fund's other service providers. However, there can be no assurance that these
steps will be sufficient to avoid any adverse impact on the Fund. Nor can the
Fund estimate the extent of any impact.
How and when does the Growth & Income Fund price its shares?
The share price (which is called "net asset value" or "NAV" per share) for the
Fund is calculated once each day as of 4 p.m., Eastern Standard Time ("E.S.T."),
on each day the New York Stock Exchange ("NYSE") is open for regular trading. In
the event that the NYSE closes early, the share price will be determined as of
the time of the closing.
To calculate the NAV, the Fund's assets are valued and totaled, liabilities are
subtracted, and the balance, called net assets, is divided by the number of
shares outstanding. The prices or NAVs of Class A shares and Class B shares will
generally differ because they have different expenses.
In valuing its assets, the Fund uses the market value of securities for which
market quotations or last sale prices are readily available. If there are no
readily available quotations or last sale prices for an investment or the
available quotations are considered to be unreliable, the securities will be
valued at their fair value as determined in good faith pursuant to procedures
adopted by the Board of Directors of the Fund.
BUYING AND SELLING SHARES
How do I buy shares?
You may buy shares of the Fund through a First Investors registered
representative or through a registered representative of an authorized
broker-dealer ("Representative"). Your Representative will help you complete and
submit an application. Your initial investment must be at least $1,000. However,
we offer automatic investment plans that allow you to open a Fund account with
as little as $50. You also may open certain retirement plan accounts with as
little as $500 even without an automatic investment plan.
Subsequent investments may be made in any amount.
If we receive your application or order in our Woodbridge, N.J. offices in
correct form by 5 p.m., E.S.T., your transaction will be priced at that day's
NAV. If we receive it after 5 p.m., E.S.T., it will be priced at the next
business day's NAV. The procedures for processing transactions are explained in
more detail in our Shareholder Manual which is available upon request.
You can arrange to make systematic investments electronically from your bank
account or through payroll deduction. All the various ways you can buy shares
are explained in the Shareholder Manual. For further information on the
procedures for buying shares, please contact your Representative or call
Shareholder Services at 1-800-423-4026.
The Fund reserves the right to refuse any order to buy shares if the Fund
determines that doing so would be in the best interests of the Fund and its
shareholders.
Which class of shares is best for me?
The Fund has two classes of shares, Class A and Class B. While each class
invests in the same portfolio of securities, the classes have separate sales
charge and expense structures. Because of the different expense structures, each
class of shares generally will have different NAVs and dividends.
8
<PAGE>
The principal advantages of Class A shares are the lower overall expenses, the
availability of quantity discounts on volume purchases and certain account
privileges that are available only on Class A shares. The principal advantage of
Class B shares is that all of your money is put to work from the outset.
Class A shares of the Fund are sold at the public offering price which includes
a front-end sales load. The sales charge declines with the size of your
purchase, as illustrated below.
Class A Shares
Your investment Sales Charge as a percentage of
-------------------------------
offering price net amount invested
Less than $25,000 6.25% 6.67%
$25,000-$49,999 5.75 6.10
$50,000-$99,999 5.50 5.82
$100,000-$249,999 4.50 4.71
$250,000-$499,999 3.50 3.63
$500,000-$999,999 2.50 2.56
$1,000,000 or more 0* 0*
*If you invest $1,000,000 or more in Class A shares, you will not pay a
front-end sales charge. However, if you make such an investment and then sell
your shares within 24 months of purchase, you will pay a contingent deferred
sales charge ("CDSC") of 1.00%.
Class B shares are sold at net asset value, without any initial sales charge.
However, you may pay a CDSC when you sell your shares. The CDSC declines the
longer you hold your shares, as illustrated below. Class B shares convert to
Class A shares after eight years.
Class B Shares
YEAR OF REDEMPTION CDSC as a Percentage of
Purchase Price or
NAV at Redemption
-----------------------
Within the 1st or 2nd year...... 4%
Within the 3rd or 4th year...... 3
In the 5th year................. 2
In the 6th year................. 1
Within the 7th year and 8th year 0
There is no CDSC on Class B shares which are acquired through reinvestment of
dividends or distributions. The CDSC is imposed on the lower of the original
purchase price or the net asset value of the shares being sold. For purposes of
determining the CDSC, all purchases made during a calendar month are counted as
having been made on the first day of that month at the average cost of all
purchases made during that month.
To keep your CDSC as low as possible, each time you place a request to sell
shares, we will first sell any shares in your account that carry no CDSC. If
there is an insufficient number of these shares to meet your request in full, we
will then sell those shares that have the lowest CDSC.
Sales charges and CDSCs may be reduced or waived under certain circumstances and
for certain groups. Consult your Representative or call us directly at
1-800-423-4026 for details.
The Fund has adopted a plan pursuant to Rule 12b-1 that allows the Fund to pay
distribution fees for the sale and distribution of its shares. Each class of
shares pays Rule 12b-1 fees for the marketing of fund shares and for services
9
<PAGE>
provided to shareholders. The plans provide for payments at annual rates (based
on average daily net assets) of up to .30% on Class A shares and 1.00% on Class
B shares. This fee is paid monthly in arrears. Because these fees are paid out
of the Fund's assets on an on-going basis, the higher fees for Class B shares
will increase the cost of your investment and over time may cost you more than
paying the initial sales charge for Class A shares.
FOR ACTUAL PAST EXPENSES OF CLASS A AND CLASS B SHARES, SEE THE SECTION ENTITLED
"WHAT ARE THE FEES AND EXPENSES OF THE FUND?" IN THIS PROSPECTUS.
Because of the lower overall expenses on Class A shares, we recommend Class A
shares for purchases in excess of $250,000 and will only sell Class A shares to
you if you are investing in excess of $1,000,000. For purchases below $250,000,
the class that is best for you generally depends upon the amount you invest,
your time horizon, and your preference for paying the sales charge initially or
later. If you fail to tell us what Class of shares you want, we will purchase
Class A shares for you.
How do I sell shares?
You may redeem your Fund shares on any day the Fund is open for business by:
. Contacting your Representative who will place a redemption order for
you;
. Sending a written redemption request to Administrative Data
Management Corp., ("ADM") at 581 Main Street, Woodbridge, NJ
07095-1198;
. Telephoning the Special Services Department of ADM at 1-800-342-6221
(if you have elected to have telephone privileges); or
. Instructing us to make an electronic transfer to a predesignated
bank (if you have completed an application authorizing such
transfers).
Your redemption request will be processed at the price next computed after we
receive the request in good order. For all requests, have your account number
available.
Payment of redemption proceeds generally will be made within 7 days. If you are
redeeming shares which you recently purchased by check, payment may be delayed
to verify that your check has cleared. This may take up to 15 days from the date
of your purchase. You may not redeem shares by telephone or Electronic Fund
Transfer unless you have owned the shares for at least 15 days.
If your account has a value of less than $500, the Fund may redeem all of your
shares without your consent. You will receive 60 days notice of the Fund's
intention to do this prior to the redemption. You may avoid this redemption by
purchasing additional Fund shares during this 60-day period to bring your
account balance to the required minimum. If you own Class B shares, you will not
be charged a CDSC on a low balance redemption. If you established your Fund
account under one of our automatic investment programs and discontinue payments
before you meet the $1,000 minimum, you will be subject to this redemption
policy.
The Fund reserves the right to make in-kind redemptions. This means that it
could respond to a redemption request by distributing shares of the Fund's
underlying investments rather than distributing cash.
Can I exchange my shares for the shares of other First Investors Funds?
You may exchange shares of the Fund for shares of other First Investors Funds
without paying any additional sales charge. You can only exchange within the
10
<PAGE>
same class of shares (i.e., Class A to Class A). Consult your Representative or
call ADM at 1-800-423-4026 for details.
The Fund reserves the right to reject any exchange request that in the opinion
of the Fund is part of a market timing strategy. The Fund is designed for
long-term investment purposes. It is not intended to provide a vehicle for
short-term market timing. In the event that an exchange is rejected, neither the
redemption nor the purchase side of the exchange will be effected.
ACCOUNT POLICIES
What about dividends and capital gain distributions?
To the extent that it has net investment income, the Fund will declare and pay
dividends from net investment income on a quarterly basis. Any net realized
capital gain will be declared and distributed on an annual basis, usually after
the end of the Fund's fiscal year. The Fund may make an additional distribution
in any year if necessary to avoid a Federal excise tax on certain undistributed
income and capital gain.
Dividends and other distributions paid on both classes of the Fund's shares are
calculated at the same time and in the same manner. Dividends on Class B shares
of the Fund are expected to be lower than those for its Class A shares because
of the higher distribution fees borne by the Class B shares. Dividends on each
class also might be affected differently by the allocation of other
class-specific expenses. In order to be eligible to receive a dividend or other
distribution, you must own Fund shares as of the close of business on the record
date of the distribution.
You may choose to reinvest all dividends and other distributions at NAV in
additional shares of the same class of the Fund or certain other First Investors
Funds, or receive all dividends and other distributions in cash. If you do not
select an option when you open your account, all dividends and other
distributions will be reinvested in additional shares of the Fund. If you do not
cash a distribution check and do not notify ADM to issue a new check within [ ]
months, the distribution will be reinvested in the Fund. If any correspondence
sent by the Fund is returned as "undeliverable," dividends and other
distributions automatically will be reinvested in the Fund. No interest will be
paid to you while a distribution remains uninvested.
A dividend or other distribution paid on a class of shares will only be paid in
additional shares of the distributing class if the total amount of the
distribution is under $5 or the Fund has received notice of your death (until
written alternate payment instructions and other necessary documents are
provided by your legal representative).
What about taxes?
Any dividends or capital gain distributions paid by the Fund are taxable to you
unless you hold your shares in an individual retirement account ("IRA"), 403(b)
account, or 401(k) account, or other tax-deferred account. Dividends (including
distributions of net short-term capital gains) are taxable to you as ordinary
income. Capital gain distributions (essentially, distributions of net long-term
capital gains) by the Fund are taxed to you as long-term capital gains,
regardless of how long you owned your Fund shares. You are taxed in the same
manner whether you receive your dividends and capital gain distributions in cash
or reinvest them in additional Fund shares. Your sale or exchange of Fund shares
may be a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
11
<PAGE>
How do I obtain a complete explanation of all account privileges and
policies?
The Fund offers a full range of special privileges, including special investment
programs for group retirement plans, systematic investing programs, automatic
payroll investment programs, telephone privileges, check writing privileges, and
expedited redemptions by wire order or Automated Clearing House transfer. The
full range of privileges, and related policies, are described in a special
Shareholder Manual, which you may obtain on request. For more information on the
full range of services available, please contact your Representative or contact
us directly at 1-800-423-4026.
12
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years or, if shorter, the period of the
Fund's operations. Certain information reflects financial results for a single
Fund share. The total returns in the tables represent the rate that an investor
would have earned [or lost] on an investment in that Fund (assuming reinvestment
of all dividends and distributions). The information has been audited by Tait,
Weller & Baker, whose report, along with the Fund's financial statements, are
included in the SAI, which is available upon request.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
PER SHARE DATA
----------------------------------------------------------------------------------------------------
Income From Investment Operations Less Distributions from
--------------------------------- -----------------------
Net Realized
Net Asset and
Value Unrealized Total
--------- Net Gain (Loss) 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 FUNDS
- ---------------------
CLASS A
- -------
11/1/93 to 10/31/94........ $6.56 $.128 $.109 $.237 $.107 $-- $.107
11/1/94 to 10/31/95........ 6.69 .163 1.125 1.288 .168 -- .168
11/1/95 to 10/31/96........ 7.81 .102 1.593 1.695 .115 -- .115
11/1/96 to 10/31/97........ 9.39 .060 2.359 2.419 .059 .160 .219
11/1/97 to 09/30/98.........
CLASS B
- -------
1/12/95* to 10/31/95....... 6.43 .084 1.372 1.456 .106 -- .106
11/1/95 to 10/31/96........ 7.78 .066 1.555 1.621 .071 -- .071
11/1/96 to 10/31/97........ 9.33 .002 2.318 2.320 .010 .160 .170
11/1/97 to 09/30/98.........
* Date Class B shares were first offered.
** Calculated without sales charges.
+ Annualized.
++ Net of expenses waived or assumed.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
R A T I O S / S U P P L E M E N T A L D A T A
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to Average Net
Ratio to Average Net Asset Before Expenses
Assets++ Waived or Assumed
-------------------- ---------------------
Net Asset
Value Net Net Portfolio
--------- Total Net Assets Investment Investment Turnover
End Return** End of Period Expenses Income Expenses Income Rate
of Period (%) (in thousands) (%) (%) (%) (%) (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 6.69 3.67 $ 34,489 .67 2.26 1.83 1.11 6
7.81 19.51 63,493 .98 2.34 1.59 1.74 19
9.39 21.82 111,896 1.31 1.20 1.49 1.02 25
11.59 26.20 193,832 1.39 .55 1.43 .51 28
7.78 22.73 3,602 1.90+ 2.23+ 2.61+ 1.52+ 19
9.33 20.92 12,141 2.03 .48 2.19 .31 25
11.48 25.23 26,922 2.09 (.15) 2.13 (.19) 28
</TABLE>
14
<PAGE>
[FIRST INVESTORS LOGO]
FIRST INVESTORS GROWTH & INCOME FUND
For investors who want more information about the Fund, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS: Additional information about the Fund's investments
is available in the Fund's annual and semi-annual reports to shareholders. In
the Fund's annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected the Fund's performance
during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Fund and is incorporated into this prospectus.
SHAREHOLDER MANUAL: The Shareholder Manual provides more detailed information
about the purchase, redemption and sale of Fund shares.
You can get free copies of reports, the SAI and the Shareholder Manual, request
other information and discuss your questions about the Fund by contacting your
Representative, or by contacting the Fund at:
Administrative Data Management Corp.
581 Main Street
Woodbridge, NJ 07095-1198
Telephone: 1-800-423-4026
You can review and copy information about the Fund for a fee (including the
Fund's reports, Shareholder Manual and SAI) at the Public Reference Room of the
Securities and Exchange Commission ("SEC") in Washington, D.C. You can also send
your request and a duplicating fee to the Public Reference Room of the SEC,
Washington, DC 20549-6009. You can obtain information on the operation of the
Public Reference Room by calling 1-800-SEC-0330. Text-only versions of Fund
documents can be viewed online or downloaded from the SEC's Internet website at
http://www.sec.gov.
(Investment Company Act File No.
First Investors Growth & Income Fund 811-
6618
<PAGE>
[FIRST INVESTORS LOGO]
FIRST INVESTORS MID-CAP OPPORTUNITY FUND
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
The date of this prospectus is February ___, 1999
<PAGE>
CONTENTS
OVERVIEW OF THE MID-CAP OPPORTUNITY FUND
o What is the Mid-Cap Opportunity Fund?
oo Objective
oo Primary Investment Strategies
oo Primary Risks
o Who should consider buying the Mid-Cap Opportunity Fund?
o How has the Mid-Cap Opportunity Fund performed?
o What are the fees and expenses of the Mid-Cap Opportunity Fund?
THE MID-CAP OPPORTUNITY FUND IN DETAIL
o What are the Mid-Cap Opportunity Fund's objective, principal investment
strategies and principal risks?
o Who manages the Mid-Cap Opportunity Fund?
o How and when does the Mid-Cap Opportunity Fund price its shares?
BUYING AND SELLING SHARES
o How do I buy shares?
o Which class of shares is best for me?
o How do I sell shares?
o Can I exchange my shares for the shares of other First Investors Funds?
ACCOUNT POLICIES
o What about dividends and capital gain distributions?
o What about taxes?
o How do I obtain a complete explanation of all account privileges and
policies?
FINANCIAL HIGHLIGHTS
2
<PAGE>
OVERVIEW OF THE MID-CAP OPPORTUNITY FUND
What is the Mid-Cap Opportunity Fund?
Objective The Fund seeks long-term capital growth.
Primary
Investment
Strategies The Fund primarily invests in common stocks of companies that
have a medium market capitalization ("mid-cap") which offer the
potential for substantial long-term growth. These companies are
generally more established than smaller companies, yet are early
enough in their development to be still capable of increasing
their revenues and earnings at a strong rate. In selecting
stocks, the Fund will look for companies that have strong balance
sheets, experienced management, above average earnings growth
potential and stocks that are attractively priced relative to
their fundamental economic values.
Primary
Risks While the potential long-term rewards of investing in mid-cap
stocks are substantial, there are also substantial risks. Mid-cap
companies carry more risk because they generally rely on a
smaller number of products or services, their earnings tend to be
less predictable, and their stocks tend to be less liquid than
those of companies with large market capitalization
("large-cap"). Mid-cap stocks tend to experience sharper price
fluctuations than stocks of large-cap companies. These
fluctuations can be substantial. Accordingly, the value of your
investment in the Fund will go up and down, which means that you
could lose money.
Who should consider buying the Mid-Cap Opportunity Fund?
The Mid-Cap Opportunity Fund is most appropriately used to add
diversification to an investment portfolio. It may be appropriate
for you if you:
. Are seeking significant growth of capital,
. Are willing to accept higher than average market volatility,
and
. Have a long-term investment horizon and are able to ride out
market cycles.
You should keep in mind that the Mid-Cap Opportunity Fund is not
a complete investment program. For most investors, a complete
program should include not only stock funds but also bond
and money market funds. While stocks have historically
outperformed other categories of investments over long periods of
time, they generally carry higher risks. There have also been
extended periods during which bonds and money market instruments
have outperformed stocks. By allocating your assets among
different types of funds, you can reduce the overall risk of your
portfolio and benefit when bonds and money market instruments
outperform stocks. Of course, even a diversified investment
program can result in a loss.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
3
<PAGE>
How has the Mid-Cap Opportunity Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The Fund has two classes of shares, Class A shares and Class B shares. The bar
chart shows changes in the performance of the Fund's Class A shares from year to
year over the life of the Fund. The performance of Class B shares differs from
the performance of Class A shares shown in the bar chart only to the extent that
it does not have the same expenses. The bar chart does not reflect sales charges
that you may pay upon purchase or redemption of Fund shares. If they were
included, the returns would be less than those shown.
[Bar Chart of Changes in Performance of Class A Shares From 1992 to 1998,
With Following Plot Points:
8/24/92 - 12/31/92* 4.74%
1993 -0.89%
1994 0.50%
1995 24.40%
1996 15.34%
1997 18.57%
1998 -]
During the periods shown, the highest quarterly return was [17.03%] (for the
quarter ended [October 30, 1997]) and the lowest quarterly return was [-6.85%]
(for the quarter ended [December 31, 1997]). THE FUND'S PAST PERFORMANCE DOES
NOT NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
*This is the total return for the period shown. The total return has not been
annualized.
The table below shows how the average annual total returns for Class A shares
and Class B shares compare to those of the Standard & Poor's 400 Midcap Index
("S&P 400 Index"). This table assumes that the maximum sales charge or CDSC was
paid. The S&P 400 Index is an unmanaged index generally representative of the
U.S. market for medium cap stocks. The S&P 400 Index does not take into account
fees and expenses that an investor would incur in holding the securities in the
S&P 400 Index. If it did so, the returns would be lower than those shown.
Inception Inception
Class A Shares Class B Shares
1 Year* 5 Years* (8/24/92) (1/12/95)
Class A Shares 19.14% 11.09% 10.82% N/A
Class B Shares 21.12 N/A N/A 19.20%
S&P 400 Index 32.24 17.87 [ ] [ ]
*The annual returns are based upon calendar years.
4
<PAGE>
What are the fees and expenses of the Mid-Cap Opportunity Fund?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Class A Class B
Shares Shares
------- -------
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price).......... 6.25% None
Maximum deferred sales charge (load)
(as a percentage of the lower of purchase
price or redemption price)................... None* 4%**
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
Distribution Total Fee Waiver
and Service Annual Fund And/or
Management (12b-1) Other Operating Expense
Fees (1) Fees (2) Expenses(3) Expenses(4) Assumption Net Expenses
---------- ------------ ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Class A Shares ...... 1.00% 0.30% 0.67% 1.97% [0.47]% [1.50]%
Class B Shares ...... 1.00 1.00 0.67 2.67 [0.47]% [2.20]%
</TABLE>
*A contingent deferred sales charge of 1.00% will be assessed on certain
redemptions of Class A shares that are purchased without a sales charge.
**4% in the first year; declining to 0% after the sixth year.
(1) For the fiscal year ended September 30, 1998, the adviser waived
Management Fees in excess of [0.75%] for the Mid-Cap Opportunity Fund. The
Adviser has contractually entered with the Fund to waive the Management
Fees in excess of ___% for a period of twelve months commencing on _______.
(2) Because the Fund pays Rule 12b-1 fees, long-term shareholders could pay
more than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
(3) For the fiscal year ended September 30, 1998, the Adviser assumed for
each class of shares of Mid-Cap Opportunity Fund certain Other Expenses
that were in excess of [0.45%]. The Adviser has contractually agreed with
the Fund to assume Other Expenses in excess of ___% for a period of twelve
months commencing on _______.
(4) The Fund has an expense offset arrangement that may reduce the Fund's
custodian fee based on the amount of cash maintained by the Fund with its
custodian. Any such fee reductions are not reflected under Total Annual
Fund Operating Expenses.
EXAMPLE
This example helps you to compare the costs of investing in the Fund with the
cost of investing in other mutual funds. The example assumes that (1) you invest
$10,000 in the Fund for the time periods indicated; (2) your investment has a 5%
return each year; (3) the Fund's operating expenses for the one year period are
calculated net of fees waived and/or expenses assumed; and (4) the Fund's
operating expenses for the three year, five year and ten year periods do not
reflect fee waivers and/or expenses assumed. Although your actual costs may be
higher or lower, under these assumptions your costs would be:
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
If you redeem your shares:
Class A shares $812 $1,205 $1,621 $2,777
Class B shares 670 1,129 1,615 2,834*
5
<PAGE>
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
If you do not redeem your shares:
Class A shares $812 $1,205 $1,621 $2,777
Class B shares 270 829 1,415 2,834*
*Assumes conversion to Class A shares eight years after purchase.
THE MID-CAP OPPORTUNITY FUND IN DETAIL
What are the Mid-Cap Opportunity Fund's objectives, principal investment
strategies, and risks?
OBJECTIVES: The Fund seeks long-term capital growth.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in common stocks of companies that have a medium market capitalization
("mid-cap"). The Fund defines mid-cap stocks as those with market
capitalizations of less than 90% of the weighted market capitalization of the
S&P 400 Index (currently $7.6 billion). The Fund's definition of mid-cap will
change with market conditions. Mid-cap companies are generally more established
than smaller capitalization companies, yet are early enough in their development
to be still capable of increasing their revenues and earnings at a strong rate.
The Fund also may invest a small portion of its assets in stocks of companies
with small market capitalization ("small-cap") or in foreign securities.
The Fund uses a "bottom-up" approach to selecting investments. The Fund uses
fundamental research to search for stocks of companies that have strong balance
sheets, experienced management, above average earnings growth potential and
attractive prices relative to their fundamental economic values. The Fund
attempts to stay broadly diversified, but it may emphasize certain industry
sectors based upon economic and market conditions. The Fund will usually sell a
stock when the reason for holding it is no longer valid, it shows deteriorating
fundamentals, or it falls short of the portfolio manager's expectations.
Information on the Fund's recent strategies and holdings can be found in the
most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are some of the risks of owning the Mid-Cap Opportunity Fund:
MARKET RISK: Because the Fund invests in equity securities, it is subject to
stock market risk. Stock prices in general may decline over short or even
extended periods due to an economic downturn, a change in interest rates, or a
change in investor sentiment, regardless of the success or failure of an
individual company's operations. Stock markets tend to run in cycles with
periods when prices generally go up, known as "bull" markets, and periods when
stock prices generally go down, referred to as "bear" markets.
The market risk associated with mid-cap and small-cap stocks is generally
greater than that associated with large-cap stocks because mid-cap and small-cap
stocks tend to experience sharper price fluctuations than large-cap stocks,
particularly during bear markets. Their earnings tend to be less predictable
than those of larger, more established companies. The prices of these stocks can
also be influenced by the anticipation of future products and services which, if
delayed, could cause the prices to drop.
6
<PAGE>
GROWTH STOCK RISK: The Fund's focus on growth stocks increases the potential
volatility of its share price. Growth stocks are stocks of companies which are
expected to increase their earnings faster than the overall market. If
expectations are not met, the prices of these stocks may decline drastically
even if earnings do increase. Investments in growth companies may lack the
dividend yield that can cushion stock prices in market downturns.
LIQUIDITY: The stocks in which the Fund primarily invests are less liquid than
those of larger, more well-established companies. Securities of companies with
small-to-medium market capitalization often are not as broadly traded as those
of companies with larger market capitalization and are often subject to wider
price fluctuations. As a result, at times it may be difficult for the Fund to
sell these securities at a reasonable price.
FOREIGN SECURITIES: To a limited degree, the Fund may invest in foreign
securities. Foreign investments involve additional risks, including currency
fluctuations, political instability, differences in financial reporting
standards, and less stringent regulation of securities markets.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
Who manages the Mid-Cap Opportunity Fund?
First Investors Management Company, Inc. ("FIMCO") is the investment adviser to
the Fund. Its address is 95 Wall Street, New York, NY 10005. FIMCO has been
managing mutual funds since [1948]. It currently serves as investment adviser to
15 mutual funds or series of funds with total net assets of approximately $5
billion. FIMCO supervises all aspects of the Fund's operations and determines
the Fund's portfolio transactions. For the fiscal year ended September 30, 1998,
FIMCO received advisory fees of [0.75%] of the Fund's average daily net assets,
net of waiver.
Patricia D. Poitra, Director of Equities, serves as Portfolio Manager of the
Fund. Ms. Poitra is also responsible for the management of certain other First
Investors Funds. Ms. Poitra joined FIMCO in 1985 as a Senior Equity Analyst.
In addition to the investment risks of the Year 2000 which are discussed above,
the ability of FIMCO and its affiliates to price the Fund's shares, process
purchase and redemption orders, and render other services could be adversely
affected if the computers or other systems on which they rely are not properly
programmed to operate after January 1, 2000. Additionally, because the services
provided by FIMCO and its affiliates depend on the interaction of their computer
systems with the computer systems of brokers, information services and other
parties, any failure on the part of such third party computer systems to deal
with the Year 2000 may have a negative effect on the services provided to the
Fund. FIMCO and its affiliates are taking steps that they believe are reasonably
designed to address the Year 2000 problem for computer and other systems used by
them and are obtaining assurances that comparable steps are being taken by the
Fund's other service providers. However, there can be no assurance that these
steps will be sufficient to avoid any adverse impact on the Fund. Nor can the
Fund estimate the extent of any impact.
7
<PAGE>
How and when does the Mid-Cap Opportunity Fund price its shares?
The share price (which is called "net asset value" or "NAV" per share) for the
Fund is calculated once each day as of 4 p.m., Eastern Standard Time ("E.S.T."),
on each day the New York Stock Exchange ("NYSE") is open for regular trading. In
the event that the NYSE closes early, the share price will be determined as of
the time of the closing.
To calculate the NAV, the Fund's assets are valued and totaled, liabilities are
subtracted, and the balance, called net assets, is divided by the number of
shares outstanding. The prices or NAVs of Class A shares and Class B shares will
generally differ because they have different expenses.
In valuing its assets, the Fund uses the market value of securities for which
market quotations or last sale prices are readily available. If there are no
readily available quotations or last sale prices for an investment or the
available quotations are considered to be unreliable, the securities will be
valued at their fair value as determined in good faith pursuant to procedures
adopted by the Board of Directors of the Fund.
BUYING AND SELLING SHARES
How do I buy shares?
You may buy shares of the Fund through a First Investors registered
representative or through a registered representative of an authorized
broker-dealer ("Representative"). Your Representative will help you complete and
submit an application. Your initial investment must be at least $1,000. However,
we offer automatic investment plans that allow you to open a Fund account with
as little as $50. You also may open certain retirement plan accounts with as
little as $500 even without an automatic investment plan.
Subsequent investments may be made in any amount.
If we receive your application or order in our Woodbridge, N.J. offices in
correct form by 5 p.m., E.S.T., your transaction will be priced at that day's
NAV. If we receive it after 5 p.m., E.S.T., it will be priced at the next
business day's NAV. The procedures for processing transactions are explained in
more detail in our Shareholder Manual which is available upon request.
You can arrange to make systematic investments electronically from your bank
account or through payroll deduction. All the various ways you can buy shares
are explained in the Shareholder Manual. For further information on the
procedures for buying shares, please contact your Representative or call
Shareholder Services at 1-800-423-4026.
The Fund reserves the right to refuse any order to buy shares if the Fund
determines that doing so would be in the best interests of the Fund and its
shareholders.
Which class of shares is best for me?
The Fund has two classes of shares, Class A and Class B. While each class
invests in the same portfolio of securities, the classes have separate sales
charge and expense structures. Because of the different expense structures, each
class of shares generally will have different NAVs and dividends.
The principal advantages of Class A shares are the lower overall expenses, the
availability of quantity discounts on volume purchases and certain account
privileges that are available only on Class A shares. The principal advantage of
Class B shares is that all of your money is put to work from the outset.
Class A shares of the Fund are sold at the public offering price which includes
a front-end sales load. The sales charge declines with the size of your
purchase, as illustrated below.
8
<PAGE>
Class A Shares
Your investment Sales Charge as a Percentage of
-------------------------------
offering price net amount invested
Less than $25,000 6.25% 6.67%
$25,000-$49,999 5.75 6.10
$50,000-$99,999 5.50 5.82
$100,000-$249,999 4.50 4.71
$250,000-$499,999 3.50 3.63
$500,000-$999,999 2.50 2.56
$1,000,000 or more 0* 0*
*If you invest $1,000,000 or more in Class A shares, you will not pay a
front-end sales charge. However, if you make such an investment and then sell
your shares within 24 months of purchase, you will pay a contingent deferred
sales charge ("CDSC") of 1.00%.
Class B shares are sold at net asset value, without any initial sales charge.
However, you may pay a CDSC when you sell your shares. The CDSC declines the
longer you hold your shares, as illustrated below. Class B shares convert to
Class A shares after eight years.
Class B Shares
Year of Redemption CDSC as a Percentage of
------------------ Purchase Price
or NAV at Redemption
-----------------------
Within the 1st or 2nd year...... 4%
Within the 3rd or 4th year...... 3
In the 5th year................. 2
In the 6th year................. 1
Within the 7th year and 8th year 0
There is no CDSC on Class B shares which are acquired through reinvestment of
dividends or distributions. The CDSC is imposed on the lower of the original
purchase price or the net asset value of the shares being sold. For purposes of
determining the CDSC, all purchases made during a calendar month are counted as
having been made on the first day of that month at the average cost of all
purchases made during that month.
To keep your CDSC as low as possible, each time you place a request to sell
shares, we will first sell any shares in your account that carry no CDSC. If
there is an insufficient number of these shares to meet your request in full, we
will then sell those shares that have the lowest CDSC.
Sales charges and CDSCs may be reduced or waived under certain circumstances and
for certain groups. Consult your Representative or call us directly at
1-800-423-4026 for details.
The Fund has adopted a plan pursuant to Rule 12b-1 that allows the Fund to pay
distribution fees for the sale and distribution of its shares. Each class of
shares pays Rule 12b-1 fees for the marketing of fund shares and for services
provided to shareholders. The plans provide for payments at annual rates (based
on average daily net assets) of up to .30% on Class A shares and 1.00% on Class
B shares. This fee is paid monthly in arrears. Because these fees are paid out
of the Fund's assets on an on-going basis, the higher fees for Class B shares
will increase the cost of your investment and over time may cost you more than
paying the initial sales charge for Class A shares.
FOR ACTUAL PAST EXPENSES OF CLASS A AND CLASS B SHARES, SEE THE SECTION ENTITLED
"WHAT ARE THE FEES AND EXPENSES OF THE FUND?" IN THIS PROSPECTUS.
9
<PAGE>
Because of the lower overall expenses on Class A shares, we recommend Class A
shares for purchases in excess of $250,000 and will only sell Class A shares to
you if you are investing in excess of $1,000,000. For purchases below $250,000,
the class that is best for you generally depends upon the amount you invest,
your time horizon, and your preference for paying the sales charge initially or
later. If you fail to tell us what Class of shares you want, we will purchase
Class A shares for you.
How do I sell shares?
You may redeem your Fund shares on any day the Fund is open for business by:
. Contacting your Representative who will place a redemption order for
you;
. Sending a written redemption request to Administrative Data
Management Corp., ("ADM") at 581 Main Street, Woodbridge, N.J.
07095-1198;
. Telephoning the Special Services Department of ADM at 1-800-342-6221
(if you have elected to have telephone privileges); or
. Instructing us to make an electronic transfer to a predesignated bank
(if you have completed an application authorizing such transfers).
Your redemption request will be processed at the price next computed after we
receive the request in good order. For all requests, have your account number
available.
Payment of redemption proceeds generally will be made within 7 days. If you are
redeeming shares which you recently purchased by check, payment may be delayed
to verify that your check has cleared. This may take up to 15 days from the date
of your purchase. You may not redeem shares by telephone or Electronic Fund
Transfer unless you have owned the shares for at least 15 days.
If your account has a value of less than $500, the Fund may redeem all of your
shares without your consent. You will receive 60 days notice of the Fund's
intention to do this prior to the redemption. You may avoid this redemption by
purchasing additional Fund shares during this 60-day period to bring your
account balance to the required minimum. If you own Class B shares, you will not
be charged a CDSC on a low balance redemption. If you established your Fund
account under one of our automatic investment programs and discontinue payments
before you meet the $1,000 minimum, you will be subject to this redemption
policy.
The Fund reserves the right to make in-kind redemptions. This means that it
could respond to a redemption request by distributing shares of the Fund's
underlying investments rather than distributing cash.
Can I exchange my shares for the shares of other First Investors Funds?
You may exchange shares of the Fund for shares of other First Investors Funds
without paying any additional sales charge. You can only exchange within the
same class of shares (i.e., Class A to Class A). Consult your Representative or
call ADM at 1-800-423-4026 for details.
The Fund reserves the right to reject any exchange request that in the opinion
of the Fund is part of a market timing strategy. The Fund is designed for
long-term investment purposes. It is not intended to provide a vehicle for
short-term market timing. In the event that an exchange is rejected, neither the
redemption nor the purchase side of the exchange will be effected.
10
<PAGE>
ACCOUNT POLICIES
What about dividends and capital gain distributions?
To the extent that it has net investment income and net realized capital gains,
the Fund will declare and pay dividends from net investment income and will
distribute any net realized capital gains on an annual basis, usually the end of
the Fund's fiscal year. The Fund may make an additional distribution in any year
if necessary to avoid a Federal excise tax on certain undistributed income and
capital gain.
Dividends and other distributions paid on both classes of the Fund's shares are
calculated at the same time and in the same manner. Dividends on Class B shares
of the Fund are expected to be lower than those for its Class A shares because
of the higher distribution fees borne by the Class B shares. Dividends on each
class also might be affected differently by the allocation of other
class-specific expenses. In order to be eligible to receive a dividend or other
distribution, you must own Fund shares as of the close of business on the record
date of the distribution.
You may choose to reinvest all dividends and other distributions at NAV in
additional shares of the same class of the Fund or certain other First Investors
Funds, or receive all dividends and other distributions in cash. If you do not
select an option when you open your account, all dividends and other
distributions will be reinvested in additional shares of the Fund. If you do not
cash a distribution check and do not notify ADM to issue a new check within [ ]
months, the distribution will be reinvested in the Fund. If any correspondence
sent by the Fund is returned as "undeliverable," dividends and other
distributions automatically will be reinvested in the Fund. No interest will be
paid to you while a distribution remains uninvested.
A dividend or other distribution paid on a class of shares will only be paid in
additional shares of the distributing class if the total amount of the
distribution is under $5 or the Fund has received notice of your death (until
written alternate payment instructions and other necessary documents are
provided by your legal representative).
What about taxes?
