As filed with the Securities and Exchange Commission on December 23, 1998
1933 Act File No. 33-46924
1940 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. 16 [ X ]
----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 16
----
(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)
[ ] on (date) pursuant to paragraph (a)(1)
[X] 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 Focused Equity Fund
Statement of Additional Information for the First Investors
Focused Equity Fund
Part C of Form N-1A
Signature Page
Exhibits
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[FIRST INVESTORS LOGO]
FIRST INVESTORS FOCUSED EQUITY 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 March __, 1999.
<PAGE>
CONTENTS
OVERVIEW OF THE FOCUSED EQUITY FUND
/ / What is the Focused Equity Fund?
/ / / / Objectives
/ / / / Primary Investment Strategies
/ / / / Primary Risks
/ / Who should consider buying the Focused Equity Fund?
/ / What about performance?
/ / What are the fees and expenses of the Focused Equity Fund?
THE FOCUSED EQUITY FUND IN DETAIL
/ / What are the Focused Equity Fund's objective, principal investment
strategies and principal risks?
/ / Who manages the Focused Equity Fund?
/ / How and when does the Focused Equity Fund price its shares?
BUYING AND SELLING SHARES
/ / How do I buy shares?
/ / Which class of shares is best for me?
/ / How do I sell shares?
/ / Can I exchange my shares for the shares of other First Investors
funds?
ACCOUNT POLICIES
/ / What about dividends and capital gains distributions?
/ / What about taxes?
/ / How do I obtain a complete explanation of all account privileges and
policies?
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OVERVIEW OF THE FOCUSED EQUITY FUND
What is the Focused Equity Fund?
Objective The Fund seeks capital appreciation.
Primary
Investment
Strategies The Fund seeks to achieve its objective by concentrating its
investments in the common stocks of approximately 25 U.S.
companies. Generally, not more than 12% of the Fund's assets will
be invested in the securities of a single issuer. The Fund looks
for companies that are undergoing corporate events that appear
likely to result in significant growth in the companies'
valuations. The Fund seeks to identify companies with proven
management, superior cash flow and outstanding franchise values.
Primary
Risks While there are substantial potential long-term rewards of
investing in a concentrated portfolio of securities that are
considered undervalued, there are also substantial risks. First,
the value of the portfolio will fluctuate with movements in the
overall securities markets, general economic conditions, and
changes in interest rates or investor sentiment. Second, because
the Fund concentrates its investments in the stocks of a small
number of issuers, the Fund's performance may be substantially
impacted by the change in value of a single holding. Third, there
is a risk that the increase in the value of the securities that
is anticipated because of a corporate event may occur later than
anticipated or not at all. 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 Focused Equity Fund?
The Focused Equity Fund can be used to "round out" an investment
portfolio which already contains a core stock fund holding, such
as a blue chip fund or a growth and income fund. It may be
appropriate for you if you:
o Are seeking significant growth of capital,
o Understand and are willing to accept significant stock
market volatility,
o Are willing to take high risk on the money you invest in
the Fund, and
o Have a long-term investment horizon and are able to ride
out market cycles.
You should keep in mind that the Focused Equity 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
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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.
What about performance?
Because the Fund was new when this prospectus was printed, it has no previous
operating history. However, the Fund has investment objectives and policies that
are substantially similar to those of another fund managed by the Fund's
investment subadviser, Arnhold and S. Bleichroeder, Inc. ("A&SB, Inc." or
"Subadviser"), First Eagle Fund, N.V. See the Appendix for information about the
performance of this similar fund.
What are the fees and expenses of the Focused Equity 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 (loan)
(as a percentage of the lower of purchase
price or redemption price)................. None* 4%**
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund
assets)
Distribution Fee Waiver
and Service Total Annual and/or
Management (12b-1) Other Fund Operating Expense Net
Fees Fees(1) Expenses(2) Expenses Assumption(3) Expenses
---- ------- ----------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Class A Shares...... 0.75% 0% [ ]% [ ]% [ ]% 1.65%
Class B Shares...... 0.75% 1.00% [ ]% [ ]% [ ]% 2.35%
</TABLE>
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* 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) Although the Fund has adopted a Rule 12b-1 plan for Class A shares which
provides for payments of up to 0.30%, the plan provides that no payments will be
made under the plan until October 1, 1999. 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) Because the Fund had no operating history when this prospectus was printed,
these expenses are based on estimated amounts for the current fiscal year.