Any dividends or capital gain distributions paid by the Fund are taxable to you
unless you hold your shares in an individual retirement account ("IRA"), 403(b)
account, or 401(k) account, or other tax-deferred account. Dividends (including
distributions of net short-term capital gains) are taxable to you as ordinary
income. Capital gain distributions (essentially, distributions of net long-term
capital gains) by the Fund are taxed to you as long-term capital gain,
regardless of how long you owned your Fund shares. You are taxed in the same
manner whether you receive your dividends and capital gains distributions in
cash or reinvest them in additional Fund shares. Your sale or exchange of Fund
shares may be considered a taxable event for you. Depending on the purchase
price and the sale price of the shares you sell or exchange, you may have a gain
or a loss on the transaction. You are responsible for any tax liabilities
generated by your transactions.
How do I obtain a complete explanation of all account privileges and
policies?
The Fund offers a full range of special privileges, including special investment
programs for group retirement plans, systematic investing programs, automatic
payroll investment programs, telephone privileges, check writing privileges, and
expedited redemptions by wire order or Automated Clearing House transfer. The
full range of privileges, and related policies, are described in a special
Shareholder Manual, which you may obtain on request. For more information on the
full range of services available, please contact your Representative or contact
us directly at 1-800-423-4026.
11
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the tables
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). The
information has been audited by Tait, Weller & Baker, whose report, along with
the Fund's financial statements, are included in the SAI, which is available
upon request.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
PER SHARE DATA
----------------------------------------------------------------------------------------------------
Income From Investment Operations Less Distributions from
--------------------------------- -----------------------
Net Realized
Net Asset and
Value Unrealized
--------- 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>
MID-CAP OPPORTUNITY FUND***
- ---------------------------
CLASS A
- -------
11/1/93 to 10/31/94........ $12.15 $.078 $(.326) $(.248) $.122 $--- $.122
11/1/94 to 10/31/95........ 11.78 .083 2.796 2.879 .079 --- .079
11/1/95 to 10/31/96........ 14.58 .042 1.564 1.606 .058 .838 .896
11/1/96 to 10/31/97........ 15.29 (.033) 4.021 3.988 .037 .681 .718
11/1/97 to 09/30/98........
CLASS B
- -------
1/12/95* to 10/31/95....... 12.03 (.011) 2.491 2.480 --- --- ---
11/1/95 to 10/31/96........ 14.51 .013 1.468 1.481 .053 .838 .891
11/1/96 to 10/31/97........ 15.10 (.077) 3.888 3.811 --- .681 .681
11/1/97 to 09/30/98.........
* Date Class B shares were first offered.
** Calculated without sales charges.
*** Prior to December 31, 1997, known as U.S.A. Mid-Cap Opportunity Fund and prior to February 15, 1996, known as
Made In The U.S.A. Fund.
+ Annualized.
++ Net of expenses waived or assumed.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
R A T I O S / S U P P L E M E N T A L D A T A
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to Average Net
Ratio to Average Net Asset Before Expenses
Assets++ Waived or Assumed
-------------------- ---------------------
Net Asset
Value Net Net Portfolio
--------- Total Net Assets Investment Investment Turnover
End Return** End of Period Expenses Income Expenses Income Rate
of Period (%) (in thousands) (%) (%) (%) (%) (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$11.78 (2.05) $7,651 .90 .45 2.32 (.97) 29
14.58 24.59 8,818 1.34 .48 2.36 (.55) 106
15.29 11.64 14,478 1.57 .36 2.15 (.21) 118
18.56 27.09 26,284 1.50 (.21) 1.94 (.65) 90
14.51 20.62 298 2.29+ (.03)+ 3.79+ (1.53)+ 106
15.10 10.80 1,168 2.30 (.37) 3.03 (1.10) 118
18.23 26.17 2,959 2.20 (.91) 2.64 (1.35) 90
</TABLE>
13
<PAGE>
[FIRST INVESTORS LOGO]
FIRST INVESTORS MID-CAP OPPORTUNITY FUND
For investors who want more information about the Fund, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS: Additional information about the Fund's investments
is available in the Fund's annual and semi-annual reports to shareholders. In
the Fund's annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected the Fund's performance
during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Fund and is incorporated into this prospectus.
SHAREHOLDER MANUAL: The Shareholder Manual provides more detailed information
about the
purchase, redemption and sale of Fund shares.
You can get free copies of reports, the SAI and the Shareholder Manual, request
other information and discuss your questions about the Fund by contacting your
Representative, or by contacting the Fund at:
Administrative Data Management Corp.
581 Main Street
Woodbridge, NJ 07095-1198
Telephone: 1-800-423-4026
You can review and copy information about the Fund for a fee (including the
Fund's reports, Shareholder Manual and SAI) at the Public Reference Room of the
Securities and Exchange Commission ("SEC") in Washington, D.C. You can also send
your request and a duplicating fee to the Public Reference Room of the SEC,
Washington, DC 20549-6009. You can obtain information on the operation of the
Public Reference Room by calling 1-800-SEC-0330. Text-only versions of Fund
documents can be viewed online or downloaded from the SEC's Internet website at
http://www.sec.gov.
(Investment Company Act File No:
First Investors Mid-Cap Opportunity Fund 811-
6618)
<PAGE>
[FIRST INVESTORS LOGO
FIRST INVESTORS UTILITIES INCOME FUND
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
The date of this prospectus is February ___, 1999
<PAGE>
CONTENTS
OVERVIEW OF THE UTILITIES INCOME FUND
o What is the Utilities Income Fund?
oo Objectives
oo Primary Investment Strategies
oo Primary Risks
o Who should consider buying the Utilities Income Fund?
o How has the Utilities Income Fund performed?
o What are the fees and expenses of the Utilities Income Fund?
THE UTILITIES INCOME FUND IN DETAIL
o What are the Utilities Income Fund's objectives, principal investment
strategies and principal risks?
o Who manages the Utilities Income Fund?
o How and when does the Utilities Income Fund price its shares?
BUYING AND SELLING SHARES
o How do I buy shares?
o Which class of shares is best for me?
o How do I sell shares?
o Can I exchange my shares for the shares of other First Investors Funds?
ACCOUNT POLICIES
o What about dividends and capital gain distributions?
o What about taxes?
o How do I obtain a complete explanation of all account privileges and
policies?
FINANCIAL HIGHLIGHTS
2
<PAGE>
OVERVIEW OF THE UTILITIES INCOME FUND
What is the Utilities Income Fund?
Objectives The Fund primarily seeks high current income and secondarily
long-term capital appreciation.
Primary
Investment
Strategies The Fund primarily invests in stocks of public utilities
companies ("utilities stocks"). While the Fund attempts to
diversify across all sectors of the utilities industry (i.e.,
electric, gas, telecommunications and water), from time to time
it will emphasize one or more sectors based on the outlook for
the various sectors.
Primary
Risks While utilities stocks tend to be regarded as less volatile than
other stocks, like all stocks they fluctuate in value in response
to movements in the overall securities markets, general economic
conditions, and changes in interest rates or investor sentiment.
Because the Fund concentrates its investments in public utilities
stocks, the value of its shares will be particularly affected by
events that impact on the utilities industry, such as changes in
public utilities regulation, changes in weather, and changes in
interest rates. An investment in the Fund could decline in value
even if the market as a whole does well. Accordingly, the value
of your investment in the Fund will go up and down, which means
that you could lose money.
Who should consider buying the Utilities Income Fund?
The Utilities Income Fund is most appropriately used to add
diversification to an investment portfolio. It may be appropriate
for you if you:
. Are seeking income and growth of capital,
. Are willing to accept a moderate degree of market volatility,
and
. Have along-term investment horizon and are able to ride out
market cycles.
You should keep in mind that the Utilities Income Fund is not a
complete investment program. For most investors, a complete
program should include not only stock funds but also bond
and money market funds. While stocks have historically
outperformed other categories of investments over long periods of
time, they generally carry higher risks. There have also been
extended periods during which bonds and money market instruments
have outperformed stocks. By allocating your assets among
different types of funds, you can reduce the overall risk of your
portfolio and benefit when bonds and money market instruments
outperform stocks. Of course, even a diversified investment
program can result in a loss.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
3
<PAGE>
How has the Utilities Income Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The Fund has two classes of shares, Class A shares and Class B shares. The bar
chart shows changes in the performance of the Fund's Class A shares from year to
year over the life of the Fund. The performance of Class B shares differs from
the performance of Class A shares shown in the bar chart only to the extent that
it does not have the same expenses. The bar chart does not reflect sales charges
that you may pay upon purchase or redemption of Fund shares. If they were
included, the returns would be less than those shown.
[Bar Chart of Changes in Performance of Class A Shares From 1993 to 1998, with
Following Plot Points:
2/22/93 - 12/31/93* 4.43%
1994 -8.50%
1995 32.20%
1996 7.63%
1997 24.01%
1998 -]
During the periods shown, the highest quarterly return was [12.13%] (for the
quarter ended [December 31, 1997]) and the lowest quarterly return was [-7.56%]
(for the quarter ended [March 31, 1994]). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
*This is the total return for the period shown. The total return has not been
annualized.
The table below shows how the average annual total returns for Class A shares
and Class B shares compare to those of the Standard & Poor's 500 Composite Stock
Price Index ("S&P 500 Index") and the Standard and Poor's Utilities Index ("S&P
Utilities Index"). This table assumes that the maximum sales charge or CDSC was
paid. The S&P 500 Index is an unmanaged index generally representative of the
market for the stocks of large-sized U.S. companies. The S&P Utilities Index is
a capitalization-weighted index of 37 stocks designed to measure the performance
of the utilities sector of the S&P 500 Index. The indices do not take into
account fees and expenses that an investor would incur in holding the securities
in the indices. If they did so, the returns would be lower than those shown.
4
<PAGE>
Inception Inception
Class A Shares Class B Shares
1 Year* (2/22/93) (1/12/95)
Class A Shares 5.77% 7.18% N/A
Class B Shares 7.57 N/A 15.02%
S&P 500 33.37 [ ] [ ]
S&P Utilities** 24.75 [ ] [ ]
*The annual returns are based upon calendar years.
**This Index is used to show how the Fund's performance compares with the
returns of an index of stocks in market sectors in which the Fund may invest.
What are the fees and expenses of the Utilities Income Fund?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Class A Class B
Shares Shares
------- -------
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price).......... 6.25% None
Maximum deferred sales charge (load)
(as a percentage of the lower of purchase
price or redemption price)................... None* 4%**
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
Distribution Total Fee Waiver
and Service Annual Fund And/or
Management (12b-1) Other Operating Expense Net
Expenses Fees (1) Expenses Expenses(2) Assumption Expenses
---------- ------------ -------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Class A Shares ...... 0.75% 0.30% 0.43% 1.48% N/A N/A
Class B Shares ...... 0.75 1.00 0.43 2.18 N/A N/A
</TABLE>
*A contingent deferred sales charge of 1.00% will be assessed on certain
redemptions of Class A shares that are purchased without a sales charge.
**4% in the first year; declining to 0% after the sixth year.
(1) Because the Fund pays Rule 12b-1 fees, long-term shareholders could pay
more than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
(2) The Fund has an expense offset arrangement that may reduce the Fund's
custodian fee based on the amount of cash maintained by the Fund with its
custodian. Any such fee reductions are not reflected under Total Annual
Fund Operating Expenses.
EXAMPLE
This example helps you to compare the costs of investing in the Fund with the
cost of investing in other mutual funds. The example assumes that (1) you invest
$10,000 in the Fund for the time periods indicated; (2) your investment has a 5%
return each year; and (3) the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, under these assumptions your
costs would be:
5
<PAGE>
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
If you redeem your shares:
Class A shares $766 $1,064 $1,382 $2,283
Class B shares 621 982 1,369 2,342*
If you do not redeem your shares:
Class A shares $766 $1,064 $1,382 $2,283
Class B shares 221 682 1,169 2,342*
*Assumes conversion to Class A shares eight years after purchase.
THE UTILITIES INCOME FUND IN DETAIL
What are the Utilities Income Fund's objectives, principal investment
strategies, and risks?
OBJECTIVES: The Fund primarily seeks high current income and secondarily
long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in utilities stocks. These are stocks of companies which are primarily
engaged in owning or operating facilities used to provide electricity, gas,
water or telecommunications (including telephone, telegraph and satellite, but
not public broadcasting or cable television). The Fund may invest up to 10% of
its assets in the stocks of foreign utilities companies. The Fund also may
invest in debt securities.
While the Fund attempts to diversify across all utilities sectors, it may
emphasize a particular sector based on that sector's yield, price to earnings
ratio, economic trends, and the regulatory environment. The Fund uses a
"top-down" approach to selecting investments. This means that it first decides
on how much of its assets to allocate to each sector of the utilities market and
then identifies potential investments for each sector through fundamental
research and analysis.
In selecting securities, the Fund will consider a stock's dividend potential,
its price to earnings ratio, the company's management, the company's ratio of
international to domestic earnings, the company's future strategies, and
external factors such as demographics and mergers and acquisitions prospects.
The Fund typically sells a security when its issuer shows deteriorating
fundamentals, it falls short of the manager's expectations or there is a change
in economic trends. Information on the Fund's recent strategies and holdings can
be found in the most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of the investment, the greater the risk. Here
are some of the risks of owning the Utilities Income Fund:
MARKET RISK: Because this Fund invests in stocks, it is subject to stock market
risk. Stock prices in general may decline over short or even extended periods
due to an economic downturn, a change in interest rates, or a change in investor
sentiment, regardless of the success or failure of an individual company's
operations. Stock markets tend to run in cycles with periods when prices
generally go up, known as "bull" markets, and periods when stock prices
generally go down, referred to as "bear" markets. While utilities stocks have
long been thought of as being less volatile than other stocks, like all stocks
they fluctuate in value. As the utilities industry has begun to deregulate and
earnings have become less predictable, utilities stocks have begun to have price
fluctuations which are more like other stocks.
INDUSTRY CONCENTRATION RISK: Because the Fund concentrates its investments in
public utilities companies, the value of its shares will be especially affected
6
<PAGE>
by events that are peculiar to or have a greater impact on the utilities
industry. Utilities companies, especially electric and gas and other
energy-related utilities companies, have historically been subject to the risk
of increases in fuel and other operating costs, changes in weather patterns,
changes in interest rates, changes in applicable laws and regulations, and costs
and operating constraints associated with compliance with environmental
regulations. Utilities stocks therefore may decline in value even if the overall
market is doing well.
SECTOR CONCENTRATION RISK: Because the Fund may concentrate its portfolio in one
sector of the utilities industry, its share value could decline if one sector of
the utilities industry does poorly even if the industry does well as a whole.
DEREGULATION/COMPETITION: Regulatory changes in the United States have
increasingly allowed utilities companies to provide services and products
outside their traditional geographical areas and lines of business, creating
competitors and new areas of competition. As a result, certain utilities
companies earn more than their traditional, regulated rates of return, while
others are forced to defend their core business from competition and are less
profitable. Some utilities companies may not be able to recover the costs of
facilities built or acquired prior to the date of deregulation. This is known as
the "stranded assets" problem.
FOREIGN SECURITIES: To a limited degree, the Fund may invest in foreign
securities. Foreign investments involve additional risks, including currency
fluctuations, political instability, differences in financial reporting
standards, and less stringent regulation of securities markets.
INTEREST RATE RISK: Utilities stocks tend to be more interest rate sensitive
than other stocks. As interest rates increase, utilities stocks tend to decline
in value.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
OTHER RISKS: Changes in weather patterns or regional weather circumstances may
affect the ability of the utilities industry, a sector of the industry, or
certain utilities companies to meet supply and demand.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
Who manages the Utilities Income Fund?
First Investors Management Company, Inc. ("FIMCO") is the investment adviser to
the Fund. Its address is 95 Wall Street, New York, NY 10005. FIMCO has been
managing mutual funds since [1948]. It currently serves as investment adviser to
[15] mutual funds or series of funds with total net assets of approximately $5
billion. FIMCO supervises all aspects of the Fund's operations and determines
the Fund's portfolio transactions. For the fiscal year ended September 30, 1998,
FIMCO received advisory fees of [0.70%] of the Fund's average daily net assets,
net of waiver.
Matthew S. Wright serves as Portfolio Manager of the Fund. Mr. Wright is also
the Portfolio Manager for the Utilities Income Fund of First Investors Life
Series Fund. Mr. Wright joined FIMCO in February 1996 as an Equity Analyst. From
May 1995 to January 1996, Mr. Wright was an Analyst at Fuji Bank. From June 1994
7
<PAGE>
to April 1995, he was Market Editor of BLOOMBERG MAGAZINE and from September
1991 to June 1994, he was Editor/Reporter for BLOOMBERG BUSINESS NEWS.
In addition to the investment risks of the Year 2000 which are disclosed above,
the ability of FIMCO and its affiliates to price the Fund's shares, process
purchase and redemption orders, and render other services could be adversely
affected if the computers or other systems on which they rely are not properly
programmed to operate after January 1, 2000. Additionally, because the services
provided by FIMCO and its affiliates depend on the interaction of their computer
systems with the computer systems of brokers, information services and other
parties, any failure on the part of such third party computer systems to deal
with the Year 2000 may have a negative effect on the services provided to the
Fund. FIMCO and its affiliates are taking steps that they believe are reasonably
designed to address the Year 2000 problem for computer and other systems used by
them and are obtaining assurances that comparable steps are being taken by the
Fund's other service providers. However, there can be no assurance that these
steps will be sufficient to avoid any adverse impact on the Fund. Nor can the
Fund estimate the extent of any impact.
How and when does the Utilities Income Fund price its shares?
The share price (which is called "net asset value" or "NAV" per share) for the
Fund is calculated once each day as of 4 p.m., Eastern Standard Time ("E.S.T."),
on each day the New York Stock Exchange ("NYSE") is open for regular trading. In
the event that the NYSE closes early, the share price will be determined as of
the time of the closing.
To calculate the NAV, the Fund's assets are valued and totaled, liabilities are
subtracted, and the balance, called net assets, is divided by the number of
shares outstanding. The prices or NAVs of Class A shares and Class B shares will
generally differ because they have different expenses.
In valuing its assets, the Fund uses the market value of securities for which
market quotations or last sale prices are readily available. If there are no
readily available quotations or last sale prices for an investment or the
available quotations are considered to be unreliable, the securities will be
valued at their fair value as determined in good faith pursuant to procedures
adopted by the Board of Directors of the Fund.
BUYING AND SELLING SHARES
How do I buy shares?
You may buy shares of the Fund through a First Investors registered
representative or through a registered representative of an authorized
broker-dealer ("Representative"). Your Representative will help you complete and
submit an application. Your initial investment must be at least $1,000. However,
we offer automatic investment plans that allow you to open a Fund account with
as little as $50. You also may open certain retirement plan accounts with as
little as $500 even without an automatic investment plan.
Subsequent investments may be made in any amount.
If we receive your application or order in our Woodbridge, N.J. offices in
correct form by 5 p.m., E.S.T., your transaction will be priced at that day's
NAV. If we receive it after 5 p.m., E.S.T., it will be priced at the next
business day's NAV. The procedures for processing transactions are explained in
more detail in our Shareholder Manual which is available upon request.
You can arrange to make systematic investments electronically from your bank
account or through payroll deduction. All the various ways you can buy shares
are explained in the Shareholder Manual. For further information on the
procedures for buying shares, please contact your Representative or call
Shareholder Services at 1-800-423-4026.
The Fund reserves the right to refuse any order to buy shares if the Fund
determines that doing so would be in the best interests of the Fund and its
shareholders.
8
<PAGE>
Which class of shares is best for me?
The Fund has two classes of shares, Class A and Class B. While each class
invests in the same portfolio of securities, the classes have separate sales
charge and expense structures. Because of the different expense structures, each
class of shares generally will have different NAVs and dividends.
The principal advantages of Class A shares are the lower overall expenses, the
availability of quantity discounts on volume purchases and certain account
privileges that are available only on Class A shares. The principal advantage of
Class B shares is that all of your money is put to work from the outset.
Class A shares of the Fund are sold at the public offering price which includes
a front-end sales load. The sales charge declines with the size of your
purchase, as illustrated below.
Class A Shares
Your investment Sales Charge as a percentage of
-------------------------------
offering price net amount invested
Less than $25,000 6.25% 6.67%
$25,000-$49,999 5.75 6.10
$50,000-$99,999 5.50 5.82
$100,000-$249,999 4.50 4.71
$250,000-$499,999 3.50 3.63
$500,000-$999,999 2.50 2.56
$1,000,000 or more 0* 0*
*If you invest $1,000,000 or more in Class A shares, you will not pay a
front-end sales charge. However, if you make such an investment and then sell
your shares within 24 months of purchase, you will pay a contingent deferred
sales charge ("CDSC") of 1.00%.
Class B shares are sold at net asset value, without any initial sales charge.
However, you may pay a CDSC when you sell your shares. The CDSC declines the
longer you hold your shares, as illustrated below. Class B shares convert to
Class A shares after eight years.
Class B Shares
Year of Redemption CDSC as a Percentage of
------------------ Purchase Price or
NAV at Redemption
-----------------------
Within the 1st or 2nd year...... 4%
Within the 3rd or 4th year...... 3
In the 5th year................. 2
In the 6th year................. 1
Within the 7th and 8th year..... 0
There is no CDSC on Class B shares which are acquired through reinvestment of
dividends or distributions. The CDSC is imposed on the lower of the original
purchase price or the net asset value of the shares being sold. For purposes of
determining the CDSC, all purchases made during a calendar month are counted as
having been made on the first day of that month at the average cost of all
purchases made during that month.
9
<PAGE>
To keep your CDSC as low as possible, each time you place a request to sell
shares, we will first sell any shares in your account that carry no CDSC. If
there is an insufficient number of these shares to meet your request in full, we
will then sell those shares that have the lowest CDSC.
Sales charges and CDSCs may be reduced or waived under certain circumstances and
for certain groups. Consult your Representative or call us directly at
1-800-423-4026 for details.
The Fund has adopted a plan pursuant to Rule 12b-1 that allows the Fund to pay
distribution fees for the sale and distribution of its shares. Each class of
shares pays Rule 12b-1 fees for the marketing of fund shares and for services
provided to shareholders. The plans provide for payments at annual rates (based
on average daily net assets) of up to .30% on Class A shares and 1.00% on Class
B shares. This fee is paid monthly in arrears. Because these fees are paid out
of the Fund's assets on an on-going basis, the higher fees for Class B shares
will increase the cost of your investment and over time may cost you more than
paying the initial sales charge for Class A shares.
FOR ACTUAL PAST EXPENSES OF CLASS A AND CLASS B SHARES, SEE THE SECTION ENTITLED
"WHAT ARE THE FEES AND EXPENSES OF THE FUND?" IN THIS PROSPECTUS.
Because of the lower overall expenses on Class A shares, we recommend Class A
shares for purchases in excess of $250,000 and will only sell Class A shares to
you if you are investing in excess of $1,000,000. For purchases below $250,000,
the class that is best for you generally depends upon the amount you invest,
your time horizon, and your preference for paying the sales charge initially or
later. If you fail to tell us what Class of shares you want, we will purchase
Class A shares for you.
How do I sell shares?
You may redeem your Fund shares on any day the Fund is open for business by:
. Contacting your Representative who will place a redemption order for
you;
. Sending a written redemption request to Administrative Data Management
Corp., ("ADM") at 581 Main Street, Woodbridge, NJ 07095-1198;
. Telephoning the Special Services Department of ADM at 1-800-342-6221
(if you have elected to have telephone privileges); or
. Instructing us to make an electronic transfer to a predesignated bank
(if you have completed an application authorizing such transfers).
Your redemption request will be processed at the price next computed after we
receive the request in good order. For all requests, have your account number
available.
Payment of redemption proceeds generally will be made within 7 days. If you are
redeeming shares which you recently purchased by check, payment may be delayed
to verify that your check has cleared. This may take up to 15 days from the date
of your purchase. You may not redeem shares by telephone or Electronic Fund
Transfer unless you have owned the shares for at least 15 days.
If your account has a value of less than $500, the Fund may redeem all of your
shares without your consent. You will receive 60 days notice of the Fund's
intention to do this prior to the redemption. You may avoid this redemption by
purchasing additional Fund shares during this 60-day period to bring your
account balance to the required minimum. If you own Class B shares, you will not
be charged a CDSC on a low balance redemption. If you established your Fund
account under one of our automatic investment programs and discontinue payments
before you meet the $1,000 minimum, you will be subject to this redemption
policy.
10
<PAGE>
The Fund reserves the right to make in-kind redemptions. This means that it
could respond to a redemption request by distributing shares of the Fund's
underlying investments rather than distributing cash.
Can I exchange my shares for the shares of other First Investors Funds?
You may exchange shares of the Fund for shares of other First Investors Funds
without paying any additional sales charge. You can only exchange within the
same class of shares (i.e., Class A to Class A). Consult your Representative or
call ADM at 1-800-423-4026 for details.
The Fund reserves the right to reject any exchange request that in the opinion
of the Fund is part of a market timing strategy. The Fund is designed for
long-term investment purposes. It is not intended to provide a vehicle for
short-term market timing. In the event that an exchange is rejected, neither the
redemption nor the purchase side of the exchange will be effected.
ACCOUNT POLICIES
What about dividends and capital gain distributions?
To the extent that it has net investment income, the Fund will declare and pay
dividends from net investment income on a quarterly basis. Any net realized
capital gains will be declared and distributed on an annual basis, usually after
the end of the Fund's fiscal year. The Fund may make an additional distribution
in any year if necessary to avoid a Federal excise tax on certain undistributed
income and capital gain.
Dividends and other distributions paid on both classes of the Fund's shares are
calculated at the same time and in the same manner. Dividends on Class B shares
of the Fund are expected to be lower than those for its Class A shares because
of the higher distribution fees borne by the Class B shares. Dividends on each
class also might be affected differently by the allocation of other
class-specific expenses. In order to be eligible to receive a dividend or other
distribution, you must own Fund shares as of the close of business on the record
date of the distribution.
You may choose to reinvest all dividends and other distributions at NAV in
additional shares of the same class of the Fund or certain other First Investors
Funds, or receive all dividends and other distributions in cash. If you do not
select an option when you open your account, all dividends and other
distributions will be reinvested in additional shares of the Fund. If you do not
cash a distribution check and do not notify ADM to issue a new check within [ ]
months, the distribution will be reinvested in the Fund. If any correspondence
sent by the Fund is returned as "undeliverable," dividends and other
distributions automatically will be reinvested in the Fund. No interest will be
paid to you while a distribution remains uninvested.
A dividend or other distribution paid on a class of shares of a Fund will only
be paid in additional shares of the distributing class if the total amount of
the distribution is under $5 or the Fund has received notice of your death
(until written alternate payment instructions and other necessary documents are
provided by your legal representative).
What about taxes?
Any dividends or capital gains distributions paid by the Fund are taxable to you
unless you hold your shares in an individual retirement account ("IRA"), 403(b)
account, 401(k) account, or other tax-deferred account. Dividends (including
distributions of net short-term capital gains) are taxable to you as ordinary
income. Capital gain distributions (essentially, distributions of net long-term
capital gains) by the Fund are taxed to you as long-term capital gain,
regardless of how long you owned your Fund shares. You are taxed in the same
11
<PAGE>
manner whether you receive your dividends and capital gain distributions in cash
or reinvest them in additional Fund shares. Your sale or exchange of Fund shares
may be a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
How do I obtain a complete explanation of all account privileges and policies?
The Fund offers a full range of special privileges, including special investment
programs for group retirement plans, systematic investing programs, automatic
payroll investment programs, telephone privileges, check writing privileges, and
expedited redemptions by wire order or Automated Clearing House transfer. The
full range of privileges, and related policies, are described in a special
Shareholder Manual, which you may obtain on request. For more information on the
full range of services available, please contact your Representative or contact
us directly at 1-800-423-4026.
12
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the tables
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). The
information has been audited by Tait, Weller & Baker, whose report, along with
the Fund's financial statements, are included in the SAI, which is available
upon request.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
PER SHARE DATA
----------------------------------------------------------------------------------------------------
Income From Investment Operations Less Distributions from
--------------------------------- -----------------------
Net Realized
Net Asset and
Value Unrealized Total
--------- Net Gain (Loss) 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>
UTILITIES INCOME FUND
- ---------------------
CLASS A
- -------
11/1/93 to 10/31/94........ $5.92 $.239 $(.839) $(.600) $.227 $.013 $.240
11/1/94 to 10/31/95........ 5.08 .233 .822 1.055 .235 -- .235
11/1/95 to 10/31/96........ 5.90 .214 .512 .726 .216 -- .216
11/1/96 to 10/31/97........ 6.41 .204 .609 .813 .193 -- .193
11/1/97 to 09/30/98.........
CLASS B
- -------
1/12/95* to 10/31/95....... 4.95 .144 .930 1.074 .164 -- .164
11/1/95 to 10/31/96........ 5.86 .185 .489 .674 .184 -- .184
11/1/96 to 10/31/97........ 6.35 .153 .606 .759 .149 -- .149
11/1/97 to 09/30/98.........
* Date Class B shares were first offered.
** Calculated without sales charges.
+ Annualized.
++ Net of expenses waived or assumed.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
R A T I O S / S U P P L E M E N T A L D A T A
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to Average Net
Ratio to Average Net Asset Before Expenses
Assets++ Waived or Assumed
-------------------- ---------------------
Net Asset
Value Net Net Portfolio
--------- Total Net Assets Investment Investment Turnover
End Return** End of Period Expenses Income Expenses Income Rate
of Period (%) (in thousands) (%) (%) (%) (%) (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$5.08 (10.15) $62,671 .80 4.59 1.59 3.80 58
5.90 21.35 83,691 1.04 4.37 1.57 3.84 16
6.41 12.45 104,029 1.20 3.49 1.49 3.19 38
7.03 12.86 101,834 1.40 2.98 1.48 2.90 60
5.86 21.99 3,209 1.82+ 4.93+ 2.53+ 4.21+ 16
6.35 11.61 7,670 1.91 2.77 2.28 2.40 38
6.96 12.08 9,338 2.10 2.28 2.18 2.20 60
</TABLE>
14
<PAGE>
[FIRST INVESTORS LOGO]
FIRST INVESTORS UTILITIES INCOME FUND
For investors who want more information about the Fund, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS: Additional information about the Fund's investments
is available in the Fund's annual and semi-annual reports to shareholders. In
the Fund's annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected the Fund's performance
during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Fund and is incorporated into this prospectus.
SHAREHOLDER MANUAL: The Shareholder Manual provides more detailed information
about the purchase, redemption and sale of Fund shares.
You can get free copies of reports, the SAI and the Shareholder Manual, request
other information and discuss your questions about the Fund by contacting your
Representative, or by contacting the Fund at:
Administrative Data Management Corp.
581 Main Street
Woodbridge, NJ 07095-1198
Telephone: 1-800-423-4026
You can review and copy information about the Fund for a fee (including the
Fund's reports, Shareholder Manual and SAI) at the Public Reference Room of the
Securities and Exchange Commission ("SEC") in Washington, D.C. You can also send
your request and a duplicating fee to the Public Reference Room of the SEC,
Washington, DC 20549-6009. You can obtain information on the operation of the
Public Reference Room by calling 1-800-SEC-0330. Text-only versions of Fund
documents can be viewed online or downloaded from the SEC's Internet website at
http://www.sec.gov.
(Investment Company Act File No: First
Investors Utilities Income Fund 811-6618)
<PAGE>
FIRST INVESTORS SERIES FUND II, INC.
GROWTH & INCOME FUND
MID-CAP OPPORTUNITY FUND
UTILITIES INCOME FUND
FIRST INVESTORS SERIES FUND
BLUE CHIP FUND
SPECIAL SITUATIONS FUND
TOTAL RETURN FUND
FIRST INVESTORS GLOBAL FUND, INC.
95 Wall Street
New York, New York 10005
1-800-423-4026
STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY __, 1999
This is a Statement of Additional Information ("SAI") for FIRST
INVESTORS SERIES FUND II, INC. ("SERIES FUND II"), FIRST INVESTORS SERIES FUND
("SERIES FUND") and FIRST INVESTORS GLOBAL FUND, INC. ("GLOBAL FUND"), each an
open-end diversified management investment company. SERIES FUND II offers three
separate series, each of which has different investment objectives and policies:
FIRST INVESTORS GROWTH & INCOME FUND, FIRST INVESTORS MID-CAP OPPORTUNITY FUND
and FIRST INVESTORS UTILITIES INCOME FUND. SERIES FUND offers five separate
series, three of which are described in this SAI and each of which has different
investment objectives and policies: FIRST INVESTORS BLUE CHIP FUND, FIRST
INVESTORS SPECIAL SITUATIONS FUND and FIRST INVESTORS TOTAL RETURN FUND. GLOBAL
Fund offers one series. (Each series is referred to as a "Fund").
This SAI is not a prospectus. It should be read in conjunction with the
Funds' Prospectus dated February__, 1999 which may be obtained free of cost from
the Funds at the address or telephone number noted above. Information regarding
the purchase, redemption and exchange of your Fund shares is contained in the
Shareholder Manual, a separate section of the SAI that is a distinct document
and may also be obtained free of charge by contacting your Fund at the address
or telephone number noted above.
TABLE OF CONTENTS
PAGE
Investment Strategies and Risks..............................................
Investment Policies..........................................................
Futures and Options Strategies...............................................
Portfolio Turnover...........................................................
Investment Restrictions......................................................
Directors/Trustees and Officers..............................................
Management...................................................................
Underwriter..................................................................
Distribution Plans...........................................................
Determination of Net Asset Value.............................................
Allocation of Portfolio Brokerage............................................
Purchase, Redemption and Exchange of Shares..................................
Taxes........................................................................
Performance Information......................................................
General Information..........................................................
Appendix A...................................................................
Appendix B...................................................................
Appendix C...................................................................
Financial Statements.........................................................
Shareholder Manual: A Guide to your First Investors Mutual Fund Account.....
<PAGE>
INVESTMENT STRATEGIES AND RISKS
GROWTH & INCOME FUND
The Fund seeks its objective by investing, under normal market
conditions, at least 65% of its total assets in securities that provide the
potential for growth and offer income, such as dividend-paying stocks and
securities convertible into common stock. The portion of the Fund's assets
invested in equity securities and in debt securities may vary from time to time
due to changes in interest rates and economic and other factors. The Fund is not
designed for investors seeking a steady flow of income distributions. Rather,
the Fund's policy of investing in income producing securities is intended to
provide investors with a more consistent total return than may be achieved by
investing solely in growth stocks.
The convertible debt securities in which the Fund may invest are not
subject to any limitations as to ratings and may include high, medium, lower and
unrated securities. Although the Fund may invest up to 20% of its total assets
in convertible debt securities rated below Baa by Moody's Investors Service,
Inc. ("Moody's") or BBB by Standard & Poor's Ratings Group ("S&P") (including
convertible debt securities that have been downgraded), or in unrated
convertible debt securities that are of comparable quality as determined by
First Investors Management Company, Inc. ("FIMCO" or "Adviser"), it does not
anticipate investing more than 5% of its total net assets in such securities in
the coming year. Convertible debt securities rated lower than BBB by S&P or Baa
by Moody's, commonly referred to as "junk bonds," are speculative and generally
involve a higher risk of loss of principal and income than higher-rated
securities. See "Debt Securities," below, and Appendix A for a description of
convertible debt security ratings.
The Fund may invest up to 35% of its total assets in the following
instruments: money market instruments, including U.S. bank certificates of
deposit, bankers' acceptances, commercial paper issued by domestic corporations
and repurchase agreements; fixed income securities, including obligations issued
or guaranteed as to principal and interest by the U.S. Government, its agencies
or instrumentalities ("U.S. Government Obligations"), including mortgage-backed
securities, and corporate debt securities rated at least Baa by Moody's or BBB
by S&P, commonly known as "investment grade securities" or unrated securities
that are of comparable quality as determined by the Adviser; and common stock
and securities convertible into common stock of companies that are not paying a
dividend if there exists the potential for growth of capital or future income.
It is the Fund's policy to attempt to sell, within a reasonable time period, a
debt security which has been downgraded below investment grade (other than
convertible debt securities, as previously discussed), provided that such
disposition is in the best interests of the Fund and its shareholders. See "Debt
Securities," below, and Appendix A for a description of corporate and
convertible debt security ratings.
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
2
<PAGE>
business history or historical pattern of performance, as well as normal risks
which accompany the development of new products, markets or services.
The Fund may invest up to 20% of its total assets in securities of
well-established foreign companies in developed countries which are traded on a
recognized domestic or foreign securities exchange. Although such foreign
securities may be denominated in foreign currencies, the Fund anticipates that
the majority of its foreign investments will be in American Depository Receipts
("ADRs") and Global Depository Receipts ("GDRs"). See "Foreign Securities" and
"American Depository Receipts and Global Depository Receipts," below. While the
Fund may enter into forward currency contracts to protect against uncertainty in
the level of future exchange rates, it does not currently intend to use this
authority. In any event, the Adviser will not attempt to time actively either
short-term market trends or short-term currency trends in any market. See
"Futures and Options Strategies."
The Fund may also borrow money for temporary or emergency purposes in
amounts not exceeding 5% of its net assets, make loans of portfolio securities
and invest in securities issued on a "when-issued" or delayed delivery basis. In
addition, in any period of market weakness or of uncertain market or economic
conditions, the Fund may establish a temporary defensive position to preserve
capital by having up to 100% of its assets invested in short-term fixed income
securities or retained in cash or cash equivalents.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
MID-CAP OPPORTUNITY FUND
The Fund seeks its objective of long-term capital growth by investing,
under normal market conditions, at least 65% of its total assets in common
stocks of companies that have a medium market capitalization. The Fund seeks to
invest in equity securities that the Adviser believes demonstrate outstanding
growth records and potential based on the Adviser's fundamental analysis of the
company. The companies in which the Fund invests will be primarily those with
medium market capitalization (often known as "mid-cap"). The Fund defines
mid-cap stocks as those with market capitalizations of less than 90% of the
weighted market capitalization of the Standard & Poor's 400 Mid-Cap Index
(currently $7.6 billion). The Fund's definition of "mid-cap" will change with
market conditions. Market capitalization is the total market value of a
company's outstanding common stock. Growth equity securities tend to have
above-average price to earnings ratios and less-than-average current yields
compared to non-growth equity securities. The payment of dividend income will
not be a primary consideration in the selection of equity investments.
The Fund may invest up to 35% of its total assets in small
capitalization stocks, large capitalization stocks, U.S. Government Obligations,
including mortgage-backed securities, and investment grade debt securities or
unrated securities that are of comparable quality as determined by the Adviser,
repurchase agreements, investment grade securities convertible into common
stock, warrants to purchase common stock and zero coupon and pay-in-kind
securities. The Fund may invest up to 15% of its total assets in ADRs. The Fund
may borrow money for temporary or emergency purposes in an amount not exceeding
5% of its net assets and invest in securities issued on a "when-issued" or
delayed delivery basis. The Adviser continually monitors the investments in the
3
<PAGE>
Fund's portfolio and carefully evaluates on a case-by-case basis whether to
dispose of or retain a debt security that has been downgraded below investment
grade. No more than 5% of the Fund's net assets will remain invested in such
downgraded securities. See "Debt Securities," below, and Appendix A for a
description of corporate bond ratings.
In any period of market weakness or of uncertain market or economic
conditions, the Fund may establish a temporary defensive position to preserve
capital by having all or part of its assets invested in short-term fixed income
securities or retained in cash or cash equivalents, including U.S. Government
Obligations, mortgage-backed securities, bank certificates of deposit, bankers'
acceptances and commercial paper issued by domestic corporations.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
UTILITIES INCOME FUND
The Fund seeks its objective by investing, under normal market
conditions, at least 65% of its total assets in equity and debt securities
issued by companies primarily engaged in the public utilities industry. Equity
securities in which the Fund may invest include common stocks, preferred stocks,
securities convertible into common stocks or preferred stocks and warrants to
purchase common or preferred stocks. Debt securities in which the Fund may
invest will be rated at the time of investment at least A by Moody's or S&P or,
if unrated, will be of comparable quality as determined by the Adviser. The
Fund's policy is to attempt to sell, within a reasonable time period, a debt
security in its portfolio which has been downgraded below A, provided that such
disposition is in the best interests of the Fund and its shareholders. See "Debt
Securities," below, and Appendix A for a description of corporate bond ratings.
The portion of the Fund's assets invested in equity securities and in debt
securities will vary from time to time due to changes in interest rates and
economic and other factors.
The Fund defines utilities companies as those that are primarily
engaged in the ownership or operation of facilities used to provide electricity,
gas, water or telecommunications (including telephone, telegraph and satellite,
but not public broadcasting or cable television). For these purposes, "primarily
engaged" means that (1) more than 50% of the company's assets are devoted to the
ownership or operation of one or more facilities as described above, or (2) more
than 50% of the company's operating revenues are derived from the business or
combination of any of the businesses described above. It should be noted that
based on this definition, the Fund may invest in companies which are also
involved to a significant degree in non-public utilities activities.
Utilities stocks generally offer dividend yields that exceed those of
industrial companies and their prices tend to be less volatile than stocks of
industrial companies. However, utilities stocks can still be affected by the
risks of the stock of industrial companies. Because the Fund concentrates its
investments in public utilities companies, the value of its shares will be
especially affected by factors peculiar to the utilities industry, and may
fluctuate more widely than the value of shares of a fund that invests in a
broader range of industries. See "Utilities Industries."
The Fund may invest up to 35% of its total assets in the following
instruments: debt securities (rated at least A by Moody's or S&P) and common and
preferred stocks of non-utilities companies; U.S. Government Obligations;
4
<PAGE>
mortgage-backed securities; cash; and money market instruments consisting of
prime commercial paper, bankers' acceptances, certificates of deposit and
repurchase agreements. The Fund may invest in securities on a "when-issued" or
delayed delivery basis and make loans of portfolio securities. The Fund may
invest up to 10% of its total assets in ADRs. The Fund may borrow money for
temporary or emergency purposes in amounts not exceeding 5% of its net assets.
The Fund also may invest in zero coupon and pay-in-kind securities. In addition,
in any period of market weakness or of uncertain market or economic conditions,
the Fund may establish a temporary defensive position to preserve capital by
having up to 100% of its assets invested in short-term fixed income securities
or retained in cash or cash equivalents.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
BLUE CHIP FUND
The Fund seeks its objective by investing, under normal market
conditions, at least 65% of its total assets in equity securities of "Blue Chip"
companies, including common and preferred stocks and securities convertible into
common stock, that the Adviser believes have potential earnings growth that is
greater than the average company included in the Standard & Poor's 500 Composite
Stock Price Index ("S&P 500"). The Fund also may invest up to 35% of its total
assets in the equity securities of non-Blue Chip companies that the Adviser
believes have significant potential for growth of capital or future income
consistent with the preservation of capital. When market conditions warrant, or
when the Adviser believes it is necessary to achieve the Fund's objective, the
Fund may invest up to 25% of its total assets in fixed-income securities. It is
the Fund's policy to remain relatively fully invested in equity securities under
all market conditions rather than to attempt to time the market by maintaining
large cash or fixed-income securities positions when market declines are
anticipated. The Fund is appropriate for investors who are comfortable with a
fully invested stock portfolio.
The Fund defines Blue Chip companies as those companies that are
included in the S&P 500. Blue Chip companies are considered to be of relatively
high quality and generally exhibit superior fundamental characteristics, which
may include: potential for consistent earnings growth, a history of
profitability and payment of dividends, leadership position in their industries
and markets, proprietary products or services, experienced management, high
return on equity and a strong balance sheet. Blue Chip companies usually exhibit
less investment risk and share price volatility than smaller, less established
companies. Examples of Blue Chip companies are Microsoft Corp., General Electric
Co., Pepsico Inc. and Bristol-Myers Squibb Co.
The fixed-income securities in which the Fund may invest include money
market instruments (including prime commercial paper, certificates of deposit of
domestic branches of U.S. banks and bankers' acceptances), U.S. Government
Obligations (including mortgage-backed securities) and corporate debt
securities. However, no more than 5% of the Fund's net assets may be invested in
corporate debt securities rated below Baa by Moody's or BBB by S&P. The Fund may
borrow money for temporary or emergency purposes in amounts not exceeding 5% of
its total assets. The Fund may also invest up to 10% of its total assets in
ADRs, enter into repurchase agreements and make loans of portfolio securities.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
5
<PAGE>
SPECIAL SITUATIONS FUND
The Fund seeks its objective by investing, under normal market
conditions, at least 65% of its total assets in the common stock of companies
with small market capitalization that the Adviser considers to be undervalued or
less well known in the current marketplace and to have potential for capital
growth. The Fund may invest up to 35% of its total assets in other common
stocks, in preferred stock that is convertible into common stock issued by U.S.
corporations and in the common stock of companies located outside the United
States.
The Fund seeks to invest in the common stock of companies that the
Adviser believes are undervalued in the current market in relation to
fundamental economic values such as earnings, sales, cash flow and tangible book
value; that are early in their corporate development (i.e., before they become
widely recognized and well known and while their reputations and track records
are still emerging); or that offer the possibility of greater earnings because
of revitalized management, new products or structural changes in the economy.
Such companies primarily are those with small market capitalizations (often
knows as "small-cap." The Fund defines small-cap stocks as those with market
capitalizations of less than 90% of the weighted market capitalization of the
Standard & Poor's 600 Small-Cap Index. The Fund's definition of small-cap will
change with market conditions. The Adviser believes that, over time, these
securities are more likely to appreciate in price than securities whose market
prices have already reached their perceived economic value. In addition, the
Fund intends to diversify its holdings among as many companies and industries as
the Adviser deems appropriate.
Companies that are early in their corporate development may be
dependent on relatively few products or services, may lack adequate capital
reserves, may be dependent on one or two management individuals and may have
less of a track record or historical pattern of performance. In addition, there
may be less information available as to the issuers and their securities may not
be well known to the general public and may not yet have wide institutional
ownership. Securities of these companies may have more potential for growth but
also greater risk than that normally associated with larger, older or
better-known companies.
Investments in securities of companies with small market
capitalizations are generally considered to offer greater opportunity for
appreciation and to involve greater risk of depreciation than securities of
companies with larger market capitalization. These include the equity securities
of companies which represent new or changing industries and those which, in the
opinion of the Adviser, represent special situations, the potential future value
of which has not been fully recognized. Growth securities of companies with
small market capitalizations which represent a special situation bear the risk
that the special situation will not develop as favorably as expected, or the
situation may deteriorate. For example, a merger with favorable implications may
be blocked, an industrial development may not enjoy anticipated market
acceptance or a bankruptcy may not be as profitably resolved as had been
expected. Because the securities of most companies with small market
capitalizations are not as broadly traded as those of companies with larger
market capitalizations, these securities are often subject to wider and more
abrupt fluctuations in market price. In the past, there have been prolonged
periods when these securities have substantially underperformed or outperformed
the securities of larger capitalization companies. In addition, smaller
capitalization companies generally have fewer assets available to cushion an
unforeseen adverse occurrence and thus such an occurrence may have a
disproportionately negative impact on these companies.
6
<PAGE>
The majority of the Fund's investments are expected to be securities of
U.S. issuers that are traded on a U.S. securities exchange, or in the
over-the-counter ("OTC") market. The depth and liquidity of the market for
small-cap stocks may vary from time to time and from security to security.
The Fund may invest up to 15% of its total assets in common stocks
issued by foreign companies which are traded on a recognized domestic or foreign
securities exchange. In addition to the fundamental analysis of companies and
their industries which it performs for U.S. issuers, the Adviser evaluates the
economic and political climate of the country in which the company is located
and the principal securities markets in which such securities are traded.
Although the foreign stocks in which the Fund invests are primarily denominated
in foreign currencies, the Fund also may invest in ADRs. The Adviser does not
attempt to time actively either short-term market trends or short-term currency
trends in any market. See "Foreign Securities" and "American Depository
Receipts."
The Fund may invest up to 5% of its total assets in the securities of
other registered investment companies. Such investments will probably involve
additional advisory or distribution fees. The Fund may borrow money for
temporary or emergency purposes in amounts not exceeding 5% of its total assets
and enter into repurchase agreements.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
TOTAL RETURN FUND
The Fund seeks its objective by employing a flexible investment
strategy which emphasizes investments in stocks, bonds and money market
instruments. The percentage of the portfolio that is allocated to any one class
of assets is flexible rather than fixed. On a regular basis, the Fund reviews
and determines whether to adjust its asset allocations based upon its views on
market conditions, the relative values of the asset classes and economic trends.
The Fund may invest in domestic and foreign common stocks and other equity
securities, such as preferred stocks, securities convertible into common stocks
and warrants to purchase common stock. The Fund also may invest in debt
securities, including money market instruments (consisting of prime commercial
paper, certificates of deposit of domestic branches of U.S. banks and bankers'
acceptances), U.S. Government Obligations (including mortgage-backed
securities), municipal bonds rated Baa or better by Moody's or BBB or better by
S&P and corporate and foreign debt securities. The Fund also may borrow money
for temporary or emergency purposes in amounts not exceeding 5% of its total
assets, enter into repurchase agreements and make loans of portfolio securities.
The Fund may invest up to 5% of its net assets in zero coupon and pay-in-kind
securities and may invest up to 10% of its net assets in securities issued on a
when-issued or delayed delivery basis. There is the possibility that 100% of the
Fund's total assets could be invested in corporate debt securities and municipal
bonds. No more than 25% of the Fund's net assets may be invested in corporate
debt securities and municipal bonds rated below Baa by Moody's or BBB by S&P.
See "High Yield Securities" and Appendix A for a description of corporate and
municipal bond ratings.
The equity securities in which the Fund generally invests include both
growth and value equity securities. Growth equity securities include securities
of seasoned companies, i.e., companies with above-average earnings growth as
7
<PAGE>
compared to the average of the stocks in the S&P 500, other companies which the
Adviser believes demonstrate changing or accelerating growth profiles and
smaller companies with outstanding growth records and potential based on the
Adviser's fundamental analysis of the company. Growth equity securities tend to
have above-average price to earnings ratios and less-than-average current yields
as compared to other equity securities. Value equity securities tend to have
below average price to earnings ratios, low price to book value and potentially
high current yields.
The majority of the Fund's equity investments are expected to be
securities listed on the NYSE other national securities exchanges or securities
that have an established OTC market, although the depth and liquidity of the OTC
market may vary from time to time and from security to security. The Fund may
invest in newer and less seasoned companies with small to medium market
capitalizations. The Fund's ability to invest in unseasoned companies with
above-average earnings growth, other companies with changing or accelerating
growth profiles and smaller companies with outstanding growth records and
potential subjects the Fund to greater risk than may be involved in investing in
securities which are not selected for such growth characteristics.
The Fund may invest up to 25% of its total assets in foreign
securities. Foreign securities include equity and debt securities issued by
foreign companies and government instrumentalities which usually are denominated
in foreign currencies. Although the foreign securities in which the Fund invests
are primarily denominated in foreign currencies, the Fund also may invest in
ADRs. In addition to the fundamental analysis of companies and their industries
which it performs for U.S. issuers, the Adviser evaluates the economic and
political climate of the country in which the company is located and the
principal securities markets in which such securities are traded. The Fund does
not purchase foreign securities which are not traded on a recognized domestic or
foreign securities exchange. The Adviser does not attempt to time actively
either short-term market trends or short-term currency trends in any market. See
"Foreign Securities" and "American Depository Receipts."
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
GLOBAL FUND
The Fund seeks its objective by investing in all types of securities
issued by companies and government instrumentalities of any nation, subject only
to industry concentration and issuer diversification restrictions described
below. The Fund, under normal market conditions, invests in common stocks,
preferred stocks and bonds and other debt obligations issued by companies or
governments of at least three countries, including the United States. Currently,
the Fund primarily is invested in common stocks. The emphasis is on
high-quality, medium to large capitalization companies with an established
market throughout the world and the United States, with opportunistic investment
in smaller companies and/or emerging markets. Investments in foreign markets
involve special risks and considerations which are in addition to the usual
risks inherent in domestic investments. See "Foreign Securities," below.
The Fund may purchase securities traded on any foreign stock exchange.
The Fund may also purchase ADRs and GDRs. See "American Depository Receipts and
Global Depository Receipts," below. The Fund also may invest up to 25% of its
total assets in unlisted securities of foreign issuers; provided, however, that
8
<PAGE>
no more than 10% of the value of its net assets may be invested in such
securities with a limited trading market. The investment standards for the
selection of unlisted securities are the same as those used in the purchase of
securities traded on a stock exchange. The Fund will invest in debt securities
rated in the three highest rating categories by either Moody's or S&P or, if
unrated, determined to be of comparable quality by Wellington Management
Company, LLP ("WMC" or the "Subadviser"). See Appendix A for a description of
such bond ratings.
The Fund may invest in securities convertible into common stocks,
preferred stocks, warrants and repurchase agreements and may purchase securities
on a when-issued or delayed delivery basis. The Fund also may borrow money for
temporary or emergency purposes in amounts not exceeding 5% of its total assets
and make loans of portfolio securities. For temporary defensive purposes, the
Fund may invest up to 100% of its total assets in U.S. Government obligations
and cash equivalents denominated in U.S. dollars.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
INVESTMENT POLICIES
AMERICAN DEPOSITORY RECEIPTS AND GLOBAL DEPOSITORY RECEIPTS. Each Fund
may invest in ADRs and GLOBAL FUND and GROWTH & INCOME FUND may invest in GDRs.
ADRs typically are issued by a U.S. bank or trust company and evidence ownership
of the underlying securities of foreign issuers. Generally, ADRs are denominated
in U.S. dollars and are designed for use in the U.S. securities markets. Thus,
these securities are not denominated in the same currency as the underlying
securities into which they may be converted. ADRs are subject to many of the
risks inherent in investing in foreign securities. For purposes of certain
investment limitations, ADRs are not considered to be foreign securities. ADRs
may be purchased through "sponsored" or "unsponsored" facilities. A sponsored
facility is established jointly by the issuer of the underlying security and a
depository, whereas a depository may establish an unsponsored facility without
participation by the issuer of the depository security. Holders of unsponsored
depository receipts generally bear all the costs of such facilities and the
depository of an unsponsored facility frequently is under no obligation to
distribute shareholder communications received from the issuer of the deposited
security or to pass through voting rights to the holders of such receipts of the
deposited securities.
GDRs are issued globally and evidence a similar ownership arrangement
to ADRs. Generally, GDRs are not denominated in U.S. dollars and are designed
for trading in non-U.S. securities markets. Like ADRs, GDRs may not necessarily
be denominated in the same currency as the underlying securities into which they
may be converted. As with ADRs, the issuers of the securities underlying
unsponsored GDRs are not obligated to disclose material information in the U.S.
and, therefore, there may be less information available regarding such issuers
and there may not be a correlation between such information and the market value
of the GDRs. GDRs also involve the risks of other investments in foreign
securities. For purposes of certain investment limitations, GDRs are considered
to be foreign securities by the Funds.
BANKERS' ACCEPTANCES. Each Fund may invest in bankers' acceptances.
Bankers' acceptances are short-term credit instruments used to finance
commercial transactions. Generally, an acceptance is a time draft drawn on a
bank by an exporter or importer to obtain a stated amount of funds to pay for
specific merchandise. The draft is then "accepted" by a bank that, in effect,
9
<PAGE>
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an asset
or it may be sold in the secondary market at the going rate of interest for a
specific maturity. Although maturities for acceptances can be as long as 270
days, most acceptances have maturities of six months or less.
CERTIFICATES OF DEPOSIT. Each Fund may invest in bank certificates of
deposit ("CDs"). The Federal Deposit Insurance Corporation is an agency of the
U.S. Government which insures the deposits of certain banks and savings and loan
associations up to $100,000 per deposit. The interest on such deposits may not
be insured if this limit is exceeded. Current Federal regulations also permit
such institutions to issue insured negotiable CDs in amounts of $100,000 or
more, without regard to the interest rate ceilings on other deposits. To remain
fully insured, these investments currently must be limited to $100,000 per
insured bank or savings and loan association.
CONVERTIBLE SECURITIES. Each Fund may invest in convertible securities.
While no securities investment is without some risk, investments in convertible
securities generally entail less risk than the issuer's common stock, although
the extent to which such risk is reduced depends in large measure upon the
degree to which the convertible security sells above its value as a fixed income
security. The Adviser will decide to invest based upon a fundamental analysis of
the long-term attractiveness of the issuer and the underlying common stock, the
evaluation of the relative attractiveness of the current price of the underlying
common stock, and the judgment of the value of the convertible security relative
to the common stock at current prices.
DEBT SECURITIES. Each Fund may invest in debt securities. The market
value of debt securities is influenced significantly by changes in the level of
interest rates. Generally, as interest rates rise, the market value of debt
securities decreases. Conversely, as interest rates fall, the market value of
debt securities increases. Factors which could result in a rise in interest
rates, and a decrease in market value of debt securities, include an increase in
inflation or inflation expectations, an increase in the rate of U.S. economic
growth, an expansion in the Federal budget deficit, or an increase in the price
of commodities such as oil. In addition, the market value of debt securities is
influenced by perceptions of the credit risks associated with such securities.
Credit risk is the risk that adverse changes in economic conditions can affect
an issuer's ability to pay principal and interest. GLOBAL FUND may invest in
debt securities that, at the time of purchase, are rated in the three highest
rating categories by at least one nationally recognized statistical rating
organization rating that security, such as S&P and Moody's, or, if unrated,
deemed to be of comparable quality by the Subadviser. The Adviser or, for GLOBAL
FUND, its Subadviser, continually monitor the investments in each Fund's
portfolio and carefully evaluates on a case-by-case basis whether to dispose of
or retain a debt security that has been downgraded.
FOREIGN GOVERNMENT OBLIGATIONS. GLOBAL FUND and TOTAL RETURN FUND may
invest in foreign government obligations, which generally consist of obligations
supported by national, state or provincial governments or similar political
subdivisions. Investments in foreign government debt obligations involve special
risks. The issuer of the debt may be unable or unwilling to pay interest or
repay principal when due in accordance with the terms of such debt, and the Fund
may have limited legal resources in the event of default. Political conditions,
especially a sovereign entity's willingness to meet the terms of its debt
obligations, are of considerable significance.
11
<PAGE>
FOREIGN SECURITIES. GLOBAL FUND may sell a security denominated in a
foreign currency and retain the proceeds in that foreign currency to use at a
future date (to purchase other securities denominated in that currency) or the
Fund may buy foreign currency outright to purchase securities denominated in
that foreign currency at a future date. Investing in foreign securities involves
more risk than investing in securities of U.S. companies. GLOBAL FUND currently
does not intend to hedge its foreign investments against the risk of foreign
currency fluctuations. Accordingly, changes in the value of foreign currencies
can significantly affect the Fund's share price, irrespective of developments
relating to the issuers of securities held by the Fund. In addition, the Fund
will be affected by changes in exchange control regulations and fluctuations in
the relative rates of exchange between the currencies of different nations, as
well as by economic and political developments. Other risks involved in foreign
securities include the following: there may be less publicly available
information about foreign companies comparable to the reports and ratings that
are published about companies in the United States; foreign companies are not
generally subject to uniform accounting, auditing and financial reporting
standards and requirements comparable to those applicable to U.S. companies;
some foreign stock markets have substantially less volume than U.S. markets, and
securities of some foreign companies are less liquid and more volatile than
securities of comparable U.S. companies; there may be less government
supervision and regulation of foreign stock exchanges, brokers and listed
companies than exist in the United States; and there may be the possibility of
expropriation or confiscatory taxation, political or social instability or
diplomatic developments which could affect assets of the GLOBAL FUND held in
foreign countries.
GLOBAL FUND may also invest in the securities of issuers in less
developed foreign countries. The Fund's investments in emerging markets include
investments in countries whose economies or securities markets are not yet
highly developed. Special considerations associated with these investments (in
addition to the considerations regarding foreign investments generally) may
include, among others, greater political uncertainties, an economy's dependence
on revenues from particular commodities or on international aid or development
assistance, currency transfer restrictions, a limited number of potential buyers
for such securities and delays and disruptions in securities settlement
procedures.
HIGH YIELD SECURITIES-RISK FACTORS. BLUE CHIP FUND, TOTAL RETURN FUND
and GROWTH & INCOME FUND may invest in high yield, high risk securities
(commonly referred to as "junk bonds") ("High Yield Securities"). High Yield
Securities are subject to greater risks than those that are present with
investments of higher grade securities, as discussed below. These risks also
apply to lower-rated and certain unrated convertible securities.
EFFECT OF INTEREST RATE AND ECONOMIC CHANGES. Debt
obligations, including convertible debt securities, rated lower than Baa by
Moody's or BBB by S&P, commonly referred to as "junk bonds" are speculative and
generally involve a higher risk or loss of principal and income than
higher-rated securities. The prices of High Yield Securities tend to be less
sensitive to interest rate changes than higher-rated investments, but may be
more sensitive to adverse economic changes or individual corporate developments.
Periods of economic uncertainty and changes generally result in increased
volatility in the market prices and yields of High Yield Securities and thus in
a Fund's net asset value. A significant economic downturn or a substantial
11
<PAGE>
period of rising interest rates could severely affect the market for High Yield
Securities. In these circumstances, highly leveraged companies might have
greater difficulty in making principal and interest payments, meeting projected
business goals, and obtaining additional financing. Thus, there could be a
higher incidence of default. This would affect the value of such securities and
thus the Fund's net asset value. Further, if the issuer of a security owned by
the Fund defaults, the Fund might incur additional expenses to seek recovery.
Generally, when interest rates rise, the value of fixed rate
debt obligations, including High Yield Securities, tends to decrease; when
interest rates fall, the value of fixed rate debt obligations tends to increase.
If an issuer of a High Yield Security containing a redemption or call provision
exercises either provision in a declining interest rate market, the Fund would
have to replace the security, which could result in a decreased return for
shareholders. Conversely, if the Fund experiences unexpected net redemptions in
a rising interest rate market, it might be forced to sell certain securities,
regardless of investment merit. This could result in decreasing the assets to
which Fund expenses could be allocated and in a reduced rate of return for the
Fund. While it is impossible to protect entirely against this risk,
diversification of the Fund's portfolio and the Adviser's careful analysis of
prospective portfolio securities helps to minimize the impact of a decrease in
value of a particular security or group of securities in the Fund's portfolio.
THE HIGH YIELD SECURITIES MARKET. The market for below
investment grade bonds expanded rapidly in recent years and its growth
paralleled a long economic expansion. At times in the past, the prices of many
lower-rated debt securities have declined substantially, reflecting an
expectation that many issuers of such securities might experience financial
difficulties. As a result, the yields on lower-rated debt securities rose
dramatically. However, such higher yields did not reflect the value of the
income streams that holders of such securities expected, but rather the risk
that holders of such securities could lose a substantial portion of their value
as a result of the issuers' financial restructuring or default. There can be no
assurance that such declines in the below investment grade market will not
reoccur. The market for below investment grade bonds generally is thinner and
less active than that for higher quality bonds, which may limit the Fund's
ability to sell such securities at reasonable prices in response to changes in
the economy or the financial markets. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may also decrease the
values and liquidity of lower rated securities, especially in a thinly traded
market.
CREDIT RATINGS. The credit ratings issued by credit rating
services may not fully reflect the true risks of an investment. For example,
credit ratings typically evaluate the safety of principal and interest payments,
not market value risk, of High Yield Securities. Also, credit rating agencies
may fail to change on a timely basis a credit rating to reflect changes in
economic or company conditions that affect a security's market value.
LIQUIDITY AND VALUATION. Lower-rated bonds are typically
traded among a smaller number of broker-dealers than in a broad secondary
market. Purchasers of High Yield Securities tend to be institutions, rather than
individuals, which is a factor that further limits the secondary market. To the
extent that no established retail secondary market exists, many High Yield
Securities may not be as liquid as higher-grade bonds. A less active and thinner
market for High Yield Securities than that available for higher quality
securities may result in more volatile valuations of the Fund's holdings and
more difficulty in executing trades at favorable prices during unsettled market
conditions.
The ability of a Fund to value or sell High Yield Securities
will be adversely affected to the extent that such securities are thinly traded
or illiquid. During such periods, there may be less reliable objective
information available and thus the responsibility of the Board of Directors or
12
<PAGE>
Trustees, as applicable (hereinafter referred to as the "Board" or "Directors")
to value High Yield Securities becomes more difficult, with judgment playing a
greater role. Further, adverse publicity about the economy or a particular
issuer may adversely affect the public's perception of the value, and thus
liquidity, of a High Yield Security, whether or not such perceptions are based
on a fundamental analysis.
LOANS OF PORTFOLIO SECURITIES. While they have no present intention of
doing so in the coming year, GROWTH & INCOME FUND, UTILITIES INCOME FUND, GLOBAL
FUND, BLUE CHIP FUND and TOTAL RETURN FUND may loan securities to qualified
broker-dealers or other institutional investors provided: the borrower pledges
to a Fund and agrees to maintain at all times with the Fund collateral equal to
not less than 100% of the value of the securities loaned (plus accrued interest
or dividend, if any); the loan is terminable at will by the Fund; the Fund pays
only reasonable custodian fees in connection with the loan; and the Adviser
monitors the creditworthiness of the borrower throughout the life of the loan.
Such loans may be terminated by a Fund at any time and the Fund may vote the
proxies if a material event affecting the investment is to occur. The market
risk applicable to any security loaned remains a risk of the Fund. The borrower
must add to the collateral whenever the market value of the securities rises
above the level of such collateral. A Fund could incur a loss if the borrower
should fail financially at a time when the value of the loaned securities is
greater than the collateral.
MONEY MARKET INSTRUMENTS. Each Fund may invest in money market
instruments. Investments in commercial paper are limited to obligations rated
Prime-1 by Moody's or A-1 by S&P. Commercial paper includes notes, drafts, or
similar instruments payable on demand or having a maturity at the time of
issuance not exceeding nine months, exclusive of days of grace or any renewal
thereof. Investments in certificates of deposit are made only with domestic
institutions with assets in excess of $500 million.
MORTGAGE-BACKED SECURITIES. BLUE CHIP FUND, TOTAL RETURN FUND, GROWTH &
INCOME FUND, UTILITIES INCOME FUND and MID-CAP OPPORTUNITY FUND may invest in
mortgage-backed securities, including those representing an undivided ownership
interest in a pool of mortgage loans. Each of the certificates described below
is characterized by monthly payments to the security holder, reflecting the
monthly payments made by the mortgagees of the underlying mortgage loans. The
payments to the security holders (such as a Fund), like the payments on the
underlying loans, generally represent both principal and interest. Although the
underlying mortgage loans are for specified periods of time, such as twenty to
thirty years, the borrowers can, and typically do, repay them sooner. Thus, the
security holders frequently receive prepayments of principal, in addition to the
principal which is part of the regular monthly payments. A borrower is more
likely to prepay a mortgage which bears a relatively high rate of interest.
Thus, in times of declining interest rates, some higher yielding mortgages might
be repaid resulting in larger cash payments to a Fund, and the Fund will be
forced to accept lower interest rates when that cash is used to purchase
additional securities.
Interest rate fluctuations may significantly alter the average maturity
of mortgage-backed securities by changing the rates at which homeowners
refinance mortgages. When interest rates rise, prepayments often drop, which
should increase the average maturity of the mortgage-backed security.
Conversely, when interest rates fall, prepayments often rise, which should
decrease the average maturity of the mortgage-backed security.
GNMA CERTIFICATES. Government National Mortgage Association
("GNMA") certificates ("GNMA Certificates") are mortgage-backed securities,
which evidence an undivided interest in a pool of mortgage loans. In the case of
GNMA Certificates, principal is paid back monthly by the borrower over the term
of the loan rather than returned in a lump sum at maturity. GNMA Certificates
13
<PAGE>
that the Fund purchase are the "modified pass-through" type. "Modified
pass-through" GNMA Certificates entitle the holder to receive a share of all
interest and principal payments paid and owed on the mortgage pool net of fees
paid to the "issuer" and GNMA, regardless of whether or not the mortgagor
actually makes the payment.
GNMA GUARANTEE. The National Housing Act authorizes GNMA to
guarantee the timely payment of principal and interest on securities backed by a
pool of mortgages insured by the Federal Housing Administration ("FHA") or the
Farmers' Home Administration ("FMHA"), or guaranteed by the Department of
Veteran Affairs ("VA"). The GNMA guarantee is backed by the full faith and
credit of the U.S. Government. GNMA also is empowered to borrow without
limitation from the U.S. Treasury if necessary to make any payments required
under its guarantee.
LIFE OF GNMA CERTIFICATES. The average life of a GNMA
Certificate is likely to be substantially less than the original maturity of the
mortgage pools underlying the securities. Prepayments of principal by mortgagors
and mortgage foreclosures will usually result in the return of the greater part
of principal investment long before maturity of the mortgages in the pool. A
Fund normally will not distribute principal payments (whether regular or
prepaid) to its shareholders. Rather, it will invest such payments in additional
mortgage-backed securities of the types described above. Interest received by
the Fund will, however, be distributed to shareholders. Foreclosures impose no
risk to principal investment because of the GNMA guarantee. As prepayment rates
of the individual mortgage pools vary widely, it is not possible to predict
accurately the average life of a particular issue of GNMA Certificates.
YIELD CHARACTERISTICS OF GNMA CERTIFICATES. The coupon rate of
interest on GNMA Certificates is lower than the interest rate paid on the
VA-guaranteed or FHA-insured mortgages underlying the Certificates by the amount
of the fees paid to GNMA and the issuer. The coupon rate by itself, however,
does not indicate the yield which will be earned on GNMA Certificates. First,
Certificates may trade in the secondary market at a premium or discount. Second,
interest is earned monthly, rather than semi-annually as with traditional bonds;
monthly compounding raises the effective yield earned. Finally, the actual yield
of a GNMA Certificate is influenced by the prepayment experience of the mortgage
pool underlying it. For example, if the higher-yielding mortgages from the pool
are prepaid, the yield on the remaining pool will be reduced.
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.
14
<PAGE>
MUNICIPAL BONDS. TOTAL RETURN FUND may invest in municipal bonds.
Municipal bonds are debt obligations issued by or on behalf of states,
territories and possessions of the United States and the District of Columbia
and their political subdivisions, agencies and instrumentalities, generally to
obtain funds for various public purposes and have a time to maturity, at
issuance, of more than one year. The two principal classifications of municipal
bonds are "general obligation" and "revenue" bonds. General obligation bonds are
secured by the issuer's pledge of its full faith and credit for the payment of
principal and interest. Revenue bonds generally are payable only from revenues
derived from a particular facility or class of facilities or, in some cases,
from the proceeds of a special tax or other specific revenue source. There are
variations in the security of municipal bonds, both within a particular
classification and between classifications, depending on numerous factors. The
yields on municipal bonds depend on, among other things, general money market
conditions, conditions of the municipal bond market, the size of a particular
offering, the maturity of the obligation and the rating of the issuer.
Generally, the value of municipal bonds varies inversely to changes in interest
rates. See Appendix A for a description of municipal bond ratings. Distributions
of interest income from municipal bonds in the Fund's portfolio will be taxable
to shareholders the same as distributions of interest income from other
securities held by the Fund. See "Taxes."
PREFERRED STOCK. A preferred stock is a security which has a blend of
the characteristics of a bond and common stock. It can offer the higher yield of
a bond and has priority over common stock in equity ownership, but does not have
the seniority of a bond and, unlike common stock, its participation in the
issuer's growth may be limited. Preferred stock has preference over common stock
in the receipt of dividends and in any residual assets after payment to
creditors should the issuer be dissolved. Although the dividend is set at a
fixed annual rate, in some circumstances it can be changed or omitted by the
issuer.