(3) The Adviser has entered into a contractual commitment with the Fund for the
period from the commencement of operations to September 30, 1999 to waive and/or
assume distribution and/or other expenses so that in the aggregate the overall
fees and expenses will not exceed 1.65% for Class A and 2.35% for Class B.
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 period 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 THREE
YEAR YEARS
---- -----
If you redeem your shares:
Class A shares $[ ] $[ ]
Class B Shares [ ] [ ]
If you do not redeem your shares:
Class A shares $[ ] $[ ]
Class B Shares [ ] [ ]
THE FOCUSED EQUITY FUND IN DETAIL
What are the Focused Equity Fund's objective, principal investment strategies,
and principal risks?
OBJECTIVE: The Fund seeks capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES: The Fund seeks to achieve its objective by
concentrating its investments in the common stocks of approximately 25 U.S.
companies. The Fund is a non-diversified investment company. Although the Fund
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is not required to limit the amount of any investment in the securities of any
one issuer, it generally will not invest more than 12% of its assets in the
securities of a single issuer. The Fund may have cash positions of 10% or more
if the Fund cannot identify qualified investment opportunities or it has a
negative or "bearish" view of the stock market. However, under normal market
conditions, at least 65% of the Fund's total assets will be invested in equity
securities.
The Fund uses an event-driven style ("event-driven style") to select
investments. The Fund looks for companies that are undergoing some corporate
event that the Fund believes can result in significant growth in the companies'
valuations. Examples of these events include: announced mergers, acquisitions
and divestitures; financial restructurings; management reorganizations; stock
buy-back programs; or industry transformations that can affect competitiveness.
The Fund then identifies companies with proven management teams which maintain
significant financial interest in the companies, superior cash flows in excess
of internal growth requirements and outstanding franchise values. The Fund
generally invests with a time horizon of two-to-five years and seeks
investments which offer the potential of appreciating at least 50% within the
first two years of the investment.
The Fund actively monitors the companies in its portfolio through regular
meetings and teleconference calls with senior management and personal visits.
The Fund also actively monitors the industries and competitors of the companies
within its portfolio and checks whether the original investment thesis still
holds true. The Fund usually will sell a stock when it shows deteriorating
fundamentals, reaches its target value, constitutes 12% or more of the total
portfolio, or when the Fund identifies better investment opportunities.
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 Focused Equity Fund:
MARKET RISK: Because the Fund primarily invests in stocks, 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. Fluctuations in the prices of
stocks can be sudden and substantial. Accordingly, the value of your investment
in the Fund will go up and down, which means that you could lose money.
NON-DIVERSIFICATION RISK: The Fund is a non-diversified investment company and,
as such, its assets may be invested in a limited number of issuers. This means
that the Fund's performance may be substantially impacted by the change in value
of even a single holding. The price of a share of the Fund can therefore be
expected to fluctuate more than a comparable diversified fund. Moreover, the
Fund's share price may decline even when the overall market is increasing.
Accordingly, an investment in the Fund therefore may entail greater risks than
an investment in a diversified investment company.
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EVENT-DRIVEN STYLE RISK: The event-driven investment style used by the Fund
carries the additional risk that the event anticipated occurs later than
expected or does not occur at all or does not have the desired effect on the
market price of the security.
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 Focused Equity 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 1959. It currently serves as investment adviser to
52 mutual funds with total net assets of approximately $5 billion. FIMCO
supervises all aspects of the Fund's operations, except that the investment
subadviser determines the Fund's portfolio transactions. For its services, FIMCO
receives a fee at an annual rate of 0.75% of the average daily net assets of the
Fund up to and including $300 million; 0.72% of the average daily net assets in
excess of $300 million up to and including $500 million; 0.69% of the average
daily net assets in excess of $500 million up to and including $750 million; and
0.66% of the average daily net assets over $750 million. This fee will be
computed daily and paid monthly.