REPURCHASE AGREEMENTS. While each Fund has no present intention of
doing so in the coming year, it may invest in repurchase agreements. A
repurchase agreement essentially is a short-term collateralized loan. The lender
(a Fund) agrees to purchase a security from a borrower (typically a
broker-dealer) at a specified price. The borrower simultaneously agrees to
repurchase that same security at a higher price on a future date (which
typically is the next business day). The difference between the purchase price
and the repurchase price effectively constitutes the payment of interest. In a
standard repurchase agreement, the securities which serve as collateral are
transferred to a Fund's custodian bank. In a "tri-party" repurchase agreement,
these securities would be held by a different bank for the benefit of the Fund
as buyer and the broker-dealer as seller. In a "quad-party" repurchase
agreement, the Fund's custodian bank also is made a party to the agreement.
Although each Fund may enter into repurchase agreements with banks which are
members of the Federal Reserve System or securities dealers who are members of a
national securities exchange or are market makers in government securities, the
Funds currently do not intend to do so. The period of these repurchase
agreements will usually be short, from overnight to one week, and at no time
will a Fund invest in repurchase agreements with more than one year in time to
maturity. The securities which are subject to repurchase agreements, however,
may have maturity dates in excess of one year from the effective date of the
repurchase agreement. Each Fund will always receive, as collateral, securities
whose market value, including accrued interest, which will at all times be at
least equal to 100% of the dollar amount invested by the Fund in each agreement,
and the Fund will make payment for such securities only upon physical delivery
or evidence of book entry transfer to the account of the custodian. If the
seller defaults, a Fund might incur a loss if the value of the collateral
securing the repurchase agreement declines, and might incur disposition costs in
15
<PAGE>
connection with liquidating the collateral. In addition, if bankruptcy or
similar proceedings are commenced with respect to the seller of the security,
realization upon the collateral by a Fund may be delayed or limited. No Fund may
enter into a repurchase agreement with more than seven days to maturity if, as a
result, more than 15% of such Fund's net assets would be invested in such
repurchase agreements and other illiquid investments.
RESTRICTED SECURITIES AND ILLIQUID INVESTMENTS. None of the Funds may
purchase or otherwise acquire any security if, as a result, more than 15% of its
net assets (taken at current value) would be invested in securities that are
illiquid by virtue of the absence of a readily available market or legal or
contractual restrictions on resale. This policy includes foreign issuers'
unlisted securities with a limited trading market and repurchase agreements
maturing in more than seven days. This policy does not include restricted
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933, as amended ("1933 Act"), which the Fund's Board or the Adviser has
determined under Board-approved guidelines are liquid.
Restricted securities which are illiquid may be sold only in privately
negotiated transactions or in public offerings with respect to which a
registration statement is in effect under the 1933 Act. Such securities include
those that are subject to restrictions contained in the securities laws of other
countries. Securities that are freely marketable in the country where they are
principally traded, but would not be freely marketable in the United States,
will not be subject to this 15% limit. Where registration is required, a Fund
may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, a Fund might obtain a less favorable price than prevailed when it
decided to sell.
In recent years, a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including private
placements, repurchase agreements, commercial paper, foreign securities and
corporate bonds and notes. These instruments are often restricted securities
because the securities are either themselves exempt from registration or sold in
transactions not requiring registration. Institutional investors generally will
not seek to sell these instruments to the general public, but instead will often
depend on an efficient institutional market in which such unregistered
securities can be readily resold or on an issuer's ability to honor a demand for
repayment. Therefore, the fact that there are contractual or legal restrictions
on resale to the general public or certain institutions is not dispositive of
the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
that might develop as a result of Rule 144A could provide both readily
ascertainable values for restricted securities and the ability to liquidate an
investment in order to satisfy share redemption orders. An insufficient number
of qualified institutional buyers interested in purchasing Rule 144A-eligible
securities held by a Fund, however, could affect adversely the marketability of
such portfolio securities and a Fund might be unable to dispose of such
securities promptly or at reasonable prices.
Over-the-counter ("OTC") options and their underlying collateral are
also considered illiquid investments. UTILITIES INCOME FUND, BLUE CHIP FUND, AND
TOTAL RETURN FUND may invest in options though these Funds have no intention of
investing in options in the coming year. The assets used as cover for OTC
16
<PAGE>
options written by a Fund would not be considered illiquid unless the OTC
options are sold to qualified dealers who agree that a Fund may repurchase any
OTC option it writes at a maximum price to be calculated by a formula set forth
in the option agreement. The cover for an OTC option written subject to this
procedure would be considered illiquid only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option
U.S. GOVERNMENT OBLIGATIONS. BLUE CHIP FUND, TOTAL RETURN FUND, GROWTH
& INCOME FUND and UTILITIES INCOME FUND may invest in U.S. Government
Obligations. U.S. Government Obligations include: (1) U.S. Treasury obligations
(which differ only in their interest rates, maturities and times of issuance),
and (2) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities that are backed by the full faith and credit of the United
States (such as securities issued by the FHA, GNMA, the Department of Housing
and Urban Development, the Export-Import Bank, the General Services
Administration and the Maritime Administration and certain securities issued by
the FMHA and the Small Business Administration). The range of maturities of U.S.
Government Obligations is usually three months to thirty years.
UTILITIES INDUSTRIES. The UTILITIES INCOME FUND invests primarily in
utilities companies. Many utilities companies, especially electric and gas and
other energy-related utilities companies, have historically been subject to the
risk of increases in fuel and other operating costs, changes in interest rates
on borrowings for capital improvement programs, changes in applicable laws and
regulations, and costs and operating constraints associated with compliance with
environmental regulations.
In recent years, regulatory changes in the United States have
increasingly allowed utilities companies to provide services and products
outside their traditional geographical areas and lines of business, creating new
areas of competition with the utilities industries. This trend toward
deregulation and the emergence of new entrants have caused non-regulated
providers of utilities services to become a significant part of the utilities
industries. The Adviser believes that the emergence of competition and
deregulation will result in certain utilities companies being able to earn more
than their traditional regulated rates of return, while others may be forced to
defend their core business from increased competition and may be less
profitable.
Certain utilities, especially gas and telephone utilities, have in
recent years been affected by increased competition, which could adversely
affect the profitability of such utilities companies. In addition, expansion by
companies engaged in telephone communication services of their non-regulated
activities into other businesses (such as cellular telephone services, data
processing, equipment retailing, computer services and financial services) has
provided the opportunity for increases in earnings and dividends at faster rates
than have been allowed in traditional regulated businesses. However,
technological innovations and other structural changes also could adversely
affect the profitability of such companies. Although the Adviser seeks to take
advantage of favorable investment opportunities that may arise from these
structural changes, there can be no assurance that the Fund will benefit from
any such changes.
Foreign utilities companies may be more heavily regulated than U.S.
utilities companies, which may result in increased costs or otherwise adversely
affect the operations of such companies. The securities of foreign utilities
companies also have lower dividend yields than U.S. utilities companies. The
Fund's investments in foreign issuers may include recently privatized
17
<PAGE>
enterprises, in which the Fund's participation may be limited or otherwise
affected by local law. There can e no assurance that governments with
privatization programs will continue such programs or that privatization will
succeed in such countries.
Because securities issued by utilities companies are particularly
sensitive to movement in interest rates, the equity securities of such companies
are more affected by movements in interest rates than are the equity securities
of other companies.
Each of these risks could adversely affect the ability and inclination
of public utilities companies to declare or pay dividends and the ability of
holders of common stock, such as UTILITIES INCOME FUND, to realize any value
from the assets of the company upon liquidation or bankruptcy.
WARRANTS. Each Fund except BLUE CHIP FUND may purchase warrants, which
are instruments that permit a Fund to acquire, by subscription, the capital
stock of a corporation at a set price, regardless of the market price for such
stock. Warrants may be either perpetual or of limited duration. There is a
greater risk that warrants might drop in value at a faster rate than the
underlying stock.
WHEN-ISSUED SECURITIES. GROWTH & INCOME FUND, UTILITIES INCOME FUND AND
TOTAL RETURN FUND may invest up to 10%, and MID-CAP OPPORTUNITY FUND and GLOBAL
FUND may invest up to 5%, of each of its net assets in securities issued on a
when-issued or delayed delivery basis at the time the purchase is made. A Fund
generally would not pay for such securities or start earning interest on them
until they are issued or received. However, when a Fund purchases debt
obligations on a when-issued basis, it assumes the risks of ownership, including
the risk of price fluctuation, at the time of purchase, not at the time of
receipt. Failure of the issuer to deliver a security purchased by the Fund on a
when-issued basis may result in the Fund's incurring a loss or missing an
opportunity to make an alternative investment. When a Fund enters into a
commitment to purchase securities on a when-issued basis, it establishes a
separate account with its custodian consisting of cash or liquid high-grade debt
securities equal to the amount of the Fund's commitment, which are valued at
their fair market value. If on any day the market value of this segregated
account falls below the value of the Fund's commitment, the Fund will be
required to deposit additional cash or qualified securities into the account
until the value of the account is equal to the value of the Fund's commitment.
When the securities to be purchased are issued, a Fund will pay for the
securities from available cash, the sale of securities in the segregated
account, sales of other securities and, if necessary, from the sale of the
when-issued securities themselves although this is not ordinarily expected.
Securities purchased on a when-issued basis are subject to the risk that yields
available in the market, when delivery takes place, may be higher than the rate
to be received on the securities a Fund is committed to purchase. Sale of
securities in the segregated account or sale of the when-issued securities may
cause the realization of a capital gain or loss.
ZERO COUPON AND PAY-IN-KIND SECURITIES. MID-CAP OPPORTUNITY FUND,
UTILITIES INCOME FUND and TOTAL RETURN FUND may each invest in zero coupon and
pay-in-kind securities. Zero coupon securities are debt obligations that do not
entitle the holder to any periodic payment of interest prior to maturity or a
specified date when the securities begin paying current interest. They are
issued and traded at a discount from their face amount or par value, which
discount varies depending on the time remaining until cash payments begin,
prevailing interest rates, liquidity of the security and the perceived credit
18
<PAGE>
quality of the issuer. Pay-in-kind securities are those that pay "interest"
through the issuance of additional securities. The market prices of zero coupon
and pay-in-kind securities generally are more volatile than the prices of
securities that pay interest periodically and in cash and are likely to respond
to changes in interest rates to a greater degree than do other types of debt
securities having similar maturities and credit quality. Original issue discount
earned each year on zero coupon securities and the "interest" on pay-in-kind
securities must be accounted for by the Fund that holds the securities for
purposes of determining the amount it must distribute that year to continue to
qualify for tax treatment as a regulated investment company. See "Taxes." Thus,
a Fund may be required to distribute as a dividend an amount that is greater
than the total amount of cash it actually receives. These distributions must be
made from a Fund's cash assets or, if necessary, from the proceeds of sales of
portfolio securities. Each Fund will not be able to purchase additional
income-producing securities with cash used to make such distributions, and its
current income ultimately could be reduced as a result.
FUTURES AND OPTIONS STRATEGIES
GLOBAL FUND is the only Fund that currently anticipates using financial
futures or options as part of its investment strategy. Other Funds that are
authorized to purchase and sell futures and option contracts but at this time
have no intention of doing so for the coming year include: UTILITIES INCOME FUND
and TOTAL RETURN FUND which may purchase and sell futures contracts and options
on futures contracts to hedge their portfolios, and UTILITIES INCOME FUND, BLUE
CHIP FUND, and TOTAL RETURN FUND which may purchase and sell options on
securities and indices to enhance income. Certain special characteristics of and
risks associated with using these instruments are discussed below. In addition
to the investment guidelines (described below) adopted by each Fund's Board to
govern a Fund's investments in futures and options, use of these instruments is
subject to the applicable regulations of the Securities and Exchange Commission
("SEC"), the several options and futures exchanges upon which options and
futures contracts are traded and the Commodities Futures Trading Commission
("CFTC"). In addition, a Fund's ability to use these instruments will be limited
by tax considerations. See "Taxes."
To the extent that they participate in the options or futures markets,
the Funds will incur investment risks and transaction costs to which the Funds
would not be subject absent the use of these strategies. If the Adviser's
prediction of movements in the direction of the securities and interest rate
markets are inaccurate, the adverse consequences to the Funds may leave the
Funds in a worse position than if such strategies were not used. The Funds might
not employ any of the strategies described below, and there can be no assurance
that any strategy will succeed. The use of these strategies involve certain
special risks, including (1) dependence on the Adviser's ability to predict
correctly movements in the direction of interest rates and securities prices;
(2) imperfect correlation between the price of options, futures contracts and
options thereon and movements in the prices of the securities being hedged; (3)
the fact that skills needed to use these strategies are different from those
needed to select portfolio securities; and (4) the possible absence of a liquid
secondary market for any particular instrument at any time.
FUTURES AND OPTIONS ON FUTURES STRATEGIES. GLOBAL FUND expects to use
stock index futures contracts and options thereon in anticipation of a
significant market or market sector advance. The purchase of a stock index
futures contract affords a hedge against not participating in such advance at a
time when the Fund is not fully invested. Such purchase of a futures contract
would serve as a temporary substitute for the purchase of individual stocks
which may then be purchased in a orderly fashion. Further, stock index futures
19
<PAGE>
contracts and options thereon may be purchased to maintain a desired percentage
of the Fund invested in stocks in the event of a large cash flow into the Fund,
or to generate additional income from cash held by the Fund. Stock index futures
and options thereon may also be used to adjust country exposure. When the Fund
purchases a stock index futures contract on foreign stocks, an accompanying
foreign currency forward or foreign currency futures contract is executed to
provide the same currency exposure that would result from directly owning the
underlying foreign stocks. Failure to obtain such currency exposure would
constitute a hedge back into U.S. dollars with respect to such index futures
positions. The value of the Fund's futures positions shall not exceed 5% of the
total assets in the Fund's portfolio.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES TRADING. No price is paid
upon entering into futures contracts. Instead, upon entering into a futures
contract, the Funds are required to deposit with their custodian in a segregated
account in the name of the futures broker through which the transaction is
effected and amount of cash, U.S. Government securities or other liquid,
high-grade debt instruments generally equal to 3%-5% or less of the contract
value. This amount is known as "initial margin." When writing a call or put
option on a futures contract, margin also must be deposited in accordance with
applicable exchange rules. Initial margin on futures contracts is in the nature
of a performance bond or good-faith deposit that is returned to a Fund upon
termination of the transaction, assuming all obligations have been satisfied.
Under certain circumstances, such as periods of high volatility, a Fund may be
required by an exchange to increase the level of its initial margin payment.
Additionally, initial margin requirements may be increased generally in the
future by regulatory action. Subsequent payments, called "variation margin," to
and from the broker, are made on a daily basis as the value of the futures
position varies, a process known as "marking to market." Variation margin does
not involve borrowing to finance the futures transactions, but rather represents
a daily settlement of a Fund's obligation to or from a clearing organization. A
Fund is also obligated to make initial and variation margin payments when it
writes options on futures contracts.
Holders and writers of futures positions and options thereon can enter
into offsetting closing transactions, by selling or purchasing, respectively, a
futures position or options position with the same terms as the position or
option held or written. Positions in futures contracts and options thereon may
be closed only on an exchange or board of trade providing a secondary market for
such futures or options.
Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a futures contract or related option may
vary either up or down from the previous day's settlement price. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit. The daily limit governs only price movements
during a particular trading day and therefore does not limit potential losses
because prices could move to the daily limit for several consecutive trading
days with little or no trading and thereby prevent prompt liquidation of
unfavorable positions. In such event, it may not be possible for a Fund to close
a position and, in the event of adverse price movements a Fund would have to
make daily cash payments of variation margin (except in the case of purchased
options). However, in the event futures contracts have been used to hedge
portfolio securities, such securities will not be sold until the contracts can
be terminated. In such circumstances, an increase in the price of the
securities, if any, may partially or completely offset losses on the futures
contract. However, there is no guarantee that the price of the securities will,
in fact, correlate with the price movements in the contracts and thus provide an
offset to losses on the contracts.
20
<PAGE>
Successful use by a Fund of futures contracts and related options will
depend upon the Adviser's ability to predict movements in the direction of the
overall securities, currency and interest rate markets, which requires different
skills and techniques than predicting changes in the prices of individual
securities. There is, in addition, the risk that the movements in the price of
the futures contract or related option will not correlate with the movements in
prices of the underlying instruments or currencies. In addition, if a Fund has
insufficient cash, it may have to sell assets from its portfolio to meet daily
variation margin requirements. Any such sale of assets may or may not be made at
prices that reflect the rising market. Consequently, a Fund may need to sell
assets at a time when such sales are disadvantageous to a Fund. If the price of
the futures contract or related option moves more than the price of the
underlying instruments or currencies, a Fund will experience either a loss or a
gain on the futures contract or related option that may or may not be completely
offset by movement in the price of the instruments or currencies that are the
subject of the hedge.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between price movements in the futures or
related option position and the securities or currencies being hedged, movements
in the prices of futures contracts and related options may not correlate
perfectly with movements in the prices of the hedged securities or currencies
because of price distortions in the futures market. As a result, a correct
forecast of general market trends may not result in successful hedging through
the use of futures contracts and related options over the short term.
Positions in futures contracts and related options may be closed out
only on the exchange or board of trade that provides a secondary market for such
futures contracts or related options. Although a Fund intends to purchase or
sell futures contracts and related options only on the exchanges or boards of
trade where there appears to be a liquid secondary market for such futures and
related options, there is no assurance that such a market will exist for any
particular contract or option at any particular time. In such event, it may not
be possible to close a futures or option position and, in the event of adverse
price movements, a Fund would continue to be required to make variation margin
payments.
Options on futures contracts have a limited life. The ability to
establish and close out options on futures will be subject to the development
and maintenance of liquid secondary markets on the relevant exchanges or boards
of trade. There can be no certainty that liquid secondary markets for all
options on futures contracts will develop.
Purchasers of options on futures contracts pay a premium in cash at the
time of purchase. This amount and the transaction costs are all that is at risk.
Sellers of options on a futures contract, however, must post initial margin and
are subject to additional margin calls that could be substantial in the event of
adverse price movements, In addition, although the maximum amount at risk when s
Fund purchases an option is the premium paid for the option and the transaction
costs, there may be circumstances when the purchase of an option on a futures
contract would result in a loss to s Fund when the use of a futures contract
would not, such as when there is no movement in the level of the underlying
stock index or the value of securities or currencies being hedged.
A Fund's activities in the futures and related options markets may
result in a higher portfolio turnover rate and additional transaction costs in
the form of added brokerage commissions; however, a Fund also may save on
21
<PAGE>
commissions by using futures and related options as a hedge rather than buying
or selling individual securities or currencies in anticipation or as a result of
market movements.
SPECIAL RISKS RELATED TO FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED
OPTIONS. Buyers and sellers of foreign currency futures contracts are subject to
the same risks that apply to the use of futures generally. Further, settlement
of a foreign currency futures contract may occur within the country issuing the
underlying currency. In that case, a Fund must accept or make delivery of the
underlying foreign currency in accordance with any U.S. or foreign restrictions
or regulations regarding the maintenance of foreign banking arrangements by U.S.
residents, and may be required to pay any fees, taxes or charges associated with
such delivery that are assessed in the issuing country.
Options on foreign currency futures contracts may involve certain
additional risks. Trading of such options is relatively new. The ability to
establish and close out positions on such options is subject to the maintenance
of a liquid secondary market. To reduce this risk, a Fund will not purchase or
write options on foreign currency futures contracts unless and until, in the
Adviser's opinion, the market for such options has developed sufficiently that
the risks in connection with such options are not greater than the risks in
connection with transactions in the underlying futures contracts. Compared to
the purchase or sale of foreign currency futures contracts, the purchase of call
or put options thereon involves less potential risk to a Fund because the
maximum amount at risk is the premium paid for the options (plus transaction
costs). However, there may be circumstances when the purchase of a call or put
option on a foreign currency futures contract would result in a loss, such as
when there is no movement in the price of the underlying currency or futures
contract.
FUTURES GUIDELINES. To the extent that a Fund enters into futures
contracts or options thereon other than for bona fide hedging purposes (as
defined by the CFTC), the aggregate initial margin and premiums required to
establish these positions (excluding the in-the-money amount for options that
are in-the-money at the time of purchase) will not exceed 5% of the liquidation
value of the Fund's portfolio, after taking into account unrealized profits and
losses on any contracts into which the Fund has entered. This policy does not
limit a Fund's assets at risk to 5%. The value of all futures sold will not
exceed the total market value of a Fund's portfolio.
COVER FOR FUTURES AND OPTIONS STRATEGIES. No Fund will use leverage in
its futures and options strategies. No Fund will write options or purchase or
sell futures contracts unless it owns either (1) an offsetting ("covered")
position in securities, or other options or futures contracts or (2) cash and
liquid securities with a value sufficient at all times to cover its potential
obligations. A Fund will comply with guidelines established by the SEC with
respect to coverage of such instruments by mutual funds and, if required, will
set aside cash and liquid securities in a segregated account with its custodian
in the prescribed amount. Securities or other options or futures positions used
for cover and securities held in a segregated account cannot be sold or closed
out while the hedging or option income strategy is outstanding unless they are
replaced with similar assets. As a result, there is a possibility that the use
of cover or segregation involving a large percentage of a Fund's assets could
impede portfolio management or a Fund's ability to meet redemption requests or
other current obligations.
OPTIONS GUIDELINES. In view of the risks involved in using options, a
Fund's Board may adopt non-fundamental investment guidelines to govern a Fund's
use of options that may be modified by the Board without shareholder vote: (1)
options will be purchased or written only when the Adviser believes that there
22
<PAGE>
exists a liquid secondary market in such options; and (2) a Fund may not
purchase a put or call option if the value of the option's premium, when
aggregated with the premiums on all other options held by a Fund, exceeds 5% of
the Fund's total assets. However, this does not limit the amount of a Fund's
assets at risk to 5%.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING. A Fund may
effectively terminate its right or obligation under an option by entering into a
closing transaction. If a Fund wishes to terminate its obligation to sell
securities under a call option it has written, a Fund may purchase a call option
of the same series (that is, a call option identical in its terms to the call
option previously written); this is known as a closing purchase transaction.
Conversely, in order to terminate its right to purchase or sell specified
securities under a call or put option it has purchased, a Fund may write an
option of the same series, as the option held; this is known as a closing sale
transaction. Closing transactions essentially permit a Fund to realize profits
or limit losses on its options positions prior to the exercise or expiration of
the option.
The value of an option position will reflect, among other things, the
current market price of the underlying security or index, the time remaining
until expiration, the relationship of the exercise price to the market price,
the historical price volatility of the underlying security or index and general
market conditions. For this reason, the successful use of options depends upon
the Adviser's ability to forecast the direction of price fluctuations in the
underlying securities or, in the case of index options, fluctuations in the
market sector represented by the index selected.
Options normally have expiration dates of up to nine months. Unless an
option purchased by a Fund is exercised or unless a closing transaction is
effected with respect to that position, a loss will be realized in the amount of
the premium paid and any transaction costs.
A position in an exchange-listed option may be closed out only on an
exchange that provides a secondary market for identical options. The ability to
establish and close out positions on the exchanges is subject to the maintenance
of a liquid secondary market. Although a Fund intends to purchase or write only
those exchange-traded options for which there appears to be a liquid secondary
market, there is no assurance that a liquid secondary market will exist for any
particular option at any particular time. Closing transactions may be effected
with respect to options traded in the OTC markets (currently the primary markets
for options on debt securities) only by negotiating directly with the other
party to the option contract or in a secondary market for the option if such
market exists. Although a Fund will enter into OTC options only with dealers
that agree to enter into, and that are expected to be capable of entering into,
closing transactions with a Fund, there is no assurance that a Fund will be able
to liquidate an OTC option at a favorable price at any time prior to expiration.
In the event of insolvency of the opposite party, a Fund may be unable to
liquidate an OTC option. Accordingly, it may not be possible to effect closing
transactions with respect to certain options, with the result that a Fund would
have to exercise those options that it has purchased in order to realize any
profit. With respect to options written by a Fund, the inability to enter into a
closing transaction may result in material losses to a Fund. For example,
because a Fund must maintain a covered position or segregate assets with respect
to any call option it writes, a Fund may not sell the underlying assets used to
cover an option during the period it is obligated under the option. This
requirement may impair a Fund's ability to sell a portfolio security or make an
investment at a time when such a sale or investment might be advantageous.
Index options are settled exclusively in cash. If a Fund purchases an
option on an index, the option is settled based on the closing value of the
index on the exercise date. Thus, a holder of an index option who exercises it
23
<PAGE>
before the closing index value for that day is available runs the risk that the
level of the underlying index may subsequently change. For example, in the case
of a call option, if such a change causes the closing index value to fall below
the exercise price of the option on the index, the exercising holder will be
required to pay the difference between the closing index value and the exercise
price of the option.
A Fund's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs; however, a Fund also may
save on commissions by using options as a hedge rather than buying or selling
individual securities in anticipation or as a result of market movements.
FORWARD CURRENCY CONTRACTS STRATEGIES. GROWTH & INCOME FUND, SPECIAL
SITUATIONS FUND, TOTAL RETURN FUND and GLOBAL FUND may use forward currency
contracts to protect against uncertainty in the level of future foreign currency
exchange rates. The GLOBAL Fund currently is the only Fund that intends to use
this authority in the coming year. The Funds will not speculate with forward
currency contracts or foreign currency exchange rates.
While the Funds generally do not attempt to hedge its foreign security
holdings against the risk of changes in foreign currency exchange rates, it will
use forward currency contracts to hedge cash positions during the settlement of
transactions and in between transactions. For example, when a Fund enters into a
contract for the purchase or sale of a security denominated in a foreign
currency, or when a Fund anticipates the receipt in a foreign currency of
dividend or interest payments on a security that it holds, a Fund may desire to
"lock-in" the U.S. dollar price of the security or the U.S. dollar equivalent of
such payment, as the case may be, by entering into a forward contract for the
purchase or sale, for a fixed amount of U.S. dollars or foreign currency, of the
amount of foreign currency involved in the underlying transaction. A Fund will
thereby be able to protect itself against a possible loss resulting from an
adverse change in the relationship between the currency exchange rates during
the period between the date on which the security is purchased or sold, or on
which the dividend or interest payment is declared, and the date on which such
payments are made or received. When the Fund uses foreign currency contracts in
connection with stock index futures contracts, as noted previously it is doing
so to replicate the experience of owning the foreign securities and not to hedge
against foreign currency fluctuations.
The precise matching of the forward currency contract amounts and the
value of the securities involved will not generally be possible because the
future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. Accordingly,
it may be necessary for the Fund to purchase additional foreign currency on the
spot (I.E., cash) market and bear the expense of such purchase if the market
value of the security is less than the amount of foreign currency the Fund is
obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency. Conversely, it may be necessary to sell on the
spot market some of the foreign currency received upon the sale of the portfolio
security if its market value exceeds the amount of foreign currency a Fund is
obligated to deliver. The projection of short-term currency market movements is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. Forward currency contracts involve the risk that
anticipated currency movements will not be accurately predicted, causing a Fund
to sustain losses on these contracts and transactions costs. Unless a Fund's
obligations under a forward contract are covered with positions in securities,
currencies or other forward contracts, a Fund will enter into a forward contract
only if the Fund maintains cash or liquid assets in a segregated account in an
24
<PAGE>
amount not less than the value of a Fund's total assets committed to the
consummation of the contract, as marked to market daily.
At or before the maturity date of a forward contract requiring a Fund
to sell a currency, a Fund may either sell a portfolio security and use the sale
proceeds to make delivery of the currency or retain the security and offset its
contractual obligation to deliver the currency by purchasing a second contract
pursuant to which a Fund will obtain, on the same maturity date, the same amount
of the currency that it is obligated to deliver. Similarly, a Fund may close out
a forward contract requiring it to purchase a specified currency by entering
into a second contract entitling it to sell the same amount of the same currency
on the maturity date of the first contract. A Fund would realize a gain or loss
as a result of entering into an offsetting forward currency contract under
either circumstance to the extent the exchange rate or rates between the
currencies involved moved between the execution dates of the first contract and
the offsetting contract. There can be no assurance that the Fund will be able to
enter into new or offsetting forward currency contracts. Forward currency
contracts also involve a risk that the other party to the contract may fail to
deliver currency or pay for currency when due, which could result in substantial
losses to a Fund. The cost to a Fund of engaging in forward currency contracts
varies with factors such as the currencies involved, the length of the contract
period and the market conditions then prevailing. Because forward currency
contracts are usually entered into on a principal basis, no fees or commissions
are involved.
PORTFOLIO TURNOVER
Although each Fund generally will not invest for short-term trading
purposes, portfolio securities may be sold from time to time without regard to
the length of time they have been held when, in the opinion of the Adviser,
investment considerations warrant such action. Portfolio turnover rate is
calculated by dividing (1) the lesser of purchases or sales of portfolio
securities for the fiscal year by (2) the monthly average of the value of
portfolio securities owned during the fiscal year. A 100% turnover rate would
occur if all the securities in a Fund's portfolio, with the exception of
securities whose maturities at the time of acquisition were one year or less,
were sold and either repurchased or replaced within one year. A high rate of
portfolio turnover (100% or more) generally leads to higher transaction costs
and may result in a greater number of taxable transactions. See "Allocation of
Portfolio Brokerage."
For the fiscal year ended October 31, 1997, the portfolio turnover rate
for GROWTH & INCOME FUND, MID-CAP OPPORTUNITY FUND, and UTILITIES INCOME FUND
was 28%, 90% and 60%, respectively. For the fiscal year ended December 31, 1997,
the portfolio turnover rate for BLUE CHIP FUND, SPECIAL SITUATIONS FUND, TOTAL
RETURN FUND and GLOBAL FUND was 63%, 84%, 138% and 70%, respectively. For the
fiscal year ended September 30, 1998, the portfolio turnover rate for GROWTH &
INCOME FUND, MID-CAP OPPORTUNITY FUND, UTILITIES INCOME FUND, BLUE CHIP FUND,
SPECIAL SITUATIONS FUND, TOTAL RETURN FUND and GLOBAL FUND was __%, __%, __%,
__%, __%, __% and __%, respectively.
INVESTMENT RESTRICTIONS
The investment restrictions set forth below have been adopted by the
respective Fund and, unless identified as non-fundamental policies, may not be
changed without the affirmative vote of a majority of the outstanding voting
securities of that Fund, voting separately from any other Fund. As provided in
25
<PAGE>
the Investment Company Act of 1940, as amended ("1940 Act"), a "vote of a
majority of the outstanding voting securities of the Fund" means the affirmative
vote of the lesser of (1) more than 50% of the outstanding shares of the Fund or
(2) 67% or more of the shares of the Fund present at a meeting, if more than 50%
of the outstanding shares are represented at the meeting in person or by proxy.
Except with respect to borrowing, changes in values of a particular Fund's
assets as a whole will not cause a violation of the following investment
restrictions so long as percentage restrictions are observed by each Fund at the
time it purchases any security.
GROWTH & INCOME FUND will not:
(1) Issue senior securities or borrow money, except that the Fund may
borrow money from a bank for temporary or emergency purposes in amounts not
exceeding 5% (taken at the lower of cost or current value) of its net assets
(not including the amount borrowed).
(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) Make investments for the purpose of exercising control or
management.
26
<PAGE>
(3) Purchase any securities on margin.
(4) Purchase or sell portfolio securities from or to the Adviser or any
director or officer thereof or of SERIES FUND II, as principals.
MID-CAP OPPORTUNITY FUND will not:
(1) Issue senior securities or borrow money, except that the Fund may
borrow money from a bank for temporary or emergency purposes in amounts not
exceeding 5% (taken at the lower of cost or current value) of its net assets
(not including the amount borrowed).
(2) Purchase any security (other than obligations of the U.S.
Government, its agencies or instrumentalities) if as a result: (a) as to 75% of
the Fund's total assets more than 5% of such assets would then be invested in
securities of a single issuer, or (b) 25% or more of the Fund's total assets
would be invested in a single industry.
(3) Purchase more than 10% of the outstanding voting securities of any
one issuer or more than 10% of any class of securities of one issuer (all debt
and all preferred stock of an issuer are each considered a single class for this
purpose).
(4) Pledge, mortgage or hypothecate any of its assets, except that the
Fund may pledge its assets to secure borrowings made in accordance with
paragraph (1) above, provided the Fund maintains asset coverage of at least 300%
for all such borrowings.
(5) Buy or sell commodities or commodity contracts, including futures
contracts, or real estate or interests in real estate, although it may purchase
and sell securities which are secured by real estate, securities of companies
which invest or deal in real estate, and interests in real estate investment
trusts.
(6) Act as an underwriter, except to the extent that, in connection
with the disposition of portfolio securities, it may be deemed to be an
underwriter under certain Federal securities laws.
(7) Make investments for the purpose of exercising control or
management.
(8) Purchase any securities on margin.
(9) Make loans, except through repurchase agreements.
(10) Purchase or sell portfolio securities from or to the Adviser or
any director or officer thereof or of SERIES FUND II, as principals.
(11) Invest in any securities of any issuer if, to the knowledge of the
Fund, any officer or director of SERIES FUND II or of the Adviser owns more than
1/2 of 1% of the outstanding securities of such issuer, and such officers or
directors who own more than 1/2 of 1% own in the aggregate more than 5% of the
outstanding securities of such issuer.
The following investment restrictions are not fundamental and may be
changed without shareholder approval. The Fund will not:
27
<PAGE>
(1) Invest more than 15% of its net assets in repurchase agreements
maturing in more than seven days or in other illiquid securities, including
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions as to resale. Securities that have
legal or contractual restrictions as to resale but have a readily available
market and securities eligible for resale under Rule 144A under the Securities
Act of 1933, as amended, are not deemed illiquid for purposes of this
limitation; the Adviser will monitor the liquidity of such restricted securities
under the supervision of the Board of Directors.
(2) Write, purchase or sell options (puts, calls or combinations
thereof).
UTILITIES INCOME FUND will not:
(1) Issue senior securities or borrow money, except that the Fund may
borrow money from a bank for temporary or emergency purposes in amounts not
exceeding 5% (taken at the lower of cost or current value) of its net assets
(not including the amount borrowed).
(2) Purchase any security (other than obligations of the U.S.
Government, its agencies or instrumentalities) if as a result as to 75% of the
Fund's total assets more than 5% of such assets would then be invested in
securities of a single issuer.
(3) Purchase more than 10% of the outstanding voting securities of any
one issuer or more than 10% of any class of securities of one issuer (all debt
and all preferred stock of an issuer are each considered a single class for this
purpose).
(4) Pledge, mortgage or hypothecate any of its assets, except that the
Fund may pledge its assets to secure borrowings made in accordance with
paragraph (1) above, provided the Fund maintains asset coverage of at least 300%
for all such borrowings.
(5) Buy or sell commodities or commodity contracts, or real estate or
interests in real estate, except that the Fund may purchase and sell futures
contracts, options on futures contracts, securities that are secured by real
estate, securities of companies which invest or deal in real estate, and
interests in real estate investment trusts.
(6) Act as an underwriter, except to the extent that, in connection
with the disposition of portfolio securities, it may be deemed to be an
underwriter under certain federal securities laws.
(7) Make investments for the purpose of exercising control or
management.
(8) Purchase any securities on margin, except the Fund may make
deposits of margin in connection with futures contracts and options.
(9) Make loans, except loans of portfolio securities and repurchase
agreements.
(10) Purchase or sell portfolio securities from or to the Adviser or
any director or officer thereof or of SERIES FUND II, as principals.
(11) Invest in any securities of any issuer if, to the knowledge of the
Fund, any officer or director of SERIES FUND II or of the Adviser owns more than
28
<PAGE>
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) Make short sales of securities, except short sales "against the
box."
GLOBAL FUND will not:
(1) Borrow money, except from banks and only for temporary or emergency
purposes and then in amounts not in excess of 5% of its total assets taken at
cost or value, whichever is the lesser.
(2) Make loans to other persons, except that the Fund's Board of
Directors may, on the request of broker-dealers or other institutional investors
that it deems qualified, authorize the Fund to lend securities for the purpose
of covering short positions of the borrower, but only when the borrower pledges
cash collateral to the Fund and agrees to maintain such collateral so that it
amounts at all times to at least 100% of the value of the securities. Such
security loans will not be made if as a result the aggregate of such loans
exceed 10% of the value of the Fund's total assets. The purchase of a portion of
an issue of publicly distributed debt securities is not considered the making of
a loan. This restriction is not intended to prohibit the Fund from investing in
repurchase agreements.
(3) With respect to 75% of the Fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) if, as a result, (a) more than 5%
of the Fund's total assets would be invested in the securities of that issuer,
or (b) the Fund would hold more than 10% of the outstanding voting securities of
that issuer.
(4) Invest more than 15% of the value of its total assets in warrants.
(5) Invest more than 25% of the value of its total assets in securities
of foreign issuers, other than American Depository Receipts, that are not listed
on a recognized U.S. or foreign securities exchange, including no more than 10%
of the value of its assets in securities with a limited trading market.
(6) Invest 25% or more of the value of its total assets in a particular
industry at one time. The Fund, however, is not limited in the amount of its
total assets that may be invested in any particular country.
(7) Underwrite securities of other issuers, except to the extent that
the purchase and sale of restricted securities may be deemed to be underwriting.
29
<PAGE>
(8) Purchase or sell real estate, commodities or commodity contracts.
However, the Fund may purchase interests in real estate investment trusts whose
securities are registered under the 1933 Act and are readily marketable, and may
purchase or sell options on securities, securities indices and foreign
currencies, stock index futures, interest rate futures and foreign currency
futures, as well as options on such futures contracts.
(9) Invest in companies for the purpose of exercising control or
management.
(10) Purchase any securities on margin or sell any securities short,
except to make margin deposits in connection with the use of options, futures
contracts and options on futures contracts.
(11) Purchase or retain securities of any issuer if any officer or
Director of the Fund or the Adviser owns beneficially more than 1/2 of 1% of the
securities of such issuer and, together such officers and Directors own more
than 5% of the securities of such issuer.
(12) Purchase or sell portfolio securities from or to the Adviser or
any Director or officer thereof or of the Fund, as principals.
(13) Buy or sell puts, calls, straddles or spreads, except with respect
to options on securities, securities indices and foreign currencies or on
futures contracts.
(14) Issue senior securities.
(15) Invest more than 5% of the value of its total assets in securities
of issuers that have been in business for less than three years.
(16) Invest in securities of other domestic investment companies,
except in connection with a merger of another investment company, although the
Fund may purchase the securities of foreign investment companies or investment
trusts in the open market where no commissions or profits accrue to a sponsor or
dealer other than customary broker's commission, provided such securities do not
have an aggregate value (at cost) of more than 10% of the value of the Fund's
total net assets. Investment in securities of other investment companies may
cause a duplication of management and/or advisory fees.
The following investment restrictions are not fundamental and may be
changed without prior shareholder approval. These restrictions provide that the
Fund may not.
(1) Purchase any security if, as a result, more than 15% of its net
assets would be invested in illiquid securities, including repurchase agreements
not entitling the holder to payment of principal and interest within seven days
and any securities that are illiquid by virtue of legal or contractual
restrictions on resale or the absence of a readily available market. The
Directors, or the Fund's investment adviser acting pursuant to authority
delegated by the Directors, may determine that a readily available market exists
for securities eligible for resale pursuant to Rule 144A under the Securities
Act of 1933, as amended, or any other applicable rule, and therefore that such
securities are not subject to the foregoing limitation.
(2) Pledge, mortgage or hypothecate any of its assets, except that the
Fund may pledge its assets to secure borrowings made in accordance with
30
<PAGE>
fundamental investment restriction (1) above, provided the Fund maintains asset
coverage of at least 300% for all such borrowings.
BLUE CHIP FUND will not:
(1) Make short sales of securities to maintain a short position.
(2) Issue senior securities, borrow money or pledge its assets except
that the Fund may borrow from a bank for temporary or emergency purposes in
amounts not exceeding 5% (taken at the lower of cost or current value) of its
total assets (not including the amount borrowed) and pledge its assets to secure
such borrowings.
(3) Make loans, except loans of portfolio securities (limited to 10% of
the Fund's total assets).
(4) Purchase any security (other than obligations of the U.S.
Government, its agencies or instrumentalities) if as a result: (1) as to 75% of
the Fund's total assets (taken at current value), more than 5% of such assets
would then be invested in securities of a single issuer, or (2) 25% or more of
the Fund's total assets (taken at current value) would be invested in a single
industry.
(5) Purchase more than 10% of the outstanding voting securities of any
one issuer or more than 10% of any class of securities of one issuer (all debt
and all preferred stock of an issuer are each considered a single class for this
purpose).
(6) Pledge, mortgage or hypothecate any of its assets except that the
Fund may pledge its assets to secure borrowings made in accordance with
paragraph (2) above, provided the Fund maintains asset coverage of at least 300%
for pledged assets.
(7) Buy or sell commodities or commodity contracts or real estate or
interests in real estate, although it may purchase and sell securities which are
secured by real estate and securities of companies which invest or deal in real
estate.
(8) Act as an underwriter except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be an underwriter
under certain federal securities laws.
(9) Make investments for the purpose of exercising control or
management.
(10) Purchase any securities on margin.
(11) Purchase or sell portfolio securities from or to the Adviser or
any director, officer or Trustee thereof or of Series Fund, as principals.
(12) Invest in any securities of any issuer if, to the knowledge of
Series Fund, any officer, director or Trustee of Series Fund or of the Adviser
owns more than 1/2 of 1% of the outstanding securities of such issuer, and such
officers, directors or Trustees who own more than 1/2 of 1% own in the aggregate
more than 5% of the outstanding securities of such issuer.
The following investment restriction is not fundamental and may be
changed without shareholder approval. The investment restriction provides that
the Fund will not:
31
<PAGE>
Purchase any security if, as a result, more than 15% of its net assets
would be invested in illiquid securities, including repurchase agreements not
entitling the holder to payment of principal and interest within seven days and
any securities that are illiquid by virtue of legal or contractual restrictions
on resale or the absence of a readily available market. The Trustees, or the
Fund's investment adviser acting pursuant to authority delegated by the
Trustees, may determine that a readily available market exists for securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as
amended, or any other applicable rule, and therefore that such securities are
not subject to the foregoing limitation; the Adviser will monitor the liquidity
of such restricted securities under the supervision of the Board of Trustees.
SPECIAL SITUATIONS FUND will not:
(1) Make short sales of securities "against the box" in excess of 10%
of the Fund's total assets.
(2) Issue senior securities or borrow money, except that the Fund may
borrow money from a bank for temporary or emergency purposes in amounts not
exceeding 5% (taken at the lower of cost or current value) of its total assets
(not including the amount borrowed).
(3) Purchase any security (other than obligations of the U.S.
Government, its agencies or instrumentalities) if as a result: (i) as to 75% of
the Fund's total assets (taken at current value), more than 5% of such assets
would then be invested in securities of a single issuer, or (ii) 25% or more of
the Fund's total assets (taken at current value) would be invested in a single
industry.
(4) Purchase more than 10% of the outstanding voting securities of any
one issuer or more than 10% of any class of securities of one issuer (all debt
and all preferred stock of an issuer are each considered a single class for this
purpose).
(5) Pledge, mortgage or hypothecate any of its assets, except that the
Fund may pledge its assets to secure borrowings made in accordance with
paragraph (2) above, provided the Fund maintains asset coverage of at least 300%
for all such borrowings.
(6) Buy or sell commodities or commodity contracts including futures
contracts, or real estate or interests in real estate, although it may purchase
and sell securities which are secured by real estate, securities of companies
which invest or deal in real estate and interests in real estate investment
trusts.
(7) Act as an underwriter except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be an underwriter
under certain federal securities laws.
(8) Make investments for the purpose of exercising control or
management.
(9) Purchase any securities on margin.
(10) Make loans, except through repurchase agreements.
32
<PAGE>
(11) Purchase or sell portfolio securities from or to the Adviser or
any director, officer or Trustee thereof or of Series Fund, as principals.
(12) Invest in any securities of any issuer if, to the knowledge of
Series Fund, any officer, director or Trustee of Series Fund or of the Adviser
owns more than 1/2 of 1% of the outstanding securities of such issuer, and such
officers, directors or Trustees who own more than 1/2 of 1% own in the aggregate
more than 5% of the outstanding securities of such issuer.
The following investment restrictions are not fundamental and may be
changed without shareholder approval. These investment restrictions provide that
the Fund will not:
(1) Invest more than 15% of its net assets in repurchase agreements
maturing in more than seven days or in other illiquid securities, including
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions as to resale. Securities that have
legal or contractual restrictions as to resale but have a readily available
market are not deemed illiquid for purposes of this limitation; the Adviser will
monitor the liquidity of such restricted securities under the supervision of the
Board of Trustees.
(2) Write, purchase or sell options (puts, calls or combinations
thereof).
TOTAL RETURN FUND will not:
(1) Borrow money except for temporary or emergency purposes (not for
leveraging or investment) in an amount not exceeding 5% of the value of its
total assets (including the amount borrowed) less liabilities (other than
borrowings). Any borrowings that exceed 5% of the value of the Fund's total
assets by reason of a decline in net assets will be reduced within three
business days to the extent necessary to comply with the 5% limitation. This
policy shall not prohibit deposits of assets to provide margin or guarantee
positions in connection with transactions in options, futures contracts, swaps,
forward contracts, and other derivative instruments or the segregation of assets
in connection with such transactions.
(2) Issue senior securities.
(3) Make loans, except loans of portfolio securities (limited to 10% of
the Fund's total assets).
(4) Purchase any security (other than obligations of the U.S.
Government, its agencies or instrumentalities) if as a result: (i) as to 75% of
the Fund's total assets (taken at current value), more than 5% of such assets
would then be invested in securities of a single issuer, or (ii) 25% or more of
the Fund's total assets (taken at current value) would be invested in a single
industry.
(5) Purchase more than 10% of the outstanding voting securities of any
one issuer or more than 10% of any class of securities of one issuer (all debt
and all preferred stock of an issuer are each considered a single class for this
purpose).
(6) Buy or sell real estate or interests in real estate, although it
may purchase and sell securities which are secured by real estate and securities
of companies which invest or deal in real estate, including limited partnership
interests.
33
<PAGE>
(7) Act as an underwriter except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be an underwriter
under certain federal securities laws.
(8) Make investments for the purpose of exercising control or
management.
(9) Purchase or sell portfolio securities from or to the Adviser or any
director, officer or Trustee thereof or of Series Fund, as principals.
(10) Invest in any securities of any issuer if, to the knowledge of
Series Fund, any officer, director or Trustee of Series Fund or of the Adviser
owns more than 1/2 of 1% of the outstanding securities of such issuer, and such
officers, directors or Trustees who own more than 1/2 of 1% own in the aggregate
more than 5% of the outstanding securities of such issuer.
The following investment restrictions are not fundamental and may be
changed without shareholder approval. These investment restrictions provide that
the Fund will not:
(1) Purchase any security if, as a result, more than 15% of its net
assets would be invested in illiquid securities, including repurchase agreements
not entitling the holder to payment of principal and interest within seven days
and any securities that are illiquid by virtue of legal or contractual
restrictions on resale or the absence of a readily available market. The
Trustees, or the Fund's investment adviser acting pursuant to authority
delegated by the Trustees, may determine that a readily available market exists
for securities eligible for resale pursuant to Rule 144A under the Securities
Act of 1933, as amended, or any other applicable rule, and therefore that such
securities are not subject to the foregoing limitation; the Adviser will monitor
the liquidity of such restricted securities under the supervision of the Board
of Trustees.
(2) Purchase or sell physical commodities unless acquired as a result
of ownership of securities (but this restriction shall not prevent the Fund from
purchasing or selling options, futures contracts, caps, floors and other
derivative instruments, engaging in swap transactions or investing in securities
or other instruments backed by physical commodities).
(3) Enter into futures contracts or options on futures contracts for
non-bona fide hedging purposes if immediately thereafter the aggregate margin
deposits on all outstanding futures contracts positions held by the Fund and
premiums paid on outstanding options on futures contracts, after taking into
account unrealized profits and losses, would exceed 5% of the market value of
the total assets of the Fund, or enter into any futures contracts or options on
futures contracts if the aggregate amount of the Fund's commitments under
outstanding futures contracts positions and options on future contracts written
by the Fund would exceed the market value of the total assets of the Fund.
(4) Pledge assets, except that the Fund may pledge its assets to secure
borrowings made in accordance with fundamental investment restriction (1) above,
provided the Fund maintains asset coverage of at least 300% for pledged assets;
provided, however, this limitation will not prohibit escrow, collateral or
margin arrangements in connection with the Fund's use of options, futures
contracts or options on futures contracts.
(5) Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions, and
provided that margin payments and other deposits made in connection with
34
<PAGE>
transactions in options, futures contracts, swaps, forward contracts, and other
derivative instruments shall not be deemed to constitute purchasing securities
on margin.
DIRECTORS/TRUSTEES AND OFFICERS
The following table lists the Directors and executive officers of
SERIES FUND II, SERIES FUND AND/OR GLOBAL FUND, their business address and
principal occupations during the past five years. Unless otherwise noted, an
individual's business address is 95 Wall Street, New York, New York 10005.
GLENN O. HEAD*+ (73), President and Director. Chairman of the Board and
Director, Administrative Data Management Corp. ("ADM"), FIMCO, Executive
Investors Management Company, Inc. ("EIMCO"), First Investors Corporation
("FIC"), Executive Investors Corporation ("EIC") and First Investors
Consolidated Corporation ("FICC").
KATHRYN S. HEAD*+ (42), Director, 581 Main Street, Woodbridge, NJ 07095.
President and Director, FICC, ADM and FIMCO; Vice President, Chief Financial
Officer and Director, FIC and EIC; President, EIMCO; Chairman, President and
Director, First Financial Savings Bank, S.L.A.
LARRY R. LAVOIE* (51), Director. Assistant Secretary, ADM, EIC, EIMCO, FICC and
FIMCO; Secretary and General Counsel, FIC.
REX R. REED** (75), Director, 259 Governors Drive, Kiawah Island, SC 29455.
Retired; formerly Senior Vice President, American Telephone & Telegraph Company.
HERBERT RUBINSTEIN** (77), Director, 695 Charolais Circle, Edwards, CO
81632-1136. Retired; formerly President, Belvac International Industries, Ltd.
and President, Central Dental Supply.
NANCY SCHAENEN** (67), Director, 56 Midwood Terrace, Madison, NJ 07940. Trustee,
Drew University and DePauw University.
JAMES M. SRYGLEY** (66), Director, 33 Hampton Road, Chatham, NJ 07982.
Principal, Hampton Properties, Inc. (property investment company).
JOHN T. SULLIVAN* (66), Director and Chairman of the Board; Director, FIMCO,
FIC, FICC and ADM; Of Counsel, Hawkins, Delafield & Wood, Attorneys.
ROBERT F. WENTWORTH** (69), Director, RR1, Box 2554, Upland Downs Road,
Manchester Center, VT 05255. Retired; formerly financial and planning executive
with American Telephone & Telegraph Company.
JOSEPH I. BENEDEK (41), Treasurer and Principal Accounting Officer, 581 Main
Street, Woodbridge, NJ 07095. Treasurer, FIC, FIMCO, EIMCO and EIC; Comptroller
and Treasurer, FICC.
CONCETTA DURSO (63), Vice President and Secretary. Vice President, FIMCO, EIMCO
and ADM; Assistant Vice President and Assistant Secretary, FIC and EIC.
35
<PAGE>
PATRICIA D. POITRA (42), Vice President. Vice President, First Investors Series
Fund, First Investors U.S. Government Plus Fund and Executive Investors Trust;
Director of Equities, FIMCO.
CLARK D. WAGNER (39), Vice President. Vice President, First Investors
Multi-State Insured Tax Free Fund, Executive Investors Trust, First Investors
New York Insured Tax Free Fund, Inc. and First Investors Government Fund, Inc.;
Chief Investment Officer, FIMCO.
* These Directors may be deemed to be "interested persons," as defined in the
1940 Act.
** These Directors are members of the Board's Audit Committee.
+ Mr. Glenn O. Head and Ms. Kathryn S. Head are father and daughter.
All of the officers and Directors, except for Ms. Poitra and Mr.
Wagner, hold identical or similar positions with the other registered investment
companies in the First Investors Family of Funds. Mr. Head is also an officer
and/or Director of First Investors Asset Management Company, Inc., First
Investors Credit Funding Corporation, First Investors Leverage Corporation,
First Investors Realty Company, Inc., First Investors Resources, Inc., N.A.K.
Realty Corporation, Real Property Development Corporation, Route 33 Realty
Corporation, First Investors Life Insurance Company, First Financial Savings
Bank, S.L.A., First Investors Credit Corporation and School Financial Management
Services, Inc. Ms. Head is also an officer and/or Director of First Investors
Life Insurance Company, First Investors Credit Corporation, School Financial
Management Services, Inc., First Investors Credit Funding Corporation, N.A.K.
Realty Corporation, Real Property Development Corporation, First Investors
Leverage Corporation and Route 33 Realty Corporation.
The following table lists compensation paid to the Directors of each
Fund for the fiscal year ended September 30, 1998.*
Aggregate Aggregate Aggregate
Compensation Compensation Compensation
From From From
Director Series Fund Ii** Series Fund** Global Fund**
- -------- ---------------- ------------- -------------
James J. Coy***
Roger L. Grayson****
Glenn O. Head
Kathryn S. Head
Larry R. Lavoie+
Rex R. Reed
Herbert Rubinstein
Nancy Schaenen
James M. Srygley
John T. Sullivan
Robert F. Wentworth
36
<PAGE>
<TABLE>
<CAPTION>
Total Compensation
Pension or Retirement Estimated Annual From First Investors
Benefits Accrued as Benefits Upon Family of Funds Paid
Director Part of Fund Expenses Retirement to Director
- -------- --------------------- ---------- -----------
<S> <C> <C> <C>
James J. Coy*** $-0- $-0- $
Roger L. Grayson**** -0- -0- -0-
Glenn O. Head -0- -0- -0-
Kathryn S. Head -0- -0- -0-
Larry R. Lavoie+
Rex R. Reed -0- -0-
Herbert Rubinstein -0- -0-
Nancy Schaenen
James M. Srygley -0- -0-
John T. Sullivan -0- -0- -0-
Robert F. Wentworth -0- -0-
</TABLE>
* Fiscal year 1998 consisted of nine calendar months for GLOBAL FUND and
SERIES FUND, and eleven calendar months for SERIES II FUND.
** Compensation to officers and interested Directors of the Funds is paid by
the Adviser.
*** On March 27, 1997, Mr. Coy resigned as a Director of the Funds. Mr. Coy
currently serves as an emeritus Director.
****On August 20, 1998, Mr. Grayson resigned as a Director of the Funds.
+ On September 17, 1998, Mr. Lavoie was elected by the Board of Directors to
serve as a Director.
MANAGEMENT
ADVISER. Investment advisory services to each Fund are provided by
First Investors Management Company, Inc. pursuant to an Investment Advisory
Agreement ("Advisory Agreement") dated June 13, 1994. The Advisory Agreement was
approved by each Fund's Board, including a majority of the Directors who are not
parties to the Funds' Advisory Agreement or "interested persons" (as defined in
the 1940 Act) of any such party ("Independent Directors"), in person at a
meeting called for such purpose and by a majority of the public shareholders of
each Fund.
Pursuant to each Advisory Agreement, FIMCO shall supervise and manage
each Fund's investments, determine each Fund's portfolio transactions and
supervise all aspects of each Fund's operations, subject to review by the
Directors. The Advisory Agreement also provides that FIMCO shall provide the
Funds with certain executive, administrative and clerical personnel, office
facilities and supplies, conduct the business and details of the operation of
each Fund and assume certain expenses thereof, other than obligations or
liabilities of the Funds. An Advisory Agreement may be terminated at any time,
37
<PAGE>
with respect to a Fund, without penalty by the Directors or by a majority of the
outstanding voting securities of such Fund, or by FIMCO, in each instance on not
less than 60 days' written notice, and shall automatically terminate in the
event of its assignment (as defined in the 1940 Act). Each Advisory Agreement
also provides that it will continue in effect, with respect to a Fund, for a
period of over two years only if such continuance is approved annually either by
the Directors or by a majority of the outstanding voting securities of such
Fund, and, in either case, by a vote of a majority of the Independent Directors
voting in person at a meeting called for the purpose of voting on such approval.
Under the Advisory Agreements, each Fund is obligated to pay the
Adviser an annual fee, paid monthly, according to the following schedules:
MID-CAP OPPORTUNITY FUND
Annual
Average Daily Net Assets RATE
- ------------------------ ----
Up to $200 million .............................................. 1.00%
In excess of $200 million up to $500 million .................... 0.75
In excess of $500 million up to $750 million .................... 0.72
In excess of $750 million up to $1.0 billion .................... 0.69
Over $1.0 billion ............................................... 0.66
GROWTH & INCOME FUND, UTILITIES INCOME FUND
Annual
Average Daily Net Assets Rate
- ------------------------ -----
Up to $300 million .............................................. 0.75%
In excess of $300 million up to $500 million .................... 0.72
In excess of $500 million up to $750 million .................... 0.69
Over $750 million ............................................... 0.66
GLOBAL FUND
Annual
Average Daily Net Assets Rate
- ------------------------ ------
Up to $250 million .............................................. 1.00%
In excess of $250 million up to $500 million .................... 0.97
In excess of $500 million up to $750 million .................... 0.94
Over $750 million ............................................... 0.91
BLUE CHIP FUND, TOTAL RETURN FUND, SPECIAL SITUATIONS FUND
Annual
Average Daily Net Assets Rate
- ------------------------ ------
Up to $200 million .............................................. 1.00%
In excess of $200 million up to $500 million .................... 0.75
In excess of $500 million up to $750 million .................... 0.72
In excess of $750 million up to $1.0 billion .................... 0.69
Over $1.0 billion ............................................... 0.66
The following tables reflect the advisory fees paid, advisory fees
waived and expenses reimbursed with respect to each Fund for the fiscal years
ended October 31, 1996, December 31, 1996, October 31, 1997, December 31, 1997
and September 30, 1998.
38
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended 10/31/96 Fiscal Year Ended 10/31/97
-------------------------- --------------------------
Advisory Advisory Expenses Advisory Advisory
Fees Fees Assumed or Fees Fees Expenses
Paid Waived Reimbursed Paid Waived Reimbursed
---- ------ ---------- ---- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Mid-Cap Opportunity Fund $86,930 $28,977 $38,900 $86,930 $28,977 $38,900
Growth & Income Fund 561,048 125,042 17,942 561,048 125,042 17,942
Utilities Income Fund 601,030 169,147 137,128 601,030 169,147 137,128
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended 12/31/96 Fiscal Year Ended 12/31/97
-------------------------- --------------------------
Advisory Advisory Expenses Advisory Advisory
Fees Fees Assumed or Fees Fees Expenses
Paid Waived Reimbursed Paid Waived Reimbursed
---- ------ ---------- ---- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Blue Chip Fund $1,589,142 $490,381 $-0- $2,451,280 $817,093 $-0-
Special Situations Fund 1,123,731 374,577 -0- 1,411,573 470,525 -0-
Total Return Fund 417,844 139,362 -0- 474,344 158,115 -0-
Global Fund 2,491,112 -0- -0- 2,883,822 -0- -0-
</TABLE>
Fiscal Year Ended 9/30/98
Advisory Advisory
Fees Fees Expenses
Paid Waived Reimbursed
---- ------ ----------
Mid-Cap Opportunity Fund
Growth & Income Fund
Utilities Income Fund
Blue Chip Fund
Special Situations Fund
Total Return Fund
Global Fund
The Adviser has an Investment Committee composed of Dennis T.
Fitzpatrick, George V. Ganter, Richard Guinnessey, David Hanover, Glenn O. Head,
Kathryn S. Head, Nancy W. Jones, Michael O'Keefe, Patricia D. Poitra, Clark D.
Wagner, and Matthew Wright. The Committee usually meets weekly to discuss the
composition of the portfolio of each Fund and to review additions to and
deletions from the portfolios.
Prior to January 1, 1998, Wellington Management Company, LLP was the
subadviser to GROWTH & INCOME FUND. For the fiscal years ended October 31, 1996
and 1997, the Adviser paid Wellington Management Company, LLP fees of $257,037
and $489,484, respectively.
SUBADVISER. Wellington Management Company, LLP has been retained by the
Adviser and GLOBAL FUND as the investment subadviser to GLOBAL FUND under a
subadvisory agreement dated June 13, 1994 ("Subadvisory Agreement"). The
Subadvisory Agreement was approved by the Board of Directors of the Fund,
including a majority of Independent Directors in person at a meeting called for
such purpose and by a majority of the shareholders of the GLOBAL FUND.
The Subadvisory Agreement provides that it will continue for a period
of more than two years from the date of execution only so long as such
continuance is approved annually by either GLOBAL FUND's Board of Directors or a
majority of the outstanding voting securities of the Fund and, in either case,
by a vote of a majority of the Independent Directors voting in person at a
39
<PAGE>
meeting called for the purpose of voting on such approval. The Subadvisory
Agreement provides that it will terminate automatically if assigned or upon the
termination of the Advisory Agreement, and that it may be terminated at any time
without penalty by GLOBAL FUND's Board of Directors or a vote of a majority of
the outstanding voting securities of the Fund or by the Subadvisor upon not more
than 60 days' nor less than 30 days' written notice. The Subadvisory Agreement
provides that WMC will not be liable for any error of judgment or for any loss
suffered by the Fund in connection with the matters to which the Subadvisory
Agreement relates, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation or from willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations and duties.
Under the Subadvisory Agreement, the Adviser will pay to the Subadviser
a fee at an annual rate of 0.400% of the average daily net assets of GLOBAL FUND
up to and including $50 million; 0.275% of the average daily net assets in
excess of $50 million up to and including $150 million, 0.225% of the average
daily net assets in excess of $150 million up to and including $500 million; and
0.200% of the average daily net assets in excess of $500 million. This fee will
be computed daily and paid monthly. For the fiscal years ended December 31, 1996
and 1997, and September 30, 1998, the Adviser paid the Subadviser fees of
$699,146, $786,373 and $____________, respectively.
Each Fund bears all expenses of its operations other than those assumed
by the Adviser or Underwriter under the terms of its advisory or underwriting
agreements. Fund expenses include, but are not limited to: the advisory fee;
shareholder servicing fees and expenses; custodian fees and expenses; legal and
auditing fees; expenses of communicating to existing shareholders, including
preparing, printing and mailing prospectuses and shareholder reports to such
shareholders; and proxy and shareholder meeting expenses.
UNDERWRITER
SERIES FUND II, SERIES FUND AND GLOBAL FUND have entered into an
Underwriting Agreement ("Underwriting Agreement") with First Investors
Corporation ("Underwriter" or "FIC") which requires the Underwriter to use its
best efforts to sell shares of the Funds. The Underwriting Agreement was
approved by each Fund's Board, including a majority of the Independent
Directors. The Underwriting Agreement provides that it will continue in effect
from year to year, with respect to a Fund, only so long as such continuance is
specifically approved at least annually by the Board or by a vote of a majority
of the outstanding voting securities of such Fund, and in either case by the
vote of a majority of the Independent Directors, voting in person at a meeting
called for the purpose of voting on such approval. The Underwriting Agreement
will terminate automatically in the event of its assignment.
For the fiscal year ended October 31, 1996, FIC received underwriting
commissions with respect to GROWTH & INCOME FUND, MID-CAP OPPORTUNITY FUND and
UTILITIES INCOME FUND of $1,741,985, $244,548 and $1,275,372, respectively. For
the same period, FIC allowed to unaffiliated dealers an additional $3,902 with
respect to GROWTH & INCOME FUND, $2,805 with respect to MID-CAP OPPORTUNITY FUND
and $8,212 with respect to UTILITIES INCOME FUND.
For the fiscal year ended December 31, 1996, FIC received underwriting
commissions with respect to BLUE CHIP FUND, SPECIAL SITUATIONS FUND, TOTAL
RETURN FUND AND GLOBAL FUND of $2,440,825, $1,840,951, $228,699 and $1,455,711,
respectively. For the same period, FIC allowed to unaffiliated dealers an
40
<PAGE>
additional $11,607 with respect to BLUE CHIP FUND, $44,618 with respect to
SPECIAL SITUATIONS FUND, $2,402 with respect to TOTAL RETURN FUND and $5,196
with respect to GLOBAL FUND.
For the fiscal year ended October 31, 1997, FIC received underwriting
commissions with respect to GROWTH & INCOME FUND, MID-CAP OPPORTUNITY FUND and
UTILITIES INCOME FUND of $2,689,581, $365,416 and $586,037, respectively. For
the same period, FIC allowed to unaffiliated dealers an additional $8,575 with
respect to GROWTH & INCOME FUND, $1,353 with respect to MID-CAP OPPORTUNITY FUND
and $770 with respect to UTILITIES INCOME FUND.
For the fiscal year ended December 31, 1997, FIC received underwriting
commissions with respect to BLUE CHIP FUND, SPECIAL SITUATIONS FUND, TOTAL
RETURN FUND AND GLOBAL FUND of $3,445,078, $1,787,009, $372,980 and $1,410,014,
respectively. or the same period, FIC allowed to unaffiliated dealers an
additional $22,793 with respect to BLUE CHIP FUND, $19,149 with respect to
SPECIAL SITUATIONS FUND, $0 with respect to TOTAL RETURN FUND and $5,856 with
respect to GLOBAL FUND.
For the fiscal year ended September 30, 1998, FIC received underwriting
commissions with respect to GROWTH & INCOME FUND, MID-CAP OPPORTUNITY FUND,
UTILITIES INCOME FUND, BLUE CHIP FUND, SPECIAL SITUATIONS FUND, TOTAL RETURN
FUND AND GLOBAL FUND of $__________, $____________, $__________, $___________,
$__________, $_____________ and $____________, respectively. For the same
period, FIC allowed to unaffiliated dealers an additional ____________ with
respect to GROWTH & INCOME FUND, __________ with respect to MID-CAP OPPORTUNITY
FUND, __________ with respect to UTILITIES INCOME FUND, ____________ with
respect to BLUE CHIP FUND, _________ with respect to SPECIAL SITUATIONS FUND,
__________ with respect to TOTAL RETURN FUND and __________ with respect to
GLOBAL 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, SERIES FUND AND
GLOBAL FUND pursuant to Rule 12b-1 under the 1940 Act ("Class A Plan" and "Class
B Plan" and, collectively, "Plans"), each Fund may reimburse or compensate, as
applicable, the Underwriter for certain expenses incurred in the distribution of
that Fund's shares and the servicing or maintenance of existing Fund shareholder
accounts.
Each Plan was approved by each Fund's Board, including a majority of
the Independent Directors, and by a majority of the outstanding voting
securities of the relevant class of each Fund. Each Plan will continue in effect
from year to year, with respect to a Fund, as long as its continuance is
approved annually by either the Board or by a vote of a majority of the
outstanding voting securities of the relevant class of shares of such Fund. In
either case, to continue, each Plan must be approved by the vote of a majority
of the Independent Directors. The Board reviews quarterly and annually a written
report provided by the Treasurer of the amounts expended under the applicable
Plan and the purposes for which such expenditures were made. While each Plan is
in effect, the selection and nomination of the Independent Directors will be
committed to the discretion of such Independent Directors then in office.
41
<PAGE>
Each Plan can be terminated at any time by a vote of a majority of the
applicable Fund's Independent Directors or by a vote of a majority of the
outstanding voting securities of the relevant class of shares of such Fund. Any
change to any Plan that would materially increase the costs to that class of
shares of such Fund may not be instituted without the approval of the
outstanding voting securities of the class of shares of such Fund as well as any
class of shares that converts into that class. Such changes also require
approval by a majority of the applicable Fund's Independent Directors.
In adopting each Plan, the Board considered all relevant information
and determined that there is a reasonable likelihood that each Plan will benefit
each Fund and their class of shareholders. The Board believes that the amounts
spent pursuant to each Plan have assisted each Fund in providing ongoing
servicing to shareholders, in competing with other providers of financial
services and in promoting sales, thereby increasing the net assets of each Fund.
In reporting amounts expended under the Plans to the Directors, in the
event tht the expenses are not related solely to one class, FIMCO will allocate
expenses attributable to the sale of each class of a Fund's shares to such class
based on the ratio of sales of such class to the sales of both classes of
shares. The fees paid by one class of a Fund's shares will not be used to
subsidize the sale of any other class of that Fund's shares.
For the fiscal year ended September 30, 1998, GROWTH & INCOME FUND,
MID-CAP OPPORTUNITY FUND, UTILITIES INCOME FUND, BLUE CHIP FUND, SPECIAL
SITUATIONS FUND, TOTAL RETURN FUND AND GLOBAL FUND paid $_______, $_______,
$________, $_________, $__________, $_________ and $_________, respectively, in
fees pursuant to the Class A Plan. For the same period, the Underwriter incurred
the following Class A Plan-related expenses with respect to each Fund:
<TABLE>
<CAPTION>
Compensation to Compensation to Compensation to
Fund Underwriter Dealers Sales Personnel
- ---- ----------- ------- ---------------
<S> <C> <C> <C>
Growth & Income Fund $ $-0- $
Mid-Cap Opportunity Fund -0-
Utilities Income Fund -0-
Blue Chip Fund
Special Situations Fund
Total Return Fund
Global Fund
</TABLE>
For the fiscal year ended September 30, 1998, GROWTH & INCOME FUND,
MID-CAP OPPORTUNITY FUND, UTILITIES INCOME FUND, BLUE CHIP FUND, SPECIAL
SITUATIONS FUND, TOTAL RETURN FUND AND GLOBAL FUND paid $_________, $_______,
$_________, $___________, $_________, $_________ and $__________, 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:
42
<PAGE>
<TABLE>
<CAPTION>
Compensation to Compensation to Compensation to
Fund Underwriter Dealers Sales Personnel
- ---- ----------- ------- ---------------
<S> <C> <C> <C>
Growth & Income Fund $ $ $
Mid-Cap Opportunity Fund -0-
Utilities Income Fund
Blue Chip Fund
Special Situations Fund
Total Return Fund
Global Fund
</TABLE>
DETERMINATION OF NET ASSET VALUE
Except as provided herein, a security listed or traded on an exchange
or the Nasdaq Stock Market is valued at its last sale price on the exchange or
market where the security is principally traded, and lacking any sales on a
particular day, the security is valued at the mean between the closing bid and
asked prices. Securities traded in the over-the-counter market ("OTC")
(including securities listed on exchanges whose primary market is believed to be
OTC) are valued at the mean between the last bid and asked prices prior to the
time when assets are valued based upon quotes furnished by market makers for
such securities. However, a Fund may determine the value of debt securities and
equity securities based upon prices furnished by 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 considers security type, rating,
market condition, yield data and other available information in determining
value. Short-term debt securities that mature in 60 days or less are valued at
amortized cost. Securities for which market quotations are not readily available
are valued at fair value as determined in good faith by or under the supervision
of the particular Fund's officers in a manner specifically authorized by the
Board.
With respect to each Fund, "when-issued securities" are reflected in
the assets of the Fund as of the date the securities are purchased. Such
investments are valued thereafter at the mean between the most recent bid and
asked prices obtained from recognized dealers in such securities or by the
pricing service. For valuation purposes, where applicable, quotations of foreign
securities in foreign currencies are converted into U.S. dollar equivalents
using the foreign exchange equivalents in effect.
Each Fund's Board may suspend the determination of a Fund's net asset
value per share separately for each class of shares for the whole or any part of
any period (1) during which trading on the New York Stock Exchange ("NYSE") is
restricted as determined by the SEC or the NYSE is closed for other than weekend
and holiday closings, (2) during which an emergency, as defined by rules of the
SEC in respect to the U.S. market, exists as a result of which disposal by a
Fund of securities owned by it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or (3) for such other period as the
SEC has by order permitted.