FIMCO and the Fund have retained Arnhold & S. Bleichroeder, Inc. as the Fund's
investment subadviser. A&SB, Inc. has discretionary trading authority over all
of the Fund's assets, subject to continuing oversight and supervision by FIMCO
and the Board of Directors. A&SB, Inc. is located at 1345 Avenue of the
Americas, New York, NY 10105-4300. A&SB, Inc. and its affiliates currently
provide investment services to investment companies, institutional accounts and
private clients. As of November 30, 1998, A&SB, Inc. and its affiliates held
investment management authority with respect to more than $3 billion of domestic
and international assets. For its subadvisory services, FIMCO, Inc. will pay
A&SB, Inc. an annualized fee.
The Fund is managed by Colin G. Morris, Senior Vice President of A&SB, Inc., who
has been responsible for the management of various A&SB, Inc. clients since
January 1993. Prior to joining A&SB, Inc. in 1992, Mr. Morris was a partner at
Mabon Securities, with responsibility for arbitrage investments from 1988 to
1992.
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In addition to the investment risks of the Year 2000 which are discussed above,
the ability of FIMCO, A&SB, Inc. and their 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 Focused Equity 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 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. There are special
procedures for processing retirement plan transactions. These are explained in a
separate Shareholder Manual, which is available upon request.
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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.
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.
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Class B Shares
CDSC as a Percentage of Purchase Price
Year of Redemption or NAV at Redemption
------------------ --------------------
Within the 1st or 2nd year ............4%
Within the 3rd or 4th year.............3
In the 5th year........................2
In the 6th year........................1
Within the 7th year and 8th year.......0
There is no CDSC on Class B shares which are acquired through reinvestment of
dividends or distributions. The CDSC is imposed on the lower of the original
purchase price or the net asset value of the shares being sold. For purposes of
determining the CDSC, all purchases made during a calendar month are counted as
having been made on the first day of that month at the average cost of all
purchases made during that month.
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 sales and distribution of its shares. Each class of
shares pays Rules 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.
Because of the lower overall expenses on Class A shares, we recommend Class A
shares for purchases in excess of $250,000 and will sell only 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;
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. 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
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 gains distributions?
To the extent that it has net investment income and capital gains, the Fund will
declare and pay dividends of the net investment income and any realized capital
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gains on an annual basis, usually at 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 distributions at NAV in additional
shares of the same class of the same Fund or certain other First Investors
Funds, or receive all dividends and distributions in cash. If you do not select
an option when you open your account, all dividends and 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 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 that 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, or 401(k) account, or other tax deferred account. Dividends (including
distributions of net short-term capital gains) by the Fund 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 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
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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.
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APPENDIX
Because the Focused Equity Fund was new when this prospectus was printed, it has
no operating history. However, the Fund has investment objectives and policies
that are substantially similar to those of another fund managed by the Fund's
Subadviser, the First Eagle Fund, N.V. ("First Eagle Fund"). The First Eagle
Fund is organized in a foreign jurisdiction and offered outside of the United
States.
Set forth below is information regarding the prior performance of the First
Eagle Fund, not the performance of the Focused Equity Fund. This information
reflects the total returns of the First Eagle Fund (the change in value of an
investment in the First Eagle Fund over a given period, assuming reinvestment of
any dividends and capital gains) during the periods indicated. Total return is
based on past results and is not an indication of future performance. The
performance information is provided in two ways: (1) net of all advisory fees
and other expenses, and (2) net of all advisory fees and expenses except for
performance fees.
Although the First Eagle Fund has investment objectives, policies, and
strategies that are substantially similar to those of the Focused Equity Fund,
the First Eagle Fund has different expenses and its shares are sold through
different distribution channels. These differences may affect the performance of
the Fund and cause it to differ from the future performance of the First Eagle
Fund. For example, the Fund's future performance may be greater or less than the
performance of the First Eagle Fund due to, among other things, differences in
sales charges, expenses, asset sizes and cash flows between the Fund and the
First Eagle Fund. In addition, the Fund is subject to restrictions imposed by
the Investment Company Act of 1940, as amended, and the Internal Revenue Code of
1986, as amended, that do not apply to the First Eagle Fund. These restrictions
may affect the performance of the Fund and cause it to differ from that of the
First Eagle Fund. Accordingly, the performance of the Fund First Eagle You
should not interpret the First Eagle Fund's historical performance as indicative
of the future performance of the Focused Equity Fund or the first Eagle related
Fund.
-14-
<PAGE>
Ten Year Performance History
----------------------------
First Eagle Fund Class A Shares*
--------------------------------
Year Annual Return (Net of Annual Return (without Standard & Poor's 500
--------------------- ---------------------- ---------------------
all fees and expenses) deducting performance Index (with dividends)
---------------------- --------------------- ----------------------
fee**)
------
12/31/89 28.82% 30.91% 31.65%
12/31/90 -11.72% -11.72% -3.14%
12/31/91 18.72% 19.69% 30.48%
12/31/92 18.66% 19.62% 7.64%
12/31/93 23.07% 24.52% 10.05%
12/31/94 -0.38% -0.38% 1.27%
12/31/95 30.69% 32.98% 37.53%
12/31/96 24.37% 25.96% 22.99%
12/31/97 27.84% 30.93% 33.35%
12/31/98 ------ ------ ------
*First Eagle Fund offers three classes of shares, all of which have the same
expense ratio. The performance of Class A shares is set forth in this table
because, as the first class of shares issued by First Eagle Fund, Class A shares
have the longest performance history and the largest asset base.
**This column shows performance net of all fees and expenses except for
performance fees. Prior to 1997, the management fee was 1.60% of net assets. In
1997 and 1998, the management fee was 1.50%. The Fund also pays a performance
fee. Since October 31, 1996, the First Eagle Fund has paid a performance fee in
the amount of 10% of the annual appreciation of the First Eagle Fund's share
price. Prior to October 31, 1996, the performance fee in the amount of 10% was
calculated based on the annual capital appreciation above a threshold of 10%.
-15-
<PAGE>
[FIRST INVESTORS LOGO]
FIRST INVESTORS FOCUSED EQUITY FUND
For investors who want more information about the Fund, the following documents
are available free upon request:
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 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 Shareholder Manual and SAI) at the Public Reference Room of the 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 Focused Equity Fund 811-6618)
-16-
<PAGE>
FIRST INVESTORS SERIES FUND II, INC.
FIRST INVESTORS FOCUSED EQUITY FUND
95 Wall Street
New York, New York 10005
1-800-423-4026
STATEMENT OF ADDITIONAL INFORMATION
DATED MARCH __, 1999
This is a Statement of Additional Information ("SAI") for the Focused
Equity Fund ("Fund"), a non-diversified series of First Investors Series Fund
II, Inc. ("Series Fund II"), an open-end management investment company.
This SAI is not a prospectus. It should be read in conjunction with the
Fund's Prospectus dated March __, 1999 which may be obtained free of cost from
the Fund 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 the Fund at the address or
telephone number noted above.
TABLE OF CONTENTS
-----------------
Page
----
Investment Strategies and Risks.................................
Investment Policies.............................................
Futures and Options Strategies..................................
Investment Restrictions.........................................
Portfolio Turnover..............................................
Directors and Officers..........................................
Management......................................................
Underwriter.....................................................
Distribution Plan...............................................
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......................................................
Shareholder Manual: A Guide to your First Investors Mutual Fund Account ....
<PAGE>
INVESTMENT STRATEGIES AND RISKS
The Fund seeks its objective of capital appreciation by investing
primarily in the equity securities of approximately 25 U.S. companies. Under
normal market conditions, at least 65% of the Fund's total assets will be
invested in equity securities, including common stocks, preferred stocks,
convertible securities and warrants.
The Fund invests in the stocks of companies it believes to be undervalued
in the current market. The Fund generally seeks to buy stocks of companies that
are involved in corporate events such as mergers, acquisitions, divestitures,
financial restructurings, management reorganizations, stock buy-back programs
and industry changes. In addition, the Fund looks for companies with proven
management with a financial interest in the company under consideration, strong
cash flows in excess of internal growth requirements, established franchises and
the potential for at least 50% appreciation within two years. An investment in a
company based on the occurrence of a corporate event is subject to the risk that
the corporate event will not develop as favorably as expected or that the
situation may deteriorate. For example, a merger with favorable implications may
be blocked or an industrial development may not enjoy anticipated market
acceptance. The Fund invests with a two-to-five year time horizon. It will
generally sell a security even before this horizon expires if it reaches its
target valuation, if the company's franchise value deteriorates to a point where
it no longer generates superior cash flows, if an investment position reaches
more than 12% of the Fund's total portfolio value through appreciation or if
better investment opportunities are identified.