EMERGENCY PRICING PROCEDURES. In the event that the Funds must halt
operations during any day that they would normally be required to price under
Rule 22c-1 under the 1940 Act due to an emergency ("Emergency Closed Day"), the
Funds will apply the following procedures:
43
<PAGE>
1. The Funds will make every reasonable effort to segregate orders
received on the Emergency Closed Day and give them the price that they would
have received but for the closing. The Emergency Closed Day price will be
calculated as soon as practicable after operations have resumed and will be
applied equally to sales, redemptions and repurchases that were in fact received
in the mail or otherwise on the Emergency Closed Day.
2. For purposes of paragraph 1, an order will be deemed to have been
received by the Funds on an Emergency Closed Day, even if neither the Funds nor
the Transfer Agent is able to perform the mechanical processing of pricing on
that day, under the following circumstances:
(a) In the case of a mail order the order will be considered
received by a Fund when the postal service has delivered it to FIC's offices in
Woodbridge, New Jersey prior to the close of regular trading on the NYSE, or at
such other time as may be prescribed in its prospectus; and
(b) In the case of a wire order, including a Fund/SERV order,
the order will be considered received when it is received in good form by a FIC
branch office or an authorized dealer prior to the close of regular trading on
the NYSE, or such other time as may be prescribed in its prospectus.
3. If the Funds are unable to segregate orders received on the
Emergency Closed Day from those received on the next day the Funds are open for
business, the Funds may give all orders the next price calculated after
operations resume.
4. Notwithstanding the foregoing, on business days in which the NYSE is
not open for regular trading, the Funds may determine not to price their
portfolio securities if such prices would lead to a distortion of the NAV for
the Funds and their shareholders.
ALLOCATION OF PORTFOLIO BROKERAGE
The Adviser may purchase or sell portfolio securities on behalf of the
Fund in agency or principal transactions. In agency transactions, the Fund
generally pays brokerage commissions. In principal transactions, the Fund
generally does not pay commissions, however the price paid for the security may
include an undisclosed dealer commission or "mark-up" or selling concessions.
The Adviser normally purchases fixed-income securities on a net basis from
primary market makers acting as principals for the securities. The Adviser may
purchase certain money market instruments directly from an issuer without paying
commissions or discounts. The Adviser may also purchase securities traded in the
OTC market. As a general practice, OTC securities are usually purchased from
market makers without paying commissions, although the price of the security
usually will include undisclosed compensation. However, when it is advantageous
to the Fund the Adviser may utilize a broker to purchase OTC securities and pay
a commission.
In purchasing and selling portfolio securities on behalf of the Fund,
the Adviser will seek to obtain best execution. The Fund may pay more than the
lowest available commission in return for brokerage and research services.
Additionally, upon instruction by the Board, the Adviser may use dealer
concessions available in fixed-priced underwritings to pay for research and
other services. Research and other services may include information as to the
availability of securities for purchase or sale, statistical or factual
information or opinions pertaining to securities, reports and analysis
44
<PAGE>
concerning issuers and their creditworthiness, and Lipper's Directors'
Analytical Data concerning Fund performance and fees. The Adviser generally uses
the research and other services to service all the funds in the First Investors
Family of Funds, rather than the particular Funds whose commissions may pay for
research or other services. In other words, a Fund's brokerage may be used to
pay for a research service that is used in managing another Fund within the
First Investors Fund Family. The Lipper's Directors' Analytical Data is used by
the Adviser and the Fund Board to analyze a fund's performance relative to other
comparable funds.
In selecting the broker-dealers to execute the Fund's portfolio
transactions, the Adviser may consider such factors as the price of the
security, the rate of the commission, the size and difficulty of the order, the
trading characteristics of the security involved, the difficulty in executing
the order, the research and other services provided, the expertise, reputation
and reliability of the broker-dealer, access to new offerings, and other factors
bearing upon the quality of the execution. The Adviser does not place portfolio
orders with an affiliated broker, or allocate brokerage commission business to
any broker-dealer for distributing fund shares. Moreover, no broker-dealer
affiliated with the Adviser participates in commissions generated by portfolio
orders placed on behalf of the Fund.
The Adviser may combine transaction orders placed on behalf of a Fund
and any other fund in the First Investors Group of Funds, any Fund of Executive
Investors Trust and First Investors Life Insurance Company, affiliates of the
Funds for the purpose of negotiating brokerage commissions or obtaining a more
favorable transaction price; and where appropriate, securities purchased or sold
may be allocated in accordance with written procedures approved by the Board of
Directors.
The following tables reflect the total commissions paid, commissions
paid to brokers who furnished research services and the amount of portfolio
transactions for which commissions were paid to brokers for research services,
with respect to each Fund for the fiscal years ended October 31, 1996, December
31, 1996, October 31, 1997, December 31, 1997 and September 30, 1998.
<TABLE>
<CAPTION>
Fiscal Year Ended 10/31/96 Fiscal Year Ended 10/31/97
-------------------------- --------------------------
Transactions Transactions
for Which for Which
Commissions Commissions Commissions Commissions
Total Paid for Paid for Total Paid for Paid for
Commissions Research Research Commissions Research Research
Paid Services Services Paid Services Services
---- -------- -------- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Mid-Cap Opportunity Fund $39,267 $21,766 $5,012,732 $111,995 $17,242 $6,861,292
Growth & Income Fund 92,694 35,498 28,859,209 146,190 46,196 50,452,086
Utilities Income Fund 210,594 62,273 26,793,286 277,318 13,624 6,820,235
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended 12/31/96 Fiscal Year Ended 12/31/97
-------------------------- --------------------------
Transactions Transactions
for Which for Which
Commissions Commissions Commissions Commissions
Total Paid for Paid for Total Paid for Paid for
Commissions Research Research Commissions Research Research
Paid Services Services Paid Services Services
---- -------- -------- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Blue Chip Fund
Special Situations Fund
Total Return Fund
Global Fund
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended 9/30/98
-------------------------
Transactions
for Which
Commissions Commissions
Total Paid for Paid for
Commissions Research Research
Paid Services Services
---- -------- --------
<S> <C> <C> <C>
Mid-Cap Opportunity Fund
Growth & Income Fund
Utilities Income Fund
Blue Chip Fund
Special Situations Fund
Total Return Fund
Global Fund
</TABLE>
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES
Information regarding the purchase, redemption and exchange of Fund
shares is contained in the Shareholder Manual, a separate section of the SAI
that is a distinct document and may be obtained free of charge by contacting
your Fund.
REDEMPTIONS-IN-KIND. If each Fund's Board should determine that it
would be detrimental to the best interests of the remaining shareholders of a
Fund to make payment wholly or partly in cash, the Fund may pay redemption
proceeds in whole or in part by a distribution in kind of securities from the
portfolio of the Fund. In this connection, Series Fund II has elected to be
governed by Rule 18f-1 under the 1940 Act. Pursuant to Rule 18f-1 Series Fund II
is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1%
of the net asset value of the Fund during any 90-day period for any one
shareholder. With respect to all Funds, if shares are redeemed in kind, the
redeeming shareholder will likely incur brokerage costs in converting the assets
into cash. The method of valuing portfolio securities for this purpose is
described under "Determination of Net Asset Value."
TAXES
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code of 1986, as amended, a Fund --
each Fund being treated as a separate corporation for these purposes -- must
distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (consisting generally of net investment
income, net short-term capital gain and net gains from certain foreign currency
transactions) ("Distribution Requirement") and must meet several additional
requirements. For each Fund these requirements include the following: (1) the
46
<PAGE>
Fund must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of securities or foreign currencies, or other
income (including gains from options, futures or forward contracts) derived with
respect to its business of investing in securities or those currencies ("Income
Requirement"); (2) at the close of each quarter of the Fund's taxable year, at
least 50% of the value of its total assets must be represented by cash and cash
items, U.S. Government securities, securities of other RICs and other
securities, with those other securities limited, in respect of any one issuer,
to an amount that does not exceed 5% of the value of the Fund's total assets and
that does not represent more than 10% of the issuer's outstanding voting
securities; and (3) at the close of each quarter of the Fund's taxable year, not
more than 25% of the value of its total assets may be invested in securities
(other than U.S. Government securities or the securities of other RICs) of any
one issuer. If a Fund failed to qualify as a RIC for any taxable year, it would
be taxed on the full amount of its taxable income for that year without being
able to deduct the distributions it makes to its shareholders and the
shareholders would treat all those distributions, including distributions of net
capital gain (the excess of net long-term capital gain over net short-term
capital loss), as dividends (that is, ordinary income) to the extent of the
Fund's earnings and profits.
Dividends and other distributions declared by a Fund in October,
November or December of any year and payable to shareholders of record on a date
in any of those months are deemed to have been paid by the Fund and received by
the shareholders on December 31 of that year if the distributions are paid by
the Fund during the following January. Accordingly, those distributions will be
taxed to shareholders for the year in which that December 31 falls.
A portion of the dividends from a Fund's investment company taxable
income may be eligible for the dividends-received deduction allowed to
corporations. The eligible portion may not exceed the aggregate dividends
received by the Fund from U.S. corporations. However, dividends received by a
corporate shareholder and deducted by it pursuant to the dividends-received
deduction are subject indirectly to the alternative minimum tax.
If shares of a Fund are sold at a loss after being held for six months
or less, the loss will be treated as long-term, instead of short-term, capital
loss to the extent of any capital gain distributions received on those shares.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts.
Dividends and interest received by GROWTH & INCOME FUND, SPECIAL
SITUATIONS FUND, GLOBAL FUND and TOTAL RETURN FUND, and gains realized by these
Funds, may be subject to income, withholding or other taxes imposed by foreign
countries and U.S. possessions ("foreign taxes") that would reduce the yield
and/or total return on its securities. Tax conventions between certain countries
and the United States may reduce or eliminate foreign taxes, however, and many
foreign countries do not impose taxes on capital gains in respect of investments
by foreign investors. If more than 50% of the value of a Fund's total assets at
the close of any taxable year consists of securities of foreign corporations, it
will be eligible to, and may, file an election with the Internal Revenue Service
that would enable its shareholders, in effect, to benefit from any foreign tax
credit or deduction available with respect to any foreign taxes paid by it.
Pursuant to any such election, a Fund would treat those taxes as dividends paid
47
<PAGE>
to its shareholders and each shareholder (1) would be required to include in
gross income, and treat as paid by the shareholder, the shareholder's
proportionate share of those taxes, (2) would be required to treat that share of
those taxes and of any dividend paid by the Fund that represents income from
foreign or U.S. possessions sources as the shareholder's own income from those
sources, and (3) could either deduct the taxes deemed paid by the shareholder in
computing taxable income or, alternatively, use the foregoing information in
calculating the tax credit against the shareholder's Federal income tax. Each
Fund that makes this election will report to its shareholders shortly after each
taxable year their respective shares of its income from sources within, and
taxes paid to, foreign countries and U.S. possessions. Individuals who have no
more than $300 ($600 for married persons filing jointly) of creditable foreign
taxes included on Form 1099 and all of whose foreign source income is "qualified
passive income" may elect each year to be exempt from the extremely complicated
foreign tax credit limitation and will be able to claim a foreign tax credit
without having to file the detailed Form 1116 that otherwise is required.
GROWTH & INCOME FUND, SPECIAL SITUATIONS FUND, TOTAL RETURN AND GLOBAL
FUND may each invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation - other than a "controlled foreign
corporation" (i.e., a foreign corporation in which, on any day during its
taxable year, more than 50% of the total voting power of all voting stock
therein or the total value of all stock therein is owned, directly, indirectly,
or constructively, by "U.S. shareholders," defined as U.S. persons that
individually own, directly, indirectly, or constructively, at least 10% of that
voting power) as to which a Fund is a U.S. shareholder - that, in general, meets
either of the following tests: (1) at least 75% of its gross income is passive
or (2) an average of at least 50% of its assets produce, or are held for the
production of, passive income. Under certain circumstances, if a Fund holds
stock of a PFIC, it will be subject to Federal income tax on a portion of any
"excess distribution" received on the stock or of any gain on disposition of the
stock (collectively "PFIC income"), plus interest thereon, even if the Fund
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Fund's investment company
taxable income and, accordingly, will not be taxable to it to the extent it
distributes that income to its shareholders.
If a Fund invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund" ("QEF"), then in lieu of the foregoing tax and
interest obligation, the Fund would be required to include in income each year
its pro rata share of the QEF's annual ordinary earnings and net capital gain -
which probably would have to be distributed by the Fund to satisfy the
Distribution Requirement and avoid imposition of the Excise Tax - even if those
earnings and gain were not distributed to the Fund by the QEF. In most instances
it will be very difficult, if not impossible, to make this election because of
certain requirements thereof.
Each Fund may elect to "mark-to-market" its stock in any PFIC.
"Marking-to-market," in this context, means including in ordinary income each
taxable year the excess, if any, of the fair market value of the PFIC's stock
over a Fund's adjusted basis in that stock as of the end of that year. Pursuant
to the election, a Fund also may deduct (as an ordinary, not capital, loss) the
excess, if any, of its adjusted basis in PFIC stock over the fair market value
thereof as of the taxable year-end, but only to the extent of any net
mark-to-market gains with respect to that stock included by the Fund for prior
taxable years. A Fund's adjusted basis in each PFIC's stock subject to the
election would be adjusted to reflect the amounts of income included and
deductions taken thereunder (and under regulations proposed in 1992 that
provided a similar election with respect to the stock of certain PFICs).
48
<PAGE>
GLOBAL FUND'S use of hedging strategies, such as selling (writing) and
purchasing options and futures contracts and entering into forward currency
contracts, involve complex rules that will determine for income tax purposes the
character and timing of recognition of the gains and losses the Fund realizes in
connection therewith. Gains from the disposition of foreign currencies (except
certain gains that may be excluded by future regulations), futures and options
thereon, and forward currency contracts derived by GLOBAL FUND with respect to
its business of investing in securities or foreign currencies, will qualify as
permissible income under the Income Requirement.
MID-CAP OPPORTUNITY FUND, TOTAL RETURN FUND and UTILITIES INCOME FUND
may acquire zero coupon or other securities issued with original issue discount.
As a holder of those securities, each such Fund must include in its income the
portion of the original issue discount that accrues on the securities during the
taxable year, even if the Fund receives no corresponding payment on them during
the year. Similarly, each such Fund must include in its gross income securities
it receives as "interest" on pay-in-kind securities. Because each Fund annually
must distribute substantially all of its investment company taxable income,
including any original issue discount and other non-cash income, to satisfy the
Distribution Requirement and avoid imposition of the Excise Tax, a Fund may be
required in a particular year to distribute as a dividend an amount that is
greater than the total amount of cash it actually receives. Those distributions
will be made from a Fund's cash assets or from the proceeds of sales of
portfolio securities, if necessary. A Fund may realize capital gains or losses
from those sales, which would increase or decrease its investment company
taxable income and/or net capital gain.
If a Fund has an "appreciated financial position" - generally, an
interest (including an interest through an option, futures or forward contract
or short sale) with respect to any stock, debt instrument (other than "straight
debt") or partnership interest the fair market value of which exceeds its
adjusted basis - and enters into a "constructive sale" of the same or
substantially similar property, the Fund will be treated as having made an
actual sale thereof, with the result that gain will be recognized at that time.
A constructive sale generally consists of a short sale, an offsetting notional
principal contract or futures or forward contract entered into by a Fund or a
related person with respect to the same or substantially similar property. In
addition, if the appreciated financial position is itself a short sale or such a
contract, acquisition of the underlying property or substantially similar
property will be deemed a constructive sale.
PERFORMANCE INFORMATION
A Fund may advertise its top holdings from time to time. A Fund may
also advertise its performance in various ways.
Each Fund's "average annual total return" ("T") is an average annual
compounded rate of return. The calculation produces an average annual total
return for the number of years measured. It is the rate of return based on
factors which include a hypothetical initial investment of $1,000 ("P") over a
number of years ("n") with an Ending Redeemable Value ("ERV") of that
investment, according to the following formula:
T=[(ERV/P)(1/n)]-1
The "total return" uses the same factors, but does not average the rate
of return on an annual basis. Total return is determined as follows:
49
<PAGE>
(ERV-P)/P = TOTAL RETURN
Total return is calculated by finding the average annual change in the
value of an initial $1,000 investment over the period. In calculating the ending
redeemable value for Class A shares, each Fund will deduct the maximum sales
charge of 6.25% (as a percentage of the offering price) from the initial $1,000
payment and, for Class B shares, the applicable CDSC imposed on a redemption of
Class B shares held for the period is deducted. All dividends and other
distributions are assumed to have been reinvested at net asset value on the
initial investment ("P").
Return information may be useful to investors in reviewing a Fund's
performance. However, certain factors should be taken into account before using
this information as a basis for comparison with alternative investments. No
adjustment is made for taxes payable on distributions. Return information will
fluctuate over time and return information for any given past period will not be
an indication or representation of future rates of return. At times, the Adviser
may reduce its compensation or assume expenses of a Fund in order to reduce the
Fund's expenses. Any such waiver or reimbursement would increase the Fund's
return during the period of the waiver or reimbursement.
Average annual return and total return computed at the public offering
price (maximum sales charge for Class A shares and applicable CDSC for Class B
shares) for the period ended _________________, 1998 are set forth in the tables
below:
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN: 1, 2
One Year Five Years Life of Fund
---------------------------- ----------------------------- ---------------------------
Class A Class B Class A Class B Class A Class B
Shares Shares3 Shares Shares3 Shares Shares3
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Mid-Cap Opportunity Fund
Utilities Income Fund
Growth & Income Fund
Blue Chip Fund
Special Situations Fund
Total Return Fund
Global Fund
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN: 1, 2
Class A Class B Class A Class B Class A Class B
Shares Shares3 Shares Shares3 Shares Shares3
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Mid-Cap Opportunity Fund
Utilities Income Fund
Growth & Income Fund
Blue Chip Fund
Special Situations Fund
Total Return Fund
Global Fund
</TABLE>
1 All Class A total return figures assume the maximum front-end sales charge of
6.25% and dividends reinvested at net asset value. Prior to July 1, 1993, the
maximum front-end sales charge was 6.90%. Prior to December 29, 1989, the
maximum front-end sales charge was 7.25% for BLUE CHIP FUND and 8.50% for GLOBAL
FUND.
50
<PAGE>
2 Certain expenses of the Funds have been waived from commencement of operations
through September 30, 1998. Accordingly, return figures are higher than they
would have been had such expenses not been waived.
3 The commencement date for the offering of Class B shares is January 12, 1995.
Average annual total return and total return may also be based on
investment at reduced sales charge levels or at net asset value. Any quotation
of return not reflecting the maximum sales charge will be greater than if the
maximum sales charge were used. Average annual return and total return computed
at net asset value for the period ended __________, 1998 are set forth in the
tables below:
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN: 1
One Year Five Years Life of Fund
---------------------------- -------------------------- ------------------------
Class A Class B Class A Class B Class A Class B
Shares Shares2 Shares Shares2 Shares Shares2
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Mid-Cap Opportunity Fund
Utilities Income Fund
Growth & Income Fund
Blue Chip Fund
Special Situations Fund
Total Return Fund
Global Fund
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN: 1
One Year Five Years Life of Fund
---------------------------- -------------------------- ------------------------
Class A Class B Class A Class B Class A Class B
Shares Shares2 Shares Shares2 Shares Shares2
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Mid-Cap Opportunity Fund
Utilities Income Fund
Growth & Income Fund
Blue Chip Fund
Special Situations Fund
Total Return Fund
Global Fund
</TABLE>
1 Certain expenses of the Funds have been waived from commencement of operations
through September 30, 1998. Accordingly, return figures are higher than they
would have been had such expenses not been waived.
2 The commencement date for the offering of Class B shares is January 12, 1995.
Each Fund may include in advertisements and sales literature,
information, examples and statistics to illustrate the effect of compounding
income at a fixed rate of return to demonstrate the growth of an investment over
a stated period of time resulting from the payment of dividends and capital gain
distributions in additional shares. These examples may also include hypothetical
returns comparing taxable versus tax-deferred growth which would pertain to an
IRA, section 403(b)(7) Custodial Account or other qualified retirement program.
The examples used will be for illustrative purposes only and are not
representations by the Funds of past or future yield or return. Examples of
typical graphs and charts depicting such historical performance, compounding and
hypothetical returns are included in Appendix C.
51
<PAGE>
From time to time, in reports and promotional literature, the Funds may
compare their performance to, or cite the historical performance of, Overnight
Government repurchase agreements, U.S. Treasury bills, notes and bonds,
certificates of deposit, and six-month money market certificates or indices of
broad groups of unmanaged securities considered to be representative of, or
similar to, the Funds' portfolio holdings, such as:
Lipper Analytical Services, Inc. ("Lipper") is a
widely-recognized independent service that monitors and ranks the
performance of regulated investment companies. The Lipper performance
analysis includes the reinvestment of capital gain distributions and
income dividends but does not take sales charges into consideration.
The method of calculating total return data on indices utilizes actual
dividends on ex-dividend dates accumulated for the quarter and
reinvested at quarter end.
Morningstar Mutual Funds ("Morningstar"), a semi-monthly
publication of Morningstar, Inc. Morningstar proprietary ratings
reflect historical risk-adjusted performance and are subject to change
every month. Funds with at least three years of performance history are
assigned ratings from one star (lowest) to five stars (highest).
Morningstar ratings are calculated from the funds' three-, five-, and
ten-year average annual returns (when available) and a risk factor that
reflects fund performance relative to three-month Treasury bill monthly
returns. Fund's returns are adjusted for fees and sales loads. Ten
percent of the funds in an investment category receive five stars,
22.5% receive four stars, 35% receive three stars, 22.5% receive two
stars, and the bottom 10% receive one star.
Salomon Brothers Inc., "Market Performance," a monthly
publication which tracks principal return, total return and yield on
the Salomon Brothers Broad Investment-Grade Bond Index and the
components of the Index.
Telerate Systems, Inc., a computer system to which the Adviser
subscribes which daily tracks the rates on money market instruments,
public corporate debt obligations and public obligations of the U.S.
Treasury and agencies of the U.S. Government.
THE WALL STREET JOURNAL, a daily newspaper publication which
lists the yields and current market values on money market instruments,
public corporate debt obligations, public obligations of the U.S.
Treasury and agencies of the U.S. Government as well as common stocks,
preferred stocks, convertible preferred stocks, options and
commodities; in addition to indices prepared by the research
departments of such financial organizations as Lehman Bros., Merrill
Lynch, Pierce, Fenner and Smith, Inc., Credit Suisse First Boston,
Salomon Smith Barney, Morgan Stanley Dean Witter & Co., Goldman, Sachs
& Co., Donaldson, Lufkin & Jenrette, Value Line, Datastream
International, HBSC James Capel, Warburg Dillion Read, County Natwest
and UBS UK Limited, including information provided by the Federal
Reserve Board, Moody's, and the Federal Reserve Bank.
Merrill Lynch, Pierce, Fenner & Smith, Inc. "Taxable Bond
Indices," a monthly corporate government index publication which lists
principal, coupon and total return on over 100 different taxable bond
52
<PAGE>
indices which Merrill Lynch tracks. They also list the par weighted
characteristics of each Index.
Lehman Brothers, Inc., "The Bond Market Report," a monthly
publication which tracks principal, coupon and total return on the
Lehman Govt./Corp. Index and Lehman Aggregate Bond Index, as well as
all the components of these Indices.
Reuters, a wire service that frequently reports on global
business.
The Consumer Price Index, prepared by the U.S. Bureau of Labor
Statistics, is a commonly used measure of inflation. The Index shows
changes in the cost of selected consumer goods and does not represent a
return on an investment vehicle.
The Credit Suisse First Boston High Yield Index is designed to
measure the performance of the high yield bond market.
The Lehman Brothers Aggregate Index is an unmanaged index
which generally covers the U.S. investment grade fixed rate bond
market, including government and corporate securities, agency mortgage
pass-through securities, and asset-backed securities.
The Lehman Brothers Corporate Bond Index includes all publicly
issued, fixed rate, nonconvertible investment grade dollar-denominated,
corporate debt which have at least one year to maturity and an
outstanding par value of at least $100 million.
Moody's Stock Index, an unmanaged index of utility stock
performance.
The Morgan Stanley All Country World Free Index is designed to
measure the performance of stock markets in the United States, Europe,
Canada, Australia, New Zealand and the developed and emerging markets
of Eastern Europe, Latin America, Asia and the Far East. The index
consists of approximately 60% of the aggregate market value of the
covered stock exchanges and is calculated to exclude companies and
share classes which cannot be freely purchased by foreigners.
The Morgan Stanley World Index is designed to measure the
performance of stock markets in the United States, Europe, Canada,
Australia, New Zealand and the Far East. The index consists of
approximately 60% of the aggregate market value of the covered stock
exchanges.
The NYSE composite of component indices--unmanaged indices of
all industrial, utilities, transportation, and finance stocks listed on
the NYSE.
The Russell 2000 Index, prepared by the Frank Russell Company,
consists of U.S. publicly traded stocks of domestic companies that rank
from 1000 to 3000 by market capitalization. The Russell 2000 tracks the
return on these stocks based on price appreciation or depreciation and
does not include dividends and income or changes in market values
caused by other kinds of corporate changes.
The Russell 2500 Index, prepared by the Frank Russell Company,
consists of U.S. publicly traded stocks of domestic companies that rank
from 500 to 3000 by market capitalization. The Russell 2500 tracks the
53
<PAGE>
return on these stocks based on price appreciation or depreciation and
does not include dividends and income or changes in market values
caused by other kinds of corporate changes.
The Salomon Brothers Government Index is a market
capitalization-weighted index that consists of debt issued by the U.S.
Treasury and U.S. Government sponsored agencies.
The Salomon Brothers Mortgage Index is a market
capitalization-weighted index that consists of all agency pass-throughs
and FHA and GNMA project notes.
The Standard & Poor's 400 Midcap Index is an unmanaged
capitalization-weighted index that is generally representative of the
U.S. market for medium cap stocks.
The Standard & Poor's 500 Composite Stock Price Index and the
Dow Jones Industrial Average of 30 stocks are unmanaged lists of common
stocks frequently used as general measures of stock market performance.
Their performance figures reflect changes of market prices and
quarterly reinvestment of all distributions but are not adjusted for
commissions or other costs.
The Standard & Poor's Smallcap 600 Index is a
capitalization-weighted index that measures the performance of selected
U.S. stocks with a small market capitalization.
The Standard & Poor's Utilities Index is a capitalization-
weighted index of 37 stocks designed to measure the performance of the
utilities sector of the S&P 500 Index. The Index assumes the
reinvestment of dividends.
Moody's Stock Index, an unmanaged index of utility stock
performance.
From time to time, in reports and promotional literature,
performance rankings and ratings reported periodically in national
financial publications such as MONEY, FORBES, BUSINESS WEEK, BARRON'S,
FINANCIAL TIMES and FORTUNE may also be used. In addition, quotations
from articles and performance ratings and ratings appearing in daily
newspaper publications such as THE WALL STREET JOURNAL, THE NEW YORK
TIMES and NEW YORK DAILY NEWS may be cited.
54
<PAGE>
GENERAL INFORMATION
SERIES FUND is a Massachusetts business trust organized on September
23, 1988. SERIES FUND is authorized to issue an unlimited number of shares of
beneficial interest, no par value, in such separate and distinct series and
classes of shares as the Board of Trustees shall from time to time establish.
The shares of beneficial interest of Series Fund are presently divided into five
separate and distinct series, each having two classes, designated Class A shares
and Class B shares. Series Fund does not hold annual shareholder meetings. If
requested to do so by the holders of at lest 10% of Series Fund's outstanding
shares, Series Fund's Board of Trustees will call a special meeting of
shareholders for any purpose, including the removal of Trustees. Each share of
each Fund has equal voting rights except as noted above.
GLOBAL FUND was incorporated in the state of Maryland on March 9,
1981. GLOBAL FUND'S authorized capital stock consists of 100 million shares of
common stock, all of one series, with a par value per share of $1.00. The Fund
is authorized to issue shares of common stock in such separate and distinct
series and classes of shares as the Fund's Board of Directors shall from time to
time establish. The shares of common stock of the Fund are presently divided
into two classes, designated Class A shares and Class B shares. Each class of
the Fund represents interests in the same assets of the Fund. The Fund does not
hold annual shareholder meetings. If requested to do so by the holders of at
least 10% of the Fund's outstanding shares, the Fund's Board of Directors will
call a special meeting of shareholders for any purpose, including the removal of
Directors. Each share of the Fund has equal voting rights except as noted above.
SERIES FUND II is a Maryland corporation organized on April 1, 1992.
SERIES FUND II is authorized to issue 400 million shares of common stock, $0.001
par value, in such separate and distinct series and classes of shares as SERIES
FUND II'S Board of Directors shall from time to time establish. The shares of
common stock of SERIES FUND II are presently divided into three separate and
distinct series, each having two classes, designated Class A shares and Class B
shares. Each class of a Fund represents interests in the same assets of that
Fund. SERIES FUND II does not hold annual shareholder meetings. If requested to
do so by the holders of at least 10% of a Fund's outstanding shares, the Board
of Directors will call a special meeting of shareholders for any purpose,
including the removal of Directors. Each share of each Fund has equal voting
rights except as noted above. Prior to December 31, 1997, the Mid-Cap
Opportunity Fund was known as U.S.A. Mid-Cap Opportunity Fund and prior to
February 15, 1996 it was known as Made in the U.S.A. Fund.
CUSTODIAN. The Bank of New York, 48 Wall Street, New York, NY 10286, is
custodian of the securities and cash of each Fund, except for the Global Fund,
and employs foreign sub-custodians to provide custody of foreign assets for
SPECIAL SITUATIONS FUND and TOTAL RETURN FUND. Brown Brothers Harriman & Co., 40
Water Street, Boston, MA 02109, is custodian of the securities and cash of the
GLOBAL FUND and employs foreign subcustodians to provide custody of the GLOBAL
FUND'S foreign assets.
AUDITS AND REPORTS. The accounts of the Funds are audited twice a year
by Tait, Weller & Baker, independent certified public accountants, 8 Penn Center
Plaza, Philadelphia, PA, 19103-2108. Shareholders of each Fund receive
semi-annual and annual reports, including audited financial statements, and a
list of securities owned.
55
<PAGE>
LEGAL COUNSEL. Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue,
N.W., Washington, D.C. 20036 serves as counsel to the Funds.
TRANSFER AGENT. Administrative Data Management Corp., 581 Main Street,
Woodbridge, NJ 07095-1198, an affiliate of FIMCO and FIC, acts as transfer agent
for the Funds and as redemption agent for regular redemptions. The fees charged
to each Fund by the Transfer Agent are $5.00 to open an account; $3.00 for each
certificate issued; $.75 per account per month; $10.00 for each legal transfer
of shares; $.45 per account per dividend declared; $5.00 for each exchange of
shares into a Fund; $5.00 for each partial withdrawal or complete liquidation;
$1.00 for each Systematic Withdrawal Plan check; $4.00 for each shareholder
services call; $20.00 for each item of correspondence; and $1.00 per account per
report required by any governmental authority. Additional fees charged to the
Funds by the Transfer Agent are assumed by the Underwriter. The Transfer Agent
reserves the right to change the fees on prior notice to the Funds. Upon request
from shareholders, the Transfer Agent will provide an account history. For
account histories covering the most recent three year period, there is no
charge. The Transfer Agent charges a $5.00 administrative fee for each account
history covering the period 1983 through 1994 and $10.00 per year for each
account history covering the period 1974 through 1982. Account histories prior
to 1974 will not be provided. If any communication from the Transfer Agent to a
shareholder is returned from the U.S. Postal Service marked as "Undeliverable"
two consecutive times, the Transfer Agent will cease sending any further
materials to the shareholder until the Transfer Agent is provided with a correct
address. Efforts to locate a shareholder will be conducted in accordance with
SEC rules and regulations prior to forfeiture of funds to the appropriate state
treasury. The Transfer Agent may deduct the costs of its efforts to locate a
shareholder from the shareholder's account. These costs may include a percentage
of the account if a search company charges such a fee in exchange for its
location services. The Transfer Agent is not responsible for any fees that
states and/or their representatives may charge for processing the return of
funds to investors whose funds have been escheated. The Transfer Agent's
telephone number is 1-800-423-4026.
5% AND 25% SHAREHOLDERS. As of October 31, 1998, [UPDATE FOR EACH
FUND].
SHAREHOLDER LIABILITY. SERIES FUND is organized as an entity known as
a "Massachusetts business trust." Under Massachusetts law, shareholders of such
a trust may, under certain circumstances, be held personally liable for the
obligations of SERIES FUND. The Declaration of Trust however, contains an
express disclaimer of shareholder liability for acts or obligations of SERIES
FUND and requires that notice of such disclaimer be given in each agreement,
obligation, or instrument entered into or executed by the Fund or the Trustees.
The Fund's Declaration of Trust provides for indemnification out of the property
of the Fund of any shareholder held personally liable for the obligations of
SERIES FUND. The Declaration of Trust also provides that the Fund shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of the Fund and satisfy any judgment thereon. Thus, the risk
of a shareholder's incurring financial loss on account of shareholder liability
is limited to circumstances in which the Fund itself would be unable to meet its
obligations. The Adviser believes that, in view of the above, the risk of
personal liability to shareholders is immaterial and extremely remote. The
Declaration of Trust further provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration of
Trust protects a Trustee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office. SERIES
FUND may have an obligation to indemnify Trustees and officers with respect to
litigation.
56
<PAGE>
TRADING BY PORTFOLIO MANAGERS AND OTHER ACCESS PERSONS. Pursuant to
Section 17(j) of the 1940 Act and Rule 17j-1 thereunder, the Funds and the
Adviser have adopted Codes of Ethics restricting personal securities trading by
portfolio managers and other access persons of the Funds. Among other things,
such persons, except the Directors or Trustees of the Funds, as applicable: (a)
must have all non-exempt trades pre-cleared; (b) are restricted from short-term
trading; (c) must provide duplicate statements and transactions confirmations to
a compliance officer; and (d) are prohibited from purchasing securities of
initial public offerings.
57
<PAGE>
APPENDIX A
DESCRIPTION OF CORPORATE BOND AND
CONVERTIBLE SECURITY RATINGS
STANDARD & POOR'S
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
any audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default-capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C Debt rated "BB," "B," "CCC," "CC" and "C" is
regarded, on balance, as predominantly speculative with respect to capacity to
pay interest and repay principal. "BB" indicates the least degree of speculation
and "C" the highest. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
BB Debt rated "BB" has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
58
<PAGE>
B Debt rated "B" has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"BB" or "BB-" rating.
CCC Debt rated "CCC" has a currently identifiable vulnerability to
default and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The "CCC" rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
CC The rating "CC" typically is applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
C The rating "C" typically is applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
CI The rating "CI" is reserved for income bonds on which no interest is
being paid.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The "D" rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified
by the addition of a plus or minus sign to show relative standing within the
major categories.
MOODY'S INVESTORS SERVICE, INC.
Aaa Bonds which are rated "Aaa" are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat greater than the Aaa securities.
A Bonds which are rated "A" possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in the
future.
59
<PAGE>
Baa Bonds which are rated "Baa" are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba Bonds which are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B Bonds which are rated "B" generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa Bonds which are rated "Caa" are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds which are rated "Ca" represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C Bonds which are rated "C" are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
APPENDIX B
DESCRIPTION OF COMMERCIAL PAPER RATINGS
STANDARD & POOR'S
S&P's commercial paper rating is a current assessment of the likelihood
of timely payment of debt considered short-term in the relevant market. Ratings
are graded into several categories, ranging from "A-1" for the highest quality
obligations to "D" for the lowest.
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) designation.
MOODY'S INVESTORS SERVICE, INC.
Moody's short-term debt ratings are opinions of the ability of issuers
to repay punctually senior debt obligations which have an original maturity not
exceeding one year. Obligations relying upon support mechanisms such as
letters-of-credit and bonds of indemnity are excluded unless explicitly rated.
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:
60
<PAGE>
- 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.
61
<PAGE>
APPENDIX C
[The following tables are represented as graphs in the printed document.]
The following graphs and chart illustrate hypothetical returns:
INCREASE RETURNS
This graph shows over a period of time even a small increase in returns can make
a significant difference.
Years 10% 8% 6% 4%
----- ------- ------ ------ ------
5 16,453 14,898 13,489 12,210
10 27,070 22,196 18,194 14,908
15 44,539 33,069 24,541 18,203
20 73,281 49,268 33,102 22,226
25 120,569 73,402 44,650 27,138
INCREASE INVESTMENT
This graph shows the more you invest on a regular basis over time, the more you
can accumulate.
Years $100 $250 $500 $1,000
----- ------ ------- ------- -------
5 7,348 18,369 36,738 73,476
10 18,295 43,736 91,473 182,946
15 34,604 86,509 173,019 346,038
20 58,902 147,255 294,510 589,020
25 95,103 237,757 475,513 951,026
<PAGE>
[The following table is represented as a graph in the printed document.]
This chart illustrates the time value of money based upon the following
assumptions:
If you invested $2,000 each year for 20 years, starting at 25, assuming a 9%
investment return, you would accumulate $573,443 by the time you reach age 65.
However, had you invested the same $2,000 each year for 20 years, at that rate,
but waited until age 35, you would accumulate only $242,228 - a difference of
$331,215.
25 years old .............. 573,443
35 years old .............. 242,228
45 years old .............. 103,320
For each of the above graphs and chart it should be noted that systematic
investment plans do not assume a profit or protect against loss in declining
markets. Investors should consider their financial ability to continue purchases
through periods of both high and low price levels. Figures are hypothetical and
for illustrative purposes only and do not represent any actual investment or
performance. The value of a shareholder's investment and return may vary.
<PAGE>
[The following table is represented as a chart in the printed document.]
The following chart illustrates the historical performance of the Dow Jones
Industrial Average from 1928 through 1996.
1928 .................. 300.00
1929 .................. 248.48
1930 .................. 164.58
1931 .................. 77.90
1932 .................. 59.93
1933 .................. 99.90
1934 .................. 104.04
1935 .................. 144.13
1936 .................. 179.90
1937 .................. 120.85
1938 .................. 154.76
1939 .................. 150.24
1940 .................. 131.13
1941 .................. 110.96
1942 .................. 119.40
1943 .................. 136.20
1944 .................. 152.32
1945 .................. 192.91
1946 .................. 177.20
1947 .................. 181.16
1948 .................. 177.30
1949 .................. 200.10
1950 .................. 235.40
1951 .................. 269.22
1952 .................. 291.89
1953 .................. 280.89
1954 .................. 404.38
1955 .................. 488.39
1956 .................. 499.46
1957 .................. 435.68
1958 .................. 583.64
1959 .................. 679.35
1960 .................. 615.88
1961 .................. 731.13
1962 .................. 652.10
1963 .................. 762.94
1964 .................. 874.12
1965 .................. 969.25
1966 .................. 785.68
1967 .................. 905.10
1968 .................. 943.75
1969 .................. 800.35
1970 .................. 838.91
1971 .................. 890.19
1972 .................. 1,020.01
1973 .................. 850.85
1974 .................. 616.24
1975 .................. 858.71
1976 .................. 1,004.65
1977 .................. 831.17
1978 .................. 805.01
1979 .................. 838.74
1980 .................. 963.98
1981 .................. 875.00
1982 .................. 1,046.55
1983 .................. 1,258.64
1984 .................. 1,211.56
1985 .................. 1,546.67
1986 .................. 1,895.95
1987 .................. 1,938.80
1988 .................. 2,168.60
1989 .................. 2,753.20
1990 .................. 2,633.66
1991 .................. 3,168.83
1992 .................. 3,301.11
1993 .................. 3,754.09
1994 .................. 3,834.44
1995 .................. 5,000.00
1996 .................. 6,000.00
The performance of the Dow Jones Industrial Average is not indicative of
the performance of any particular investment. It does not take into account fees
and expenses associated with purchasing mutual fund shares. Individuals cannot
invest directly in any index. Please note that past performance does not
guarantee future results.
<PAGE>
[The following table is represented as a chart in the printed document.]
The following chart shows that inflation is constantly eroding the value of your
money.
THE EFFECTS OF INFLATION OVER TIME
1966 ....................... 96.61836
1967 ....................... 93.80423
1968 ....................... 89.59334
1969 ....................... 84.36285
1970 ....................... 79.88906
1971 ....................... 77.33694
1972 ....................... 74.79395
1973 ....................... 68.80768
1974 ....................... 61.27131
1975 ....................... 57.31647
1976 ....................... 54.63915
1977 ....................... 51.20820
1978 ....................... 46.98000
1979 ....................... 41.46514
1980 ....................... 36.85790
1981 ....................... 33.84564
1982 ....................... 32.60659
1983 ....................... 31.41290
1984 ....................... 30.23378
1985 ....................... 29.12696
1986 ....................... 28.81005
1987 ....................... 27.59583
1988 ....................... 26.43279
1989 ....................... 25.27035
1990 ....................... 23.81748
1991 ....................... 23.10134
1992 ....................... 22.45028
1993 ....................... 21.86006
1994 ....................... 21.28536
1995 ....................... 20.76620
1996 ....................... 20.16135
1996 ....................... 100.00
1997 ....................... 103.00
1998 ....................... 106.00
1999 ....................... 109.00
2000 ....................... 113.00
2001 ....................... 116.00
2002 ....................... 119.00
2003 ....................... 123.00
2004 ....................... 127.00
2005 ....................... 130.00
2006 ....................... 134.00
2007 ....................... 138.00
2008 ....................... 143.00
2009 ....................... 147.00
2010 ....................... 151.00
2011 ....................... 156.00
2012 ....................... 160.00
2013 ....................... 165.00
2014 ....................... 170.00
2015 ....................... 175.00
2016 ....................... 181.00
2017 ....................... 186.00
2018 ....................... 192.00
2019 ....................... 197.00
2020 ....................... 203.00
2021 ....................... 209.00
2022 ....................... 216.00
2023 ....................... 222.00
2024 ....................... 229.00
2025 ....................... 236.00
2026 ....................... 243.00
Inflation erodes your buying power. $100 in 1966, could purchase five times the
goods and service as in 1996 ($100 vs. $20).* Projecting inflation at 3%, goods
and services costing $100 today will cost $243 in the year 2026.
* Source: Consumer Price Index, U.S. Bureau of Labor Statistics.
<PAGE>
[The following tables are represented as graphs in the printed document.]
This chart illustrates that historically, the longer you hold onto stocks, the
greater chance that you will have a positive return.
1926 through 1996*
Total Number of Percentage of
Number of Positive Positive
Rolling Period Periods Periods Periods
-------------- ------- ------- -------
1-Year 71 51 72%
5-Year 67 60 90%
10-Year 62 60 97%
15-Year 57 57 100%
20-Year 52 52 100%
The following chart shows the compounded annual return of large company stocks
compared to U.S. Treasury Bills and inflation over the most recent 15 year
period. **
Compound Annual Return from 1982 -- 1996*
Inflation ..................... 3.55
U.S. Treasury Bills ........... 6.50
Large Company Stocks .......... 16.79
The following chart illustrates for the period shown that long-term corporate
bonds have outpaced U.S. Treasury Bills and inflation.
Compound Annual Return from 1982 -- 1996*
Inflation ..................... 3.55
U.S. Treasury Bills ........... 6.50
Long-Term Corp. bonds ......... 13.66
* Source: Used with permission. (c)1997 Ibbotson Associates, Inc. All rights
reserved. [Certain provisions of this work were derived from copyrighted
works of Roger G. Ibbotson and Rex Sinquefield.]
** Please note that U.S. Treasury bills are guaranteed as to principal and
interest payments (although the funds that invest in them are not), while
stocks will fluctuate in share price. Although past performance cannot
guarantee future results, returns of U.S. Treasury bills historically have
not outpaced inflation by as great a margin as stocks.
<PAGE>
The accompanying table illustrates that if you are in the 36% tax bracket, a
tax-free yield of 3% is actually equivalent to a taxable investment earning
4.69%.
Your Taxable Equivalent Yield
Your Federal Tax Bracket
---------------------------------------------
28.0% 31.0% 36.0% 39.6%
your tax-free yield
3.00% 4.17% 4.35% 4.69% 4.97%
3.50% 4.86% 5.07% 5.47% 5.79%
4.00% 5.56% 5.80% 6.25% 6.62%
4.50% 6.25% 6.52% 7.03% 7.45%
5.00% 6.94% 7.25% 7.81% 8.25%
5.50% 7.64% 7.97% 8.59% 9.11%
This information is general in nature and should not be construed as tax advice.
Please consult a tax or financial adviser as to how this information affects
your particular circumstances.
<PAGE>
[The following table is represented as a graph in the printed document.]
The following graph illustrates how income has affected the gains from stock
investments since 1965.
S&P 500 Dividends Reinvested S&P 500 Principal Only
12/31/64 10,000 10,000
12/31/65 11,269 10,906
12/31/66 10,115 9,478
12/31/67 12,550 11,383
12/31/68 13,948 12,255
12/31/69 12,795 10,863
12/31/70 13,299 10,873
12/31/71 15,200 12,046
12/31/72 18,088 13,929
12/31/73 15,431 11,510
12/31/74 11,346 8,090
12/31/75 15,570 10,642
12/31/76 19,296 12,680
12/31/77 17,915 11,221
12/31/78 19,092 11,340
12/31/79 22,645 12,736
12/31/80 30,004 16,019
12/31/81 28,528 14,460
12/31/82 34,674 16,595
12/31/83 42,496 19,461
12/31/84 45,161 19,733
12/31/85 59,489 24,930
12/31/86 70,594 28,575
12/31/87 74,301 29,154
12/31/88 86,641 32,769
12/31/89 114,093 41,699
12/31/90 110,549 38,964
12/31/91 144,230 49,214
12/31/92 155,218 51,411
12/31/93 170,863 55,039
12/31/94 173,120 54,191
12/31/95 238,175 72,676
12/31/96 292,863 87,403
11/30/97 383,977 112,732
Source: First Investors Management Company, Inc. Standard & Poor's is a
registered trademark. The S&P 500 is an unmanaged index comprising 500 common
stocks spread across a variety of industries. The total returns represented
above compare the impact of reinvestment of dividends and illustrates past
performance of the index. The performance of any index is not indicative of the
performance of a particular investment and does not take into account the
effects of inflation or the fees and expenses associated with purchasing mutual
fund shares. Individuals cannot invest directly in any index. Mutual fund shares
will fluctuate in value, therefore, the value of your original investment and
your return may vary. Moreover, past performance is no guarantee of future
results.
<PAGE>
Financial Statements
as of September 30, 1998
Registrants incorporate by reference the financial statements and report of
independent auditors contained in the annual reports to shareholders for the
fiscal years ended September 30, 1998 electronically filed with the Commission
on ____________, 1998 (Accession Number: ____________________).
<PAGE>
SHAREHOLDER MANUAL
A GUIDE TO YOUR
FIRST INVESTORS
MUTUAL FUND ACCOUNT
<PAGE>
<PAGE>
INTRODUCTION
Investing in mutual funds doesn't have to be complicated. In addition to a wide
variety of mutual funds, First Investors offers personalized service. Your
registered representative is available to answer your questions and help you
process your transactions. In the event you wish to process a transaction
directly, the material provided in this easy-to-follow guide tells you how to
contact us and explains our policies and procedures.
Please read this manual completely to gain a better understanding of how shares
are bought, sold, exchanged, and transferred. In addition, the manual provides
you with a description of the services we offer to simplify investing. The
services, privileges and fees referenced in this manual are subject to change.
You should call our Shareholder Services Department at 1 (800) 423-4026 before
initiating any transaction.
This manual must be preceded or accompanied by a First Investors mutual fund
prospectus. For more complete information on any First Investors Fund, including
charges and expenses, refer to the prospectus. Read the prospectus carefully
before you invest or send money.
95 Wall Street
New York, NY 10005
November 13, 1998
3
<PAGE>
TABLE OF CONTENTS
HOW TO BUY SHARES
To Open An Account.......................5
To Open a Retirement Account.............6
Additional Investments...................6
Acceptable Forms of Payment..............6
Share Classes............................6
Share Class Specification................7
Class A Shares...........................7
Class B Shares...........................9
How To Pay..............................10
HOW TO SELL SHARES
Written Redemptions.....................13
Telephone Redemptions...................13
Electronic Funds Transfer...............13
Systematic Withdrawal Plans.............14
Expedited Wire Redemptions..............14
HOW TO EXCHANGE SHARES
Exchange Methods........................15
Exchange Conditions.....................15
Exchanging Funds With Automatic
Investments
or Systematic Withdrawals...............16
WHEN AND HOW
ARE FUND SHARES PRICED?.................17
HOW ARE PURCHASE,
REDEMPTION AND
EXCHANGE ORDERS
PROCESSED AND PRICED?...................17
RIGHT TO REJECT PURCHASE
OR EXCHANGE ORDERS......................19
SIGNATURE GUARANTEE POLICY..............19
TELEPHONE PRIVILEGES
Security Measures.......................20
Eligibility.............................20
OTHER SERVICES..........................22
ACCOUNT STATEMENTS
Transaction Confirmation Statements.....24
Master Account Statements...............24
Annual and Semi-Annual Reports..........24
DIVIDENDS AND DISTRIBUTIONS
Dividends and Distributions.............25
TAX FORMS...............................26
4
<PAGE>
HOW TO BUY SHARES
First Investors offers a wide variety of mutual funds to meet your financial
needs ("FI Funds"). Your First Investors registered representative will review
your financial objectives and risk tolerance, explain our product line and
services, and help you select the right investments. Call our Shareholder
Services Department at 1 (800) 423-4026 for the number of the First Investors
office near you or visit us on-line at www.firstinvestors.com
|_| TO OPEN AN ACCOUNT
Before investing, you must establish an account with your broker/dealer.
At First Investors Corporation ("FI") you do this by completing and signing a
Master Account Agreement ("MAA"). After you determine the fund(s) you want to
purchase, deliver your completed MAA and your check, made payable to First
Investors Corporation, to your registered representative. New client accounts
must be established through your registered representative.
You need to tell us how you want your shares registered when you open a new Fund
account. Please keep the following information in mind:
- -JOINT ACCOUNTS. For any account with two or more owners, all owners must sign
requests to process transactions. Telephone privileges allow any one of the
owners to process transactions independently.
- -GIFTS AND TRANSFERS TO MINORS. Custodial accounts for a minor may be
established under your state's Uniform Gifts/Transfers to Minors Act. Custodial
accounts are registered under the minor's social security number.
- -TRUSTS. A trust account may be opened only if you have a valid written trust
document.
- -TRANSFER ON DEATH (TOD). TOD registrations, available on all FI Funds in all
states, allow individual and joint account owners to name one or more
beneficiaries. The ownership of the account automatically passes to the named
beneficiaries in the event of the death of all account owners.
- -DIVIDENDS AND CAPITAL GAINS. Fund distributions will be automatically
reinvested in your account unless you request otherwise.
SOME REGISTRATIONS REQUIRE ADDITIONAL PAPERWORK.
TYPE OF ACCOUNT ADDITIONAL DOCUMENTS REQUIRED
- -------------------------------------------------------
Corporations
Partnership
& Trusts First Investors Certificate of Authority
Transfer On Death First Investors TOD Registration Request Form
(TOD)
Estates Original or Certified Copy of Death Certificate
Certified Copy of Letters Testamentary/Administration
First Investors Executor's Certification & Indemnification
Form
Conservatorships Copy of court document appointing Conservator/Guardian
5
<PAGE>
|_| TO OPEN A RETIREMENT ACCOUNT
Fund shares may be purchased for your retirement account by completing the MAA
and the appropriate retirement plan application. First Investors offers
retirement plans for both individuals and employers as follows:
INDIVIDUAL RETIREMENT ACCOUNTS including Roth, Traditional, and Rollover IRAs.
SIMPLE IRAS offered by employers.
SEP-IRAS (SIMPLIFIED EMPLOYEE PENSION PLANS) for small business owners or people
with income from self-employment, including SARSEP IRAs.
403(b)(7) accounts for employees of eligible tax-exempt organizations such as
schools, hospitals and charitable organizations.
401(k) plans for employers.
MONEY PURCHASE PENSION
& PROFIT SHARING plans for sole proprietors.
For more information about these plans call your registered representative or
our Shareholder Services Department at 1 (800) 423-4026.
|_| MINIMUM INITIAL INVESTMENT
You can open a non-retirement account with a check made payable to First
Investors Corporation for as little as $1,000. The minimum is waived if you open
an account through one of our Automatic Investment Programs (see "How to Pay")
or through a full exchange from another FI Fund. You can open a First Investors
Traditional IRA or Roth IRA with as little as $500 (except for the Cash
Management Fund which requires a $1,000 investment). Other retirement accounts
may have lower initial investment requirements at the Fund's discretion.
|_| ADDITIONAL INVESTMENTS
Once you have established an account, you can add to it through your registered
representative or by sending us a check directly. There is no minimum
requirement on additional purchases into existing fund accounts. Remember to
include your FI Fund account number on your check made payable to First
Investors Corporation.
Mail checks to:
First Investors Corporation
Attn: Dept. CP
581 Main Street
Woodbridge, NJ 07095-1198
|_| ACCEPTABLE FORMS OF PAYMENT
The following forms of payment are acceptable:
..checks made payable to First Investors Corporation
..Money Line electronic funds transfers (see page 8)
oofederal funds wire transfers (see page 10)
For your protection, never give your registered representative cash or a check
made payable to your registered representative.
We do not accept:
- -Third party checks
- -Traveler's checks
- -Checks drawn on non-US banks
- -Money orders
- -Cash
|_| SHARE CLASSES
All FI Funds are available in Class A and Class B shares. Direct purchases into
Class B share money market accounts are not accepted. Class B money
market fund shares may only be acquired through an exchange from another Class B
share account or through Class B share dividend cross-reinvestment.
Each class of shares has its own cost structure. As a result, different classes
of shares in the same fund generally have different prices. Class A shares have
6
<PAGE>
a front-end sales charge. Class B shares have a contingent deferred sales charge
("CDSC"). While both classes have a Rule 12b-1 fee, the fee on Class B shares is
generally higher. The principal advantages of Class A shares are that they have
lower overall expenses, the availability of quantity discounts on sales charges,
and certain account privileges that are not offered on Class B shares. The
principal advantage of Class B shares is that all your money is put to work from
the outset. Your registered representative can help you decide which class of
shares is best for you.
|_| SHARE CLASS SPECIFICATION
It's very important to specify which class of shares you wish to purchase when
you open a new account. All First Investors account applications have a place to
designate your preference. If you do not specify which class of shares you want
to purchase, Class A shares will automatically be purchased.
|_| CLASS A SHARES
When you buy Class A shares, you pay the offering price - the net asset value of
the fund plus a front-end sales charge. The front-end sales charge declines with
larger investments.
CLASS A SALES CHARGES
AS A % OF AS A % OF YOUR
YOUR INVESTMENT OFFERING PRICE INVESTMENT
up to $24,999 6.25% 6.67%
$ 25,000 - $ 49,999 5.75% 6.10%
$ 50,000 - $ 99,999 5.50% 5.82%
$100,000 - $249,999 4.50% 4.71%
$250,000 - $499,999 3.50% 3.63%
$500,000 - $999,999 2.50% 2.56%
Investments of $1 million or more will only be made in Class A shares at the
Fund's net asset value.
Generally, you should consider purchasing Class A shares if you plan to invest
$250,000 or more either initially or over time.
|_| SALES CHARGE WAIVERS
& REDUCTIONS ON CLASS A SHARES
If you qualify for one of the sales charge reductions or waivers, it is very
important to let us know at the time you place your order. Include a written
statement with your check explaining which privilege applies. If you do not
include this statement we cannot guarantee that you will receive the reduction
or waiver.
CLASS A SHARES MAY BE PURCHASED WITHOUT A SALES CHARGE
1: By an officer, trustee, director, or employee of the Fund, First Investors
Corporation, or their affiliates.
2: By a former officer, trustee, director, or employee of the Fund, First
Investors Corporation, or their affiliates provided the person worked for the
company for at least 5 years and retired or terminated employment in good
standing.
7
<PAGE>
3: By a FI registered representative or an authorized dealer, or by his/her
spouse, child (under age 21) or grandchild (under age 21).
4: When fund distributions are reinvested in Class A shares.
5: When Systematic Withdrawal Plan payments are reinvested in Class A shares.
6: When qualified retirement plan loan repayments are reinvested in Class A
shares.
7: With the liquidation proceeds from a First Investors Life Variable Annuity
Fund A, C, or D contract within one year of the contract's maturity date.
8: When dividends (at least $50 a year) from a First Investors Life Insurance
Company policy are invested into an EXISTING account.
9: When a group qualified plan (401(k) plans, money purchase pension plans,
profit sharing plans and 403(b) plans that are subject to Title I of ERISA) is
reinvesting redemption proceeds from another fund on which a sales charge or
CDSC was paid.
10: With distribution proceeds from a First Investors group qualified plan
account into an IRA.
11: By participant directed group qualified plans with 100 or more eligible
employees or $1,000,000 or more in assets.
12: In amounts of $1 million or more.
13: By individuals under a Letter of Intent or Cumulative Purchase Privilege of
$1 million or more.
FOR ITEMS 9 THROUGH 13 ABOVE: A CDSC OF 1.00% WILL BE DEDUCTED IF SHARES ARE
REDEEMED WITHIN 2 YEARS OF PURCHASE.
SALES CHARGES ON CLASS A SHARES MAY BE REDUCED FOR:
1: Participant directed group qualified retirement plans with 99 or fewer
eligible employees. The initial sales charge is reduced to 3.00% of the offering
price.
2: Certain unit trust holders ("unitholders") who elect to invest
principal, interest, and/or capital gains distributions from their unit
investment trusts in Class A shares. Unitholders of various series of New York
Insured Municipals-Income Trust sponsored by Van Kampen Merrit, Inc.,
unitholders of various series of the Multistate Tax Exempt trust sponsored by
Advest Inc., and unitholders of various series of the Insured Municipal Insured
National Trust, J.C. Bradford & Co. as agent, may buy Class A shares of a FI
Fund with unit trust distributions at the net asset value plus a sales charge of
1.5%. Unitholders of various tax-exempt trusts, other than the New York Trust,
sponsored by Van Kampen Merritt Inc. may buy Class A shares of a FI Fund at the
net asset value plus a sales charge of 1.0%.
Unitholders may make additional purchases, other than those made by unit trust
distributions, at the Fund's regular offering price.
CUMULATIVE PURCHASE PRIVILEGE
The Cumulative Purchase Privilege lets you add the value of all your existing FI
Fund accounts (Class A and Class B shares) to the amount of your next Class A
share investment to reach sales charge discount breakpoints. For example, if the
combined value of your existing FI Fund accounts is $25,000, your next purchase
will be eligible for a sales charge discount at the $25,000 level. Cumulative
Purchase discounts are applied to purchases as indicated in the first column of
the Class A Sales Charge table.
All your accounts registered with the same social security number will be linked
together under the Cumulative Purchase Privilege. In addition, your spouse's
accounts and custodial accounts held for minor children residing at your home
can also be linked to your accounts upon request.
8
<PAGE>
..Conservator accounts are linked to the social security number of the ward,
not the conservator.
- -Sole proprietorship accounts are linked to personal/family accounts only if the
account is registered with a social security number, not an employer
identification number ("EIN").
- -estamentary trusts and living trusts may be linked to other accounts registered
under the same trust EIN, but not to the personal accounts of the trustee(s).
- -Estate accounts may only be linked to other accounts registered under the same
EIN of the estate or social security number of the decedent.
- -Church and religious organizations may link accounts to others registered with
the same EIN but not to the personal accounts of any member.
LETTER OF INTENT
A Letter of Intent ("LOI") lets you purchase at a discounted sales charge level
even though you do not yet have sufficient investments to qualify for that
discount level. An LOI is a commitment by you to invest a specified dollar
amount during a 13-month period. The amount you agree to invest determines the
sales charge you pay. Under an LOI, you can reduce the initial sales charge on
Class A share purchases based on the total amount you agree to invest in both
Class A and Class B shares during the 13 month period. Purchases made up to 90
days before the date of the LOI may be included.
By purchasing under an LOI, you acknowledge and agree to the following:
- -You authorize First Investors to reserve 5% of your total intended investment
in shares held in escrow in your name until the LOI is completed.
- -First Investors is authorized to sell any or all of the escrow shares to
satisfy any additional sales charges owed in the event you do not fulfill the
LOI.
- -Although you may exchange all your shares, you may not sell the reserve shares
held in escrow until you fulfill the LOI or pay the higher sales charge.
|_| CLASS B SHARES
Class B shares are sold without an initial sales charge, putting all your money
to work for you immediately. If you redeem Class B shares within 6 years of
purchase, a CDSC will be imposed. The CDSC declines from 4% to 0% over a 6-year
period, as shown in the chart below. Class B share money market fund shares are
not sold directly. They can only be acquired through an exchange from another
Class B fund account. Class B shares, and the dividend and distribution shares
they earn, automatically convert to Class A shares after 8 years, reducing
future annual expenses.
Generally, you should consider purchasing Class B shares if you intend to invest
less than $250,000 and you would rather pay higher ongoing expenses than to pay
a sales charge at the outset.
CLASS B SALES CHARGES
THE CDSC DECLINES OVER TIME AS SHOWN IN THE TABLE BELOW:
Year 1 2 3 4 5 6 7+
CDSC 4% 4% 3% 3% 2% 1% 0%
9
<PAGE>
If shares redeemed are subject to a CDSC, the CDSC will be based on the lesser
of the original purchase price or redemption price. There is no CDSC on shares
acquired through dividend and capital gains reinvestment. We call these "free
shares."
Anytime you sell shares, your shares will be redeemed in the following manner to
ensure that you pay the lowest possible CDSC:
FIRST Class B shares representing dividends and capital gains that are not
subject to a CDSC. SECOND Class B shares held more than seven years which are
not subject to a CDSC.
THIRD Class B shares held longest which will result in the lowest CDSC.
For purposes of calculating the CDSC, all purchases made during the calendar
month are deemed to have been made on the first business day of the month at the
average cost of the shares purchased during that period.
SALES CHARGE WAIVERS ON
CLASS B SHARES
The CDSC on Class B shares does not apply to:
1: Appreciation on redeemed shares above their original purchase price.
2: Redemptions due to death or disability (as defined in section 72(m)(7) of the
Internal Revenue Code) requested within one year of death. Additional
documentation is required.
3: Distributions from employee benefit plans due to termination or plan
transfer.
4: Redemptions to remove an excess contribution from an IRA or qualified
retirement plan.
5: Distributions upon reaching required minimum age 70 1/2 provided you have
held the shares for at least three years.
6: Annual redemptions of up to 8% of your account's value redeemed by a
Systematic Withdrawal Plan. Free shares not subject to a CDSC will be redeemed
first and will count towards the 8% limit.
7: Shares redeemed from advisory accounts managed by or held by the Fund's
investment advisor or any of its affiliates.
8: Tax-free returns of excess contributions from employee benefit plans.
9: Redemptions of non-retirement shares purchased with proceeds from the sale of
shares of another fund group between April 29, 1996 and June 30, 1996 that did
not pay a sales charge (other than money market fund accounts or retirement plan
accounts).
10: Redemptions by the Fund when the account falls below the minimum.
11: Redemptions to pay account fees. Include a written statement with your
redemption request explaining which exemption applies. If you do not include
this statement we cannot guarantee that you will receive the waiver.
|_| HOW TO PAY
You can invest using one or more of the following options:
- -CHECK
You can buy shares by writing a check payable to First Investors Corporation. If
you are opening a new fund account, your check must meet the fund minimum. When
making purchases to an existing account, remember to include your fund account
number on your check.
- -AUTOMATIC INVESTMENT PROGRAMS We offer several automatic investment programs to
simplify investing.
MONEY LINE:
With our Money Line program, you can open an account with as little as $50 a
month or $600 each year in a FI Fund account by transferring funds
electronically from your bank account.
10
<PAGE>
Money Line allows you to select the payment amount and frequency that is best
for you. You can make automatic investments bi-weekly, semimonthly, monthly,
quarterly, semi-annually, or annually.
TIMING OF PURCHASES:
The date you select as your investment date is the date on which shares will be
purchased. THE PROCEEDS MUST BE AVAILABLE IN YOUR BANK ACCOUNT TWO BUSINESS DAYS
PRIOR TO THE INVESTMENT DATE.
HOW TO APPLY:
1Complete the Electronic Funds Transfer ("EFT") section of the application to
provide complete bank information and authorize EFT fund share purchases. Attach
a voided check. A signature guarantee of all shareholders and bank account
owners is required.
PLEASE ALLOW AT LEAST 10 BUSINESS DAYS FOR INITIAL PROCESSING.
2Complete the Money Line section of the application to specify the amount,
frequency and date of the investment.
3Submit the paperwork to your registered representative or send it to
Administrative Data Management Corp., Attn: Control Dept., 581 Main Street,
Woodbridge, NJ 07095-1198.
HOW TO CHANGE:
Provided you have telephone privileges, you may call Shareholder Services at
1 (800) 423-4026 to:
- -Increase the payment up to $999.99.
- -Decrease the payment.
- -Discontinue the service.
To change investment amounts, reallocate or cancel Money Line, you must notify
us at least 3 business days prior to the investment date.
You must send a signature guaranteed written request to Administrative Data
Management Corp. to:
- -Increase the payment to $1,000 or more.
- -Change bank information.
A medallion signature guarantee (see Signature
Guarantee Policy) is required to increase a Money Line payment to $2,500 or
more. Changing banks or bank account numbers requires 10 days notice. Money Line
service will be suspended upon notification that all account owners are
deceased.
AUTOMATIC PAYROLL INVESTMENT:
With our Automatic Payroll Investment service ("API") you can systematically
purchase shares by salary reduction. To participate, your employer must offer
direct deposit and permit you to electronically transfer a portion of your
salary. Contact your company payroll department to authorize the salary
reductions. If not available, you may consider our Money Line program.
Shares purchased through API are bought at the offering price on the day the
electronic transfer is received by the Fund.
HOW TO APPLY:
1: Complete an API Application.
2: Complete an API Authorization Form.
3: Submit the paperwork to your registered representative or send it to
Administrative Data Management Corp., Attn: Control Dept., 581 Main Street,
Woodbridge, NJ 07095-1198.
WIRE TRANSFERS:
You may purchase shares via a federal funds wire transfer from your bank account
into your EXISTING First Investors account. Federal fund wire transfer proceeds
are not subject to a holding period and are available to you immediately upon
receipt.
YOU MUST CALL US AT 1 (800) 423-4026 TO ADVISE US OF AN INCOMING FEDERAL FUND
WIRE and provide us with the federal funds wire transfer confirmation number,
11
<PAGE>
the amount of the wire, and the fund account number.
To wire federal funds to an existing First Investors account (other than money
markets), instruct your bank to wire your investment to:
FIRST FINANCIAL SAVINGS BANK, S.L.A.
ABA # 221272604 ACCOUNT # 0306142
YOUR NAME
YOUR FIRST INVESTORS
FUND ACCOUNT #
To wire funds to an existing First Investors money market account, instruct your
bank to wire your investment, as applicable, to:
CASH MANAGEMENT FUND
BANK OF NEW YORK
ABA #021000018
ACCOUNT 89000005696
YOUR NAME
YOUR FIRST INVESTORS ACCOUNT #
TAX-EXEMPT MONEY MARKET FUND
BANK OF NEW YORK
ABA #021000018
ACCOUNT 8900023198
YOUR NAME
YOUR FIRST INVESTORS ACCOUNT #
DISTRIBUTION CROSS-INVESTMENT:
You can invest the dividends and capital gains from one fund account, excluding
the money market funds, into another fund account in the same class of shares.
The shares will be purchased at the net asset value on the day after the record
date of the distribution.
- -You must invest at least $50 a month or $600 a year into a NEW account.
- -A signature guarantee is required if the ownership on both accounts is not
identical.
You may establish a Distribution Cross-Investment service by contacting your
registered representative or calling Shareholder Services at 1 (800) 423-4026.
SYSTEMATIC WITHDRAWAL PLAN PAYMENT INVESTMENTS:
You can invest Systematic Withdrawal Plan payments (see How to Sell Shares) from
one fund account in shares of another fund account.
Payments are invested without a sales charge.
A signature guarantee is required if the ownership on both accounts is not
identical.
Both accounts must be in the same class of shares.
You must invest at least $600 a year if into a new account.
You can invest on a monthly, quarterly, semi-annual, or annual basis.
Redemptions are suspended upon notification that all account owners are
deceased. Service will recommence upon receipt of written alternative payment
instructions and other required documents from the decedent's legal
representative.
HOW TO SELL SHARES
You can sell your shares on any day the New York Stock Exchange is open for
regular trading. In the mutual fund industry, a sale is referred to as a
"redemption." Redemption proceeds are generally mailed within three days. If the
shares being redeemed were purchased by check, payment may be delayed to verify
that the check has been honored, which may take up to 15 days from the date of
purchase. Shareholders may not redeem shares by telephone or electronic funds
transfer unless the shares have been owned for at least 15 days.
Redemptions of shares are not subject to the 15 day verification period if the
shares were purchased via:
- -Automatic Payroll Investment
- -FIC registered representative payroll checks
- -First Investors Life Insurance Company checks
- -Federal funds wire payments.
12
<PAGE>
|_| REDEMPTION OPTIONS
For trusts, estates, attorneys-in-fact, corporations, partnerships, and other
entities, additional documents are required to redeem shares. Call Shareholder
Services at 1 (800) 423-4026 for more information.
WRITTEN REDEMPTIONS
You can write a letter of instruction or contact your First Investors registered
representative for a liquidation request form. A written liquidation request in
good order must include:
1The name of the fund;
2Your account number;
3The dollar amount, number of shares or percentage of the account you want to
redeem;
4Share certificates (if they were issued to you);
5Original signatures of all owners exactly as your account is registered;
6Signature guarantees, if required (see Signature Guarantee Policy).
Written redemption requests should be mailed to:
ADMINISTRATIVE DATA MANAGEMENT CORP.
581 MAIN STREET
WOODBRIDGE, NJ 07095-1198
TELEPHONE REDEMPTIONS
You may redeem shares which have been owned for at least 15 days by calling our
Special Services Department at 1 (800) 342-6221 from 9:00 a.m. to 5:00 p.m.,
EST, provided:
- -Telephone privileges are available for your account registration (see Telephone
Privileges);
- -You have telephone privileges (see Telephone Privileges);
- -You do not hold share certificates (issued shares);
The redemption check is
made payable to the registered owner(s) or pre-designated bank;
- -The redemption check is mailed to your address of record;
- -Your address of record has not changed within the past 60 days;
- -The redemption amount is $50,000 or less; and
- -The redemption amount, combined with the amount of all telephone
redemptions made within the previous 30 days does not exceed $100,000.
ELECTRONIC FUNDS TRANSFER
The Electronic Funds Transfer ("EFT") service allows you to redeem shares and
electronically transfer proceeds to your bank account.
YOU MUST ENROLL IN THE ELECTRONIC FUNDS TRANSFER SERVICE AND PROVIDE COMPLETE
BANK ACCOUNT INFORMATION BEFORE USING THE PRIVILEGE. Signature guarantees of all
shareholders and all bank account owners are required. Please allow at least 10
business days for initial processing. We will send any payments made during that
time to your address of record. Call your registered representative or
Shareholder Services at 1 (800) 423-4026 for an application.
You may call Shareholder Services or send written instructions to Administrative
Data Management Corp. to request an EFT redemption of shares which are held at
least 15 days. Each EFT redemption:
1: Must be electronically transferred to your pre-designated bank account;
2: Must be at least $500;
3: Cannot exceed $50,000;
4: Cannot exceed $100,000 when added to the total amount of all EFT redemptions
made within the previous 30 days.
13
<PAGE>
If your redemption does not qualify for an EFT redemption, you may request to
have the redemption proceeds mailed to you.