The majority of the Fund's investments are expected to be securities
listed on the New York Stock Exchange ("NYSE") or other national securities
exchanges, or securities that have an established over-the-counter ("OTC")
market, although the depth and liquidity of the OTC market may vary from time to
time and from security to security.
The Fund may occasionally invest in the securities of foreign companies
that are linked to the U.S. companies it has identified as having investment
potential; for example, it may invest in securities of foreign issuers that are
involved in mergers with U.S. companies that are held in the Fund's portfolio.
Such foreign investments usually will be in the form of American Depository
Receipts ("ADRs") or Global Depository Receipts ("GDRs"). See "Foreign
Securities" and "American Depository Receipts and Global Depository Receipts,"
below.
When market conditions warrant, or when the Fund's subadviser, Arnhold and
S. Bleichroeder, Inc. ("A&SB, Inc." or "Subadviser") believes it is necessary to
achieve the Fund's objective, the Fund may invest in fixed-income securities.
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. In addition, the Fund may invest in debt securities rated below Baa
by Moody's Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's
Ratings Group ("S&P") (including debt securities that have been downgraded), or
in unrated debt securities that are of comparable quality as determined by the
Subadviser. 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 debt security ratings.
Although the Fund may borrow money in an amount equal to 33 1/3% of its
total assets, it has no present intention of borrowing other than for temporary
or emergency purposes in amounts not exceeding 5% of its total assets. The Fund
may make loans of portfolio securities, enter into repurchase agreements and
invest in securities issued on a "when-issued" or delayed delivery basis. 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
2
<PAGE>
all or part 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.
INVESTMENT POLICIES
AMERICAN DEPOSITORY RECEIPTS AND GLOBAL DEPOSITORY RECEIPTS. The Fund may
invest in ADRs and 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. The Fund may invest in bankers' acceptances.
Bankers' acceptances are short-term credit instruments used to finance
commercial transactions. Generally, an acceptance is a time draft drawn on a
bank by an exporter or importer to obtain a stated amount of funds to pay for
specific merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an asset
or it may be sold in the secondary market at the going rate of interest for a
specific maturity. Although maturities for acceptances can be as long as 270
days, most acceptances have maturities of six months or less.
CERTIFICATES OF DEPOSIT. The 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. The 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
3
<PAGE>
degree to which the convertible security sells above its value as a fixed income
security. Investment decisions will be made 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. The 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.
FOREIGN SECURITIES. The 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. Changes in the value of
these currencies may affect the Fund's share price. In addition, the Fund may 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; there may be difficulties in
repatriating Fund assets that are invested in foreign securities; and there may
be the possibility of expropriation or confiscatory taxation, political or
social instability or diplomatic developments which could affect assets of the
Fund held in foreign countries.
The 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.
MONEY MARKET INSTRUMENTS. The 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.
4
<PAGE>
HIGH YIELD SECURITIES-RISK FACTORS. The 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 of 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 the Fund's net asset
value. A significant economic downturn or a substantial period of rising
interest rates could severely affect the market for High Yield Securities. In
these circumstances, highly leveraged companies might have greater difficulty in
making principal and interest payments, meeting projected business goals, and
obtaining additional financing. Thus, there could be a higher incidence of
default. This would affect the value of such securities and thus 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 Subadviser'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.
5
<PAGE>
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 the 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 Fund's Board of Directors
(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 the Fund is authorized to loan
securities to qualified broker-dealers or other institutional investors, it has
no current intention of doing so. Furthermore, to the extent the Fund makes such
loans: the borrower pledges to the 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 the 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. The
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.
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 the 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 (the 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 the
Fund's custodian bank. In a "tri-party" repurchase agreement, these securities
would be held by a different bank for the benefit of the Fund as buyer and the
broker-dealer as seller. In a "quad-party" repurchase agreement, the Fund's
custodian bank also is made a party to the agreement. Although the 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 Fund currently does
6
<PAGE>
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 the 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. The Fund will always receive, as collateral, securities whose market
value, including accrued interest, which will at all times be at least equal to
100% of the dollar amount invested by the Fund in each agreement, and the Fund
will make payment for such securities only upon physical delivery or evidence of
book entry transfer to the account of the custodian. If the seller defaults, the
Fund might incur a loss if the value of the collateral securing the repurchase
agreement declines, and might incur disposition costs in connection with
liquidating the collateral. In addition, if bankruptcy or similar proceedings
are commenced with respect to the seller of the security, realization upon the
collateral by the Fund may be delayed or limited. The Fund may not enter into a
repurchase agreement with more than seven days to maturity if, as a result, more
than 15% of the Fund's net assets would be invested in such repurchase
agreements and other illiquid investments.