The Electronic Funds Transfer service may also be used to purchase shares (see
Money Line) and transfer systematic withdrawal payments (see Systematic
Withdrawal Plans) and dividend distributions (see Other Services) to your bank
account.
SYSTEMATIC WITHDRAWAL PLANS
Our Systematic Withdrawal Plan allows you to redeem a specific dollar amount or
percentage from your account on a regular basis. Your payments can be mailed to
you or a pre-authorized payee by check, transferred to your bank account
electronically (if you have enrolled in the EFT service) or invested in shares
of another FI fund in the same class of shares through our Systematic Withdrawal
Plan Payment investment service (see How to Buy Shares).
You can receive payments on a monthly, quarterly, semi-annual, or annual basis.
Your account must have a value of at least $5,000 in non-certificated shares
("unissued shares") shares. The minimum Systematic Withdrawal Plan payment is
$25 (waived for Required Minimum Distributions on retirement accounts or FIL
premium payments).
Once you establish the Systematic Withdrawal Plan, you should not make
additional investments into this account (except money market funds). Buying
shares during the same period as you are selling shares is not advantageous to
you because of sales charges.
If you own Class B shares, you may establish a Systematic Withdrawal Plan and
redeem up to 8% of the value of your account annually without a CDSC.
If you own Class B shares of a retirement account and you are receiving your
Required Minimum Distribution through a Systematic Withdrawal Plan, up to 8% of
the value of your account may be redeemed annually without a CDSC. However, if
your Required Minimum Distribution exceeds the 8% limit, the applicable CDSC
will be charged if the additional shares were held less than 3 years and you
have not reached age 70 1/2.
To establish a Systematic Withdrawal Plan, complete the appropriate section of
the account application or contact your registered representative or call
Shareholder Services at 1 (800) 423-4026.
|_| EXPEDITED WIRE REDEMPTIONS
(MONEY MARKET FUNDS ONLY)
Enroll in our Expedited Redemption service to wire proceeds from your FI money
market account to your bank account. Call Shareholder Services at 1 (800)
423-4026 for an application or to discuss specific requirements.
- -Each wire under $5,000 is subject to a $10 fee.
- -Six wires of $5,000 or more are permitted without charge each month. Each
additional wire is $10.00.
- -Wires must be directed to your pre-authorized bank account.
14
<PAGE>
HOW TO EXCHANGE SHARES
The exchange privilege gives you the flexibility to change investments as your
goals change without incurring a sales charge. Since an exchange is a redemption
and a purchase, it creates a gain or loss which is reportable for tax purposes.
You should consult your tax advisor before requesting an exchange. Read the
prospectus of the FI Fund you are purchasing carefully. Review the differences
in objectives, policies, risk, privileges and restrictions.
Exchange Methods
<TABLE>
<CAPTION>
METHOD STEPS TO FOLLOW
<S> <C>
Through Your FI
Registered Representative Call your registered representative.
- --------------------------------------------------------------------------------
By Phone Call Special Services from 9:00 a.m. to 5:00 p.m.,
(800) 342-6221 EST Orders received after the close of the New
Exchange, usually 4:00 York Stock, p.m. EST, are processed the following
business day.
1. You must have telephone privileges (see
Telephone Transactions)
2. Certificate shares cannot be exchanged by phone.
3. For trusts, estates, attorneys-in-fact,
corporations, partnerships, and other entities,
additional documents are required.
- --------------------------------------------------------------------------------
By Mail To: 1. Send us written instructions signed by all
owners account ADM exactly as the account is
Attn: Exchange Dept. registered.
581 Main Street 2. Include your fund account number.
Woodbridge, N.J. 07095-1198 3. Indicate either the dollar amount, number of
shares or percent of the account you want to
exchange.
4. Specify the existing account number or the name
of the new Fund you are exchanging into.
5. Include any outstanding share certificates for
the shares you want to exchange.
6. For trusts, estates, attorneys-in-fact,
corporations, partnerships, and other entities,
additional documents are required. Call Shareholder
Services at 1 (800) 423-4026.
15
<PAGE>
</TABLE>
|_| EXCHANGE CONDITIONS
1: You may only exchange shares within the same Class.
2: Exchanges can only be made into identically owned accounts.
3: Partial exchanges into a new fund account must meet the new fund's minimum
initial investment.
4: The fund you are exchanging into must be eligible for sale in your state.
5: If your request does not clearly indicate the amount to be exchanged or the
accounts involved, no shares will be exchanged.
6: Amounts exchanged from a non-money market fund to a money market fund may be
exchanged back at net asset value. Dividends earned from money market fund
shares will be subject to a sales charge if they are exchanged into Class A
shares of another fund.
7: If you are exchanging from a money market fund to a fund with a sales charge,
there will be a sales charge on any shares (other than those acquired by
dividend or capital gains distributions) if the shares have not previously been
subject to a sales charge. Your request must be in writing and include a
statement acknowledging that a sales charge will be paid. If you exchange Class
B shares of a fund for shares of a Class B money market fund, the CDSC will not
be imposed and the holding period used to calculate the CDSC will carry over to
the acquired shares.
8: FI Funds reserve the right to reject any exchange order which in the opinion
of the Fund is part of a market timing strategy. In the event that an exchange
is rejected, neither the redemption nor the purchase side of the exchange will
be affected.
|_| EXCHANGING FUNDS WITH AUTOMATIC INVESTMENTS
OR SYSTEMATIC WITHDRAWALS
Let us know if you want to continue automatic investments into the original fund
or the fund you are exchanging into ("receiving fund") or if you want to change
the amount or allocation into both. Also inform us if you wish to continue,
terminate, or change a preauthorized systematic withdrawal. Without specific
instructions, we will amend account privileges as outlined below:
EXCHANGE EXCHANGE EXCHANGE A
ALL SHARES TO ALL SHARES TO PORTION OF
ONE FUND MULTIPLE SHARES TO ONE OR
FUNDS MULTIPLE FUNDS
MONEY LINE ML moves to ML stays with ML stays with
(ML) Receiving Fund Original Fund Original Fund
AUTOMATIC PAYROLL
INVESTMENT (API) API moves to API Reallocated API stays with
Receiving Fund Proportionally to Original Fund
Receiving Funds
SYSTEMATIC SWP moves to SWP SWP stays
WITHDRAWALS Receiving Fund Canceled with Original (SWP)
16
<PAGE>
WHEN AND HOW ARE FUND SHARES PRICED?
Each FI Fund prices its shares each day that the New York Stock Exchange
("NYSE") is open for trading. The share price is calculated as of the close of
trading on the NYSE (generally 4:00 p.m., EST). These days are referred to as
"Trading Days" in this Manual.
Each Fund calculates the net asset value of each class of its shares separately
by taking the total value of class assets, subtracting class expenses, and
dividing the difference by the total number of shares in the class. The price
that you will pay for a share is the NAV plus any applicable front-end sales
charge. You receive the NAV price if you redeem or exchange your shares, less
any applicable CDSC.
Fund prices are on our Website (www.firstinvestors.com) the next day. The prices
for our larger funds are also reported in many newspapers, including The Wall
Street Journal and The New York Times. Special pricing procedures are employed
during emergencies. For a description of these procedures you can request, free
of charge, a copy of a Statement of Additional Information.
HOW ARE PURCHASE,
REDEMPTION, AND
EXCHANGE ORDERS
PROCESSED AND PRICED?
The processing and price for a purchase, redemption or exchange depends upon how
your order is placed. As indicated below, special rules apply to money market
transactions.
|_| PURCHASES
Purchases that are made by written application or order are processed when they
are received in "good order" by our Woodbridge, NJ office. To be in good order,
all required paperwork must be completed and payment received. If your order is
received prior to the close of trading on the NYSE, it will receive that day's
price (except in the case of the money market funds which are discussed below).
This procedure applies whether your purchase order is given to your registered
representative or mailed directly by you to our Woodbridge, NJ office.
As described previously "How to Buy Shares," certain types of purchases can only
be placed by written application. For example, purchases in connection with the
opening of retirement accounts may only be made by written application.
Furthermore, rollovers of retirement accounts will be processed only when we
have received both written application and the proceeds of the rollover. Thus,
for example, if it takes 30 days for another fund group to send us the proceeds
of a retirement account, your purchase of First Investors funds will not occur
until we receive the proceeds.
Some types of purchases may be phoned or electronically transmitted to us by
your broker/dealer. If you give your order to a First Investors registered
17
<PAGE>
representative before the close of trading on the NYSE and the order is phoned
to our Woodbridge, NJ office prior to 5:00 p.m., EST, your shares will be
purchased at that day's price (except money market funds which are discussed
below). If you are buying a First Investors Fund through a broker-dealer other
than First Investors, other requirements may apply. Consult with your
broker-dealer about its requirements. Payment is due within three business days
of placing an order by phone or electronic means or the trade may be cancelled.
(In such event, you will be liable for any loss resulting from the
cancellation.) To avoid cancellation of your orders, you may arrange to open a
money market account and use it to pay for subsequent purchases.
Purchases made pursuant to our Automatic Investment Programs are processed as
follows:
- -Money Line purchases are processed on the dates you select on your application.
- -Automatic Payroll Investment Service purchases are processed on the dates that
we receive funds from your employer.
|_| REDEMPTIONS
As described previously in "How To Sell Shares", certain redemption orders may
only be made by written instructions or application. If you elect to receive
Telephone Privileges, most redemptions can be made by phone by you or your
registered representative.
Written redemption orders will be processed when received in good order in our
Woodbridge, NJ office. Phone redemption orders will be processed when received
in our Woodbrige, NJ office.
If your redemption order is received prior to the close of trading on the NYSE,
you will receive that day's price (except in the case of money marketfunds which
are discussed below). If you are redeeming through a broker-dealer other than
First Investors, other requirements may apply. Consult with your broker-dealer
about its requirements.
|_| EXCHANGES
Exchanges can generally be made by written instructions or, if you have elected
to receive Telephone Privileges, by phone by you or your registered
representative. Exchange orders are processed when we receive them in good order
in our Woodbridge, NJ office.
Exchange orders received prior to the close of trading on the NYSE will be
processed at that day's prices (except in the case of exchanges into or out of
money market funds which are discussed below).
|_| SPECIAL RULES FOR MONEY MARKET FUNDS.
A money market fund share purchase will not be made until we receive the funds
for the purchase. The funds for the purchase will not be deemed to have been
received until the morning of the next Trading Day following the Trading Day on
which your purchase check is received in our Woodbridge, NJ office. If a check
is received in our Woodbridge, NJ office after the close of regular trading on
the NYSE, the funds for the purchase will not be deemed to have been received
until the morning of the second following Trading Day.
If you make your purchase by wire transfer prior to 12:00 p.m., EST, and you
have previously advised us that the wire is on the way, the funds for the
purchase will be deemed to have been received on that same day. You must call
beforehand and give us your name, account number, the amount of the wire, and a
federal reference number documenting the transfer. If we fail to receive such
advance notification, the funds for your purchase will not be deemed to have
been received until the morning of the next Trading Day following receipt of the
federal wire.
Purchases by Money Line and Automatic Payroll Investment are processed in the
same manner as those in other Funds.
20
<PAGE>
Requests for redemptions or exchanges out of or into our money market funds must
be received in writing or by phone prior to 12:00 p.m., EST, on a Trading Day,
to be processed the same day. Redemption or exchange orders received after 12:00
p.m., EST, but before the close of regular trading on the NYSE, will be
processed on the morning of the following Trading Day.
|_| ORDERS PLACED VIA FIRST INVESTORS REGISTERED REPRESENTATIVES
All orders placed through a First Investors registered representative must be
reviewed and approved by a principal officer of the branch office before being
mailed or transmitted to the Woodbridge, NJ office.
|_| ORDERS PLACED VIA DEALERS
It is the responsibility of the Dealer to forward or transmit orders to the Fund
promptly and accurately. A fund will not be liable for any change in the price
per share due to the failure of the Dealer to place the order in a timely
fashion. Any such disputes must be settled between you and the Dealer.
RIGHT TO REJECT
PURCHASE OR
EXCHANGE ORDERS
A fund reserves the right to reject or restrict any specific purchase request if
the fund determines that doing so is in the best interest of the fund and its
shareholders. Investments in a fund are designed for long-term purposes and are
not intended to provide a vehicle for short-term market timing. The funds also
reserve the right to reject any exchange that in the funds opinion is part of a
market timing strategy. In the event that a fund rejects an exchange request,
neither the redemption nor the purchase side of the exchange will be processed.
SIGNATURE GUARANTEE POLICY
A signature guarantee protects you from the risk of a fraudulent signature and
is generally required for non-standard and large dollar transactions. A
signature guarantee may be obtained from your First Investors registered
representative or eligible guarantor institutions including banks, savings
associations, credit unions and brokerage firms which are members of the
Securities Transfer Agents Medallion Program ("STAMP"), the New York Stock
Exchange Medallion Signature Program ("MSP"), or the Stock Exchanges Medallion
Program ("SEMP"). Please note that a notary public stamp or seal is not
acceptable. The words "Signature Guaranteed" must appear beside the signature of
the guarantor.
|_| SIGNATURE GUARANTEES ARE REQUIRED:
1: For redemptions over $50,000.
2: For redemption checks made payable to any person(s) other than the registered
shareholder(s) or a major financial institution for the benefit of the
registered shareholder(s).
3: For redemption checks mailed to an address other than the address of record
(unless the check is mailed to a financial institution on your behalf).
4: For redemptions when the address of record has changed within 60 days of the
request.
5: When a stock certificate is mailed to an address other than the address of
record or to the dealer on the account.
6: When shares are transferred to a new registration.
7: When issued shares are redeemed.
8: To establish any EFT service.
19
<PAGE>
9: For requests to change the address of record to a P.O. box or a "c/o" street
address.
10: If multiple account owners of one account give inconsistent instructions.
11: When a transaction requires additional legal documentation.
12: When the authority of a representative of a corporation, partnership, trust,
or other entity has not been satisfactorily established.
13: When an address on an account which was coded "Do Not Mail" to suppress
check and dividend mailings due to a previously unknown address is updated.
14: Any other instance whereby a fund or its transfer agent deems it necessary
as a matter of prudence.
TELEPHONE PRIVILEGES - 1 (800) 342-6221
You automatically receive telephone privileges when you open a First Investors
individual, joint, or custodial account unless you decline the option on your
account application or send the Fund written instructions. For trusts, estates,
attorneys-in-fact, corporations, partnerships, and other entities, additional
documents are required. Call Shareholder Services at 1 (800) 423-4026 for
assistance.
Telephone privileges allow you to exchange or redeem shares and authorize other
transactions by calling Special Services at 1 (800) 342-6221 from 9:00 a.m. to
5:00 p.m., EST, on any day the NYSE is open. Your First Investors registered
representative may also use telephone privileges to execute your transactions.
_
|_| SECURITY MEASURES
For your protection, the following security measures are taken:
1: Telephone requests are recorded to verify accuracy.
2: Some or all of the following information is obtained:
- -Account number
- -Address
- -Social security number -Other information as deemed necessary
3: A written confirmation of each transaction is mailed to you.
We will not be liable for following instructions if we reasonably believe the
instructions are genuine based on our verification procedures.
|_| ELIGIBILITY
- -Non-retirement Accounts:
You can exchange or redeem shares of any non-retirement account by phone. Shares
must be owned for 15 days for telephone redemption. Telephone exchanges and
redemptions are not available on guardianship and conservatorship accounts.
RETIREMENT ACCOUNTS:
You can exchange between shares of any participant directed IRA, 403(b) or
401(k) Simplifier plan where First Financial Savings Bank, SLA is Custodian. You
may also exchange shares from an individually registered non-retirement account
to an IRA account registered to the same owner (provided an IRA application is
on file). Telephone exchanges are permitted on 401(k) Flexible plans, money
purchase pension plans and profit sharing plans if a First Investors Qualified
Retirement Plan Application is on file with the fund. Contact your First
Investors registered representative or call Shareholder Services at 1 (800)
423-4026 to obtain a Qualified Retirement Plan Application. Telephone
redemptions are not permitted on First Investors retirement accounts.
20
<PAGE>
TELEPHONE EXCHANGES & REDEMPTIONS
SPECIAL SERVICES:
1 (800) 342-6221
SHAREHOLDER SERVICES:
1 (800) 423-4026
PROVIDED YOU HAVE NOT DECLINED TELEPHONE PRIVILEGES, CALL US....
TO UPDATE OR CORRECT...
- -Your address or phone number.
- -Your birth date (important for retirement distributions
- -Your distribution option to reinvest or pay in cash (non-retirement accounts
only) or initiate cross reinvestment of dividends.
- -The amount of your Money Line or Automatic Payroll Investment payment.
- -The allocation of your Money Line or Automatic Payroll Investment payment.
- -The amount of your Systematic Withdrawal payment.
TO REQUEST...
- -A duplicate copy of a statement or tax form.
- -A history of your account (the fee can be debited from your non-retirement
account).
- -A share certificate to be mailed to your address of record.
- -A stop payment on a dividend, redemption or money market check.
- -Suspension (up to six months) or cancellation of Money Line.
- -Cancellation of your Systematic Withdrawal Plan.
- -Cancellation of cross-reinvestment of dividends.
- -Money market fund draft checks.
21
<PAGE>
OTHER SERVICES
_
|_| REINVESTMENT PRIVILEGE
If you sell some or all of your Class A or Class B shares, you can reinvest any
or all of the proceeds in the same class of shares of any FI fund within six
months of the redemption without a sales charge.
If you reinvest proceeds into a new fund account, you must meet the fund's
minimum initial investment requirement.
If you reinvest all the proceeds from a Class B share redemption, you will be
credited, in additional shares, for the full amount of the CDSC. If you reinvest
a portion of a Class B share redemption, you will be credited with a pro-rated
percentage of the CDSC.
For more information, call Shareholder Services at 1 (800) 423-4026.
_
|_| CERTIFICATE SHARES
Every time you make a purchase of Class A shares, we will credit shares to your
fund account. We do not issue shares certificates unless you specifically
request them. Certificates are not issued on any Class B shares or on Class A
money market funds.
Having us credit shares on your behalf eliminates the expense of replacing lost,
stolen, or destroyed certificates. If a certificate is lost, stolen, or damaged,
you will be charged a replacement fee of the greater of 2% of the current value
of the certificated shares or $25.
In addition, certificated shares cannot be redeemed or exchanged until they are
returned with your transaction request. The share certificate must be properly
endorsed and signature guaranteed.
_
|_| MONEY MARKET FUND DRAFT CHECKS
Free draft check writing privileges are available when you open a First
Investors Cash Management Fund or a First Investors Tax Exempt Money Market Fund
account. Checks may be written for a minimum of $500. Draft checks are not
available for Class B share accounts, retirement accounts, guardianships and
conservatorships. Complete the Money Market Fund Check Redemption section of the
account application to apply for draft checks. To order additional checks, call
Shareholder Services at 1 (800) 423-4026.
Additional documentation is required to establish check writing privileges for
trusts, corporations, partnerships and other entities. Call Shareholder Services
at 1 (800) 423-4026 for further information.
FEE TABLE
Call Shareholder Services at 1 (800) 423-4026 or send your request to FIC, Attn:
Correspondence Dept., 581 Main Street, Woodbridge N.J. 07095-1198 to request a
copy of the following records:
ACCOUNT HISTORY STATEMENTS
1974 - 1982* $10 per year fee
1983 - present $5 total fee for all years
Current Year Free
Prior Year Free
Current &
Two Prior Years Free
* ACCOUNT HISTORIES ARE NOT AVAILABLE PRIOR TO 1974.
CANCELLED CHECKS
There is a $10 fee for a copy of a cancelled dividend, liquidation, or
investment check requested. There is a $15 fee for a copy of a cancelled money
market draft check.
DUPLICATE TAX FORMS
Current Year Free
Prior Year(s) $7.50 per tax form
per year
22
<PAGE>
_
|_| RETURN MAIL
If mail is returned to the fund marked undeliverable by the U.S. Postal Service
after two consecutive mailings, and the fund is unable to obtain a current
shareholder address, the account status will be changed to "Do Not Mail" to
discontinue future mailings and prevent unauthorized persons from obtaining
account information.
You can remove the "Do Not Mail" status on your account by submitting written
instructions including your current address signed by all shareholders with a
signature guarantee (see Signature Guarantee Policy). Additional requirements
may apply for certain accounts. Call Shareholder Services at 1 (800) 423-4026
for more information.
Returned dividend checks and other distributions will be
reinvested in the fund when an account's status has been changed to "Do Not
Mail". No interest will be paid on outstanding checks prior to reinvestment. All
future dividends and other distributions will be reinvested in additional shares
until new instructions are provided. If you cannot be located within a period of
time mandated by your state of residence your fund shares could be turned over
to your state (in other words forfeited).
Prior to turning over assets to your state, the fund will seek to obtain a
current shareholder address in accordance with Securities and Exchange
Commission rules. A search company may be employed to locate a current address.
The fund may deduct the costs associated with the search from your account.
_
|_| TRANSFERRING SHARES
A transfer is a change of share ownership from one customer to another. Unlike
an exchange, transfers occur within the same fund. You can transfer your shares
at any time.
To transfer shares, submit a letter of instruction including:
- -Your account number.
- -Dollar amount, percentage, or number of shares to be
transferred.
- -Existing account number receiving the shares (if any).
- -The name(s), registration, and taxpayer identification number of the customer
receiving the shares.
- -The signature of each account owner requesting the transfer with signature
guarantee(s).
In addition, we will request the transferee to complete a Master Account
Agreement to establish a brokerage account with First Investors Corporation and
validate his or her social security number to avoid back-up withholding. If the
transferee declines to complete an MAA, all transactions in the account must be
on an unsolicited basis and the account will be so coded. Depending upon your
account registration, additional documentation may be required to transfer
shares. Transfers due to the death or disability of a shareholder also require
additional documentation. Please call our Shareholder Services Department at 1
(800) 423-4026 for specific transfer requirements before initiating a request.
A transfer is a change of ownership and may trigger a taxable event. You should
consult your tax advisor before initiating a transfer.
23
<PAGE>
ACCOUNT STATEMENTS
_
|_| TRANSACTION CONFIRMATION STATEMENTS
You will receive a confirmation statement immediately after most transactions.
These include:
- -shareorder purchases
- -check investments
- -redemptions
- -exchanges
- -transfers
- -systematic withdrawals
Money Line and Automatic Payroll Investment purchases are not confirmed for each
transaction. They will appear on your next regularly scheduled confirmation
statement (see Dividend Schedule under "Dividends and Distributions") or
quarterly, whichever is sooner.
A separate confirmation statement is generated for each fund account you own. It
provides:
- -Your fund account number.
- -The date of the transaction.
- -A description of the transaction (purchase, redemption, etc.).
- -The number of shares bought or sold for the transaction.
- -The dollar amount of the transaction.
- -The dollar amount of the dividend payment (if applicable).
- -The total share balance in the account.
- -The dollar amount of any dividends or capital gains paid.
- -The number of shares held by you, held for you (including escrow shares), and
the total number of shares you own.
The confirmation statement also provides a perforated Investment Stub with your
preprinted name, registration, and fund account number for future investments.
|_| MASTER ACCOUNT STATEMENTS
Each month (if you own a fund that pays monthly dividends) or quarterly (for all
other funds) you will receive a Master Account Statement summarizing the
activity for all your identically owned First Investors fund accounts. The
Master Account Statement will also include a recap of any First Investors Life
Insurance and Executive Investors Trust accounts you may own. Joint accounts
registered under your taxpayer identification number will appear on a separate
Master Account Statement but may be mailed in the same envelope upon request.
The Master Account Statement provides the following information for each First
Investors fund you own:
- -fund name
- -fund's current market value
- -total distributions paid year-to-date
- -total number of shares owned
|_| ANNUAL AND SEMI-ANNUAL REPORTS
You will also receive an Annual and a Semi-Annual Report. These financial
reports show the assets, liabilities, revenues, expenses, and earnings of the
fund as well as a detailed accounting of all portfolio holdings. You will
receive one report per household.
24
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
|_| DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
For funds that declare daily dividends, you start earning dividends on the day
your purchase is made. For FI money market funds, you start earning dividends on
the day federal funds are credited to your fund account. The funds declare
dividends from net investment income and distribute the accrued earnings to
shareholders as noted below:
DIVIDEND PAYMENT SCHEDULE
MONTHLY: QUARTERLY: ANNUALLY (IF ANY):
Cash Management Fund Blue Chip Fund Global Fund Fund for Income Growth & Income
Fund Special Situations Fund Government Fund Total return Fund Mid-Cap
Opportunity Fund Insured Intermediate Tax-Exempt Utilities Income Fund Insured
Tax Exempt Fund Investment Grade Fund High Yield Fund Multi-State Insured Tax
Free Fund New York Insured Tax Free Fund Tax-Exempt Money Market Fund
- --------------------------------------------------------------------------------
Capital gains distributions, if any, are paid annually, usually near the end of
the fund's fiscal year. On occasion, more than one capital gains distribution
may be paid during one year.
Dividend and capital gains distributions are automatically reinvested to
purchase additional fund shares unless otherwise instructed. Dividend payments
of less than $5.00 are automatically reinvested to purchase additional fund
shares.
|_| BUYING A DIVIDEND
If you buy shares shortly before the record date of the dividend, the entire
dividend you receive may be taxable even though a part of the distribution is
actually a return of your purchase price. This is called "buying a dividend."
There is no advantage to buying a dividend because a fund's net asset value per
share is reduced by the amount of the dividend.
25
<PAGE>
TAX FORMS
TAX FORM DESCRIPTION MAILED BY
- ----------------------------------------------------------------------------
1099-DIV Consolidated report lists all taxable dividend and January 31
capital gains distributions for all of the
shareholder's accounts. Also includes foreign taxes
paid and any federal income tax withheld due to backup
withholding.
- ----------------------------------------------------------------------------
1099-B Lists proceeds from all redemptions including January 31
systematic withdrawals and exchanges. A separate
form is issued for each fund account. Includes amount
of federal income tax withheld due to backup
withholding.
- ----------------------------------------------------------------------------
1099-R Lists taxable distributions from a retirement January 31
account. A separate form is issued for each fund
account. Includes federal income tax withheld due
to IRS withholding requirements.
- ----------------------------------------------------------------------------
5498 Provided to shareholders who made an annual IRA May 31
contribution or rollover purchase. Also provides
the account's fair market value as of the last
business day of the previous year. A separate form is
issued for each fund account.
- ----------------------------------------------------------------------------
1042-S Provided to non-resident alien shareholders to March 15
report the amount of fund dividends paid and the
amount of federal taxes withheld. A separate form
is issued for each fund account.
- ----------------------------------------------------------------------------
Cost Basis Uses the "average cost -single category" method to January 31
Statement show the cost basis of any shares sold or exchanged.
Information is provided to assist shareholders in
calculating capital gains or losses. A separate
statement, included with Form 1099-B, is issued for
each fund account. This statement is not reported
to the IRS and does not include money market funds
or retirement accounts.
- ----------------------------------------------------------------------------
Tax Savings Consolidated report lists all amounts not subject January 31
Report for to federal, state and local income tax for all
Non-Taxable the shareholder's accounts. Also includes any amounts
Income subject to alternative minimum tax.
- ----------------------------------------------------------------------------
Tax Savings Provides the percentage of income paid by each January 31
Summary fund that may be exempt from state income tax.
THE OUTLOOK
Today's strategies for tomorrow's goals are brought into focus in the OUTLOOK,
the quarterly newsletter of First Investors Corporation. This informative tool
discusses the products and services we offer to help you take advantage of
current market conditions and tax law changes. The OUTLOOK'S straight forward
approach and timely articles make it a valuable resource. As always, your
registered representative is available to provide you with additional
information and assistance. Material contained in this publication should not be
considered legal, financial, or other professional advice.
26
<PAGE>
27
<PAGE>
28
<PAGE>
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits
--------
(a)(i) Articles of Incorporation1
(ii) Articles Supplementary1
(b) By-laws1
(c) 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
(d) Investment Advisory Agreement between Registrant and First Investors
Management Company, Inc.1
(e) Underwriting Agreement2
(f) Bonus, profit sharing or pension plans - none
(g) Custodian Agreement between Registrant and The Bank of New York2
(h)(i) Administration Agreement between Registrant, First Investors
Management Company, Inc., First Investors Corporation and
Administrative Data Management Corp.2
(h)(ii) Amended Schedule A to Administration Agreement3
(h)(iii) Organization Expense Reimbursement Agreement3
(i) Consent of Counsel5
(j)(i) Consent of independent accountants6
(ii) Powers of Attorney1,4
(k) Financial statements omitted from prospectus - none
(l) Initial Capital Agreements4
(m)(i) Class A Distribution Plan2
C-1
<PAGE>
(ii) Class B Distribution Plan2
(n) Financial Data Schedules6
(o) Rule 18f-3 Plan1
- ------------------
1 Incorporated by reference from Post-Effective Amendment No. 9 to Registrant's
Registration Statement (File No. 33-46924) filed on November 13, 1995.
2 Incorporated by reference from Post-Effective Amendment No. 10 to
Registrant's Registration Statement (File No. 33-46924) filed on January 12,
1997.
3 Incorporated by reference from Post-Effective Amendment No. 12 to
Registrant's Registration Statement (File No. 33-46924) filed on May 15,
1997.
4 Incorporated by reference from Post-Effective Amendment No. 13 to
Registrant's Registration Statement (File No. 33-46924) filed on October 31,
1997.
5 Incorporated by reference from Post-Effective Amendment No. 14 to
Registrant's Registration Statement (File No. 33-46924) filed on December 29,
1997.
6 To be filed by subsequent amendment.
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
There are no persons controlled by or under common control with the
Fund.
Item 25. 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
C-2
<PAGE>
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.
(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,
C-3
<PAGE>
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.
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 1933 Act
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 30 herein.
C-4
<PAGE>
Item 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
First Investors Management Company, Inc. offers investment management
services and is a registered investment adviser. Affiliations of the officers
and directors of the Investment Adviser are set forth in Part B, Statement of
Additional Information, under "Directors and Officers."
Item 27. 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
First Investors Life Variable Annuity Fund A
First Investors Life Variable Annuity Fund C
First Investors Life Variable Annuity Fund D
First Investors Life Level Premium Variable Life Insurance
(Separate Account B)
(b) The following persons are the officers and directors of the
Underwriter:
Position and Position and
Name and Principal Office with First Office with
Business Address Investors Corporation Registrant
- ------------------ --------------------- ------------
Glenn O. Head Chairman President
95 Wall Street and Director and 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
C-5
<PAGE>
Position and Position and
Name and Principal Office with First Office with
Business Address Investors Corporation Registrant
- ------------------ --------------------- ------------
Joseph I. Benedek Treasurer Treasurer
581 Main Street
Woodbridge, NJ 07095
Lawrence A. Fauci Senior Vice President None
95 Wall Street and Director
New York, NY 10005
Kathryn S. Head Vice President Director
581 Main Street and Director
Woodbridge, NJ 07095
Louis Rinaldi Senior Vice None
581 Main Street President
Woodbridge, NJ 07095
Frederick Miller Senior Vice President None
581 Main Street
Woodbridge, NJ 07095
Larry R. Lavoie Secretary and Director
95 Wall Street General Counsel
New York, NY 10005
Matthew Smith Vice President None
581 Main Street
Woodbridge, NJ 07095
Jeremiah J. Lyons Director None
56 Weston Avenue
Chatham, NJ 07928
Anne Condon Vice President None
581 Main Street
Woodbridge, NJ 07095
Jane W. Kruzan Director None
232 Adair Street
Decatur, GA 30030
C-6
<PAGE>
Position and Position and
Name and Principal Office with First Office with
Business Address Investors Corporation Registrant
- ------------------ --------------------- ------------
Elizabeth Reilly Vice President None
581 Main Street
Woodbridge, NJ 07095
Robert Flanagan Vice President- None
95 Wall Street Sales Administration
New York, NY 10005
William M. Lipkus Chief Financial Officer None
581 Main Street
Woodbridge, NJ 07095
c) Not applicable
Item 28. LOCATION OF ACCOUNTS AND RECORDS
Physical possession of the books, accounts and records of the
Registrant are held by First Investors Management Company, Inc. and its
affiliated companies, First Investors Corporation and Administrative Data
Management Corp., at their corporate headquarters, 95 Wall Street, New York, NY
10005 and administrative offices, 581 Main Street, Woodbridge, NJ 07095, except
for those maintained by the Registrant's Custodian, The Bank of New York, 48
Wall Street, New York, NY 10286.
Item 29. MANAGEMENT SERVICES
Not Applicable.
Item 30. UNDERTAKINGS
The Registrant undertakes to carry out all indemnification provisions
of its 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 1933 Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions under Item 27 herein, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 1933 Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
C-7
<PAGE>
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The Registrant hereby undertakes to furnish a copy of its latest annual
report to shareholders, upon request and without charge, to each person to whom
a prospectus is delivered.
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant has duly
caused this Post-Effective Amendment No. 15 to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on the 16th day of November, 1998.
FIRST INVESTORS SERIES
FUND II, INC.
By: /s/ Glenn O. Head
----------------------
Glenn O. Head
President and Director
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 15 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 November 16, 1998
- ----------------------------- Officer and Director
Glenn O. Head
/s/ Joseph I. Benedek Principal Financial November 16, 1998
- ----------------------------- and Accounting Officer
Joseph I. Benedek
Kathryn S. Head* Director November 16, 1998
- -----------------------------
Kathryn S. Head
/s/ Larry R. Lavoie Director November 16, 1998
- -----------------------------
Larry R. Lavoie
<PAGE>
Herbert Rubinstein* Director November 16, 1998
- -----------------------------
Herbert Rubinstein
Nancy Schaenen* Director November 16, 1998
- -----------------------------
Nancy Schaenen
James M. Srygley* Director November 16, 1998
- -----------------------------
James M. Srygley
John T. Sullivan* Director November 16, 1998
- -----------------------------
John T. Sullivan
Rex R. Reed* Director November 16, 1998
- -----------------------------
Rex R. Reed
Robert F. Wentworth* Director November 16, 1998
- -----------------------------
Robert F. Wentworth
*By: /s/ Larry R. Lavoie
-------------------
Larry R. Lavoie
Attorney-in-fact
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description Page
- ------- ----------- ----
23(a)(i) Articles of Incorporation1
23(a)(ii) Articles Supplementary1
23(b) By-laws1
23(c) 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
23(d) Investment Advisory Agreement between Registrant and
First Investors Management Company, Inc.1
23(e) Underwriting Agreement2
23(f) Bonus or Profit Sharing Contracts--None
23(g) Custodian Agreement between Registrant and The Bank of
New York2
23(h)(i) Administration Agreement between Registrant, First
Investors Management Company, Inc., First Investors
Corporation and Administrative Data Management Corp.2
23(h)(ii) Amended Schedule A to Administration Agreement3
23(h)(iii) Organization Expense Reimbursement Agreement3
23(i) Consent of counsel5
23(j)(i) Consent of independent accountants6
23(j)(ii) Powers of Attorney1,4
23(k) Omitted Financial Statements -- None
<PAGE>
Exhibit
Number Description Page
- ------- ----------- ----
23(l) Initial Capital Agreements4
23(m)(i) Class A Distribution Plan2
23(m)(ii) Class B Distribution Plan2
23(n) Financial Data Schedules6
23(o) Rule 18f-3 Plan1
1 Incorporated by reference from Post-Effective Amendment No. 9 to Registrant's
Registration Statement (File No. 33-46924) filed on November 13, 1995.
2 Incorporated by reference from Post-Effective Amendment No. 10 to
Registrant's Registration Statement (File No. 33-46924) filed on January 12,
1997.
3 Incorporated by reference from Post-Effective Amendment No. 12 to
Registrant's Registration Statement (File No. 33-46924) filed on May 15,
1997.
4 Incorporated by reference from Post-Effective Amendment No. 13 to
Registrant's Registration Statement (File No. 33-46924) filed on October 31,
1997.
5 Incorporated by reference from Post-Effective Amendment No. 14 to
Registrant's Registration Statement (File No. 33-46924) filed on December 29,
1997.
6 To be filed by subsequent amendment.