RESTRICTED SECURITIES AND ILLIQUID INVESTMENTS. While the Fund may invest
in restricted securities, it will not 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 repurchase agreements maturing in more than seven days and
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 Subadviser has determined under Board-approved guidelines are liquid.
Restricted securities which are illiquid may be sold only in privately
negotiated transactions or in public offerings with respect to which a
registration statement is in effect under the 1933 Act. Such securities include
those that are subject to restrictions contained in the securities laws of other
countries. Securities that are freely marketable in the country where they are
principally traded, but would not be freely marketable in the United States,
will not be subject to this 15% limit. Where registration is required, the 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, the 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
7
<PAGE>
securities held by the Fund, however, could affect adversely the marketability
of such portfolio securities and the Fund might be unable to dispose of such
securities promptly or at reasonable prices.
OTC options and their underlying collateral are also considered illiquid
investments. The Fund may invest in options, although it has no intention of
investing in options in the coming year. The assets used as cover for OTC
options written by the Fund would not be considered illiquid unless the OTC
options are sold to qualified dealers who agree that the Fund may repurchase any
OTC option it writes at a maximum price to be calculated by a formula set forth
in the option agreement. The cover for an OTC option written subject to this
procedure would be considered illiquid only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option
U.S. GOVERNMENT OBLIGATIONS. The 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 Federal Housing Administration,
Government National Mortgage Association, the Department of Housing and Urban
Development, the Export-Import Bank, the General Services Administration and the
Maritime Administration and certain securities issued by the Farmers Home
Administration and the Small Business Administration). The range of maturities
of U.S. Government Obligations is usually three months to thirty years.
WARRANTS. The Fund may purchase warrants, which are instruments that
permit the 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. The Fund may invest up to 5% of its net assets in
securities issued on a when-issued or delayed delivery basis at the time the
purchase is made. The Fund generally would not pay for such securities or start
earning interest on them until they are issued or received. However, when the
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 the 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, the 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 the 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. The Fund may 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,
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prevailing interest rates, liquidity of the security and the perceived credit
quality of the issuer. Pay-in-kind securities are those that pay interest
through the issuance of additional securities. The market prices of zero coupon
and pay-in-kind securities generally are more volatile than the prices of
securities that pay interest periodically and in cash and are likely to respond
to changes in interest rates to a greater degree than do other types of debt
securities having similar maturities and credit quality. Original issue discount
earned on zero coupon securities and the "interest" on pay-in-kind securities
must be included in the Fund's income. Thus, to continue to qualify for tax
treatment as a regulated investment company and to avoid a certain excise tax on
undistributed income, the Fund may be required to distribute as a dividend an
amount that is greater than the total amount of cash it actually receives. See
"Taxes." These distributions must be made from the Fund's cash assets or, if
necessary, from the proceeds of sales of portfolio securities. The 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
The Fund occasionally may purchase and sell futures contracts and options
on futures. Although the Fund may buy or sell futures contracts or options
thereon for hedging purposes, it engages in such transactions relatively
infrequently and over relatively short periods of time. Furthermore, it is
anticipated that any hedging strategy that the fund may decide to employ will
most likely be effected by buying puts on the overall market or an index, such
as puts on the Standard & Poor's 500 Composite Stock Price Index. The
instruments described below are sometimes referred to collectively as "Hedging
Instruments." Certain special characteristics of and risks associated with using
Hedging Instruments are discussed below. In addition to the investment
guidelines (described below) adopted by the Board to govern the Fund's
investments in Hedging Instruments, use of these instruments is subject to the
applicable regulations of the Securities and Exchange Commission ("SEC"), the
several options and futures exchanges upon which options and futures contracts
are traded and the Commodities Futures Trading Commission ("CFTC"). In addition,
the Fund's ability to use Hedging Instruments will be limited by tax
considerations. See "Taxes."
Participation in the options or futures markets involves investment risks
and transaction costs to which the Fund would not be subject absent the use of
these strategies. If the Subadviser's prediction of movements in the direction
of the securities and interest rate markets are inaccurate, the adverse
consequences to the Fund may leave the Fund in a worse position than if such
strategies were not used. The Fund might not employ any of the strategies
described below, and there can be no assurance that any strategy will succeed.
The use of these strategies involve certain special risks, including (1)
dependence on the Subadviser's ability to predict correctly movements in the
direction of interest rates and securities prices; (2) imperfect correlation
between the price of options, futures contracts and options thereon and
movements in the prices of the securities being hedged; (3) the fact that skills
needed to use these strategies are different from those needed to select
portfolio securities; and (4) the possible absence of a liquid secondary market
for any particular instrument at any time.
COVER FOR HEDGING STRATEGIES. The Fund will not write options or purchase
or sell futures contracts unless it owns either (1) an offsetting ("covered")
position in other options or futures contracts or (2) cash and liquid assets
with a value sufficient at all times to cover its potential obligations. The
Fund will comply with guidelines established by the SEC with respect to coverage
of such instruments by mutual funds and, if required, will set aside cash and
liquid assets in a segregated account with its custodian in the prescribed
amount. Securities or other options or futures positions used for cover and
securities held in a segregated account cannot be sold or closed out while the
hedging or option income strategy is outstanding unless they are replaced with
similar assets. As a result, there is a possibility that the use of cover or
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segregation involving a large percentage of the Fund's assets could impede
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
OPTIONS STRATEGIES. The Fund may buy and sell put and call options on
securities and indices to hedge its portfolio. The Fund also may write put and
call options on securities and indices to generate additional income through the
receipt of premiums, purchase put options in an effort to protect the value of a
security that it owns against a decline in market value and purchase call
options in an effort to protect against an increase in the price of securities
it intends to purchase. The Fund also may purchase and sell put and call options
to offset previously written or purchased put and call options of the same
series.
The Fund may purchase call options on securities that the Subadviser
intends to include in the Fund's portfolio in order to fix the cost of a future
purchase. Call options also may be used as a means of participating in an
anticipated price increase of a security. If the price of the underlying
security declines, use of this strategy would serve to limit the Fund's
potential loss to the option premium paid; conversely, if the market price of
the underlying security increases above the exercise price and the Fund either
sells or exercises the option, any profit eventually realized will be reduced by
the premium.
The Fund may purchase put options in order to hedge against a decline in
the market value of securities held in its portfolio. The put option enables the
Fund to sell the underlying security at the predetermined exercise price; thus
the potential for loss to the Fund below the exercise price is limited to the
option premium paid. If the market price of the underlying security is higher
than the exercise price of the put option, any profit the Fund realizes on the
sale of the security will be reduced by the premium paid for the put option less
any amount for which the put option may be sold.
The Fund may write call and put options on securities to increase income
in the form of premiums received from the purchasers of the options. Because it
can be expected that a call option will be exercised if the market value of the
underlying security increases to a level greater than the exercise price, the
Fund will write call options on securities generally when the Subadviser
believes that the premium received by the Fund, plus anticipated appreciation in
the market price of the underlying security up to the exercise price of the
option, will be greater than the total appreciation in the price of the
security. The strategy may be used to provide limited protection against a
decrease in the market price of the security in an amount equal to the premium
received for writing the call option less any transaction costs. Thus, if the
market price of the underlying security held by the Fund declines, the amount of
such decline will be offset wholly or in part by the amount of the premium
received by the Fund. If, however, there is an increase in the market price of
the underlying security and the option is exercised, the Fund will be obligated
to sell the security at less than its market value. The Fund gives up the
ability to sell the portfolio securities used to cover the call option while the
call option is outstanding. Such securities may also be considered illiquid in
the case of OTC options written by the Fund and therefore subject to investment
restrictions. See "Restricted Securities and Illiquid Investments." In addition,
the Fund could lose the ability to participate in an increase in the value of
such securities above the exercise price of the call option because such an
increase would likely be offset by an increase in the cost of closing out the
call option (or could be negated if the buyer chose to exercise the call option
at an exercise price below the securities' current market value).
Writing put options can serve as a limited long hedge because increases in
the value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security depreciates to a price
lower than the exercise price of the put option, it can be expected that the put
option will be exercised and the fund will be obligated to purchase the security
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<PAGE>
or currency at more than its market value. If the put option is an OTC option,
the securities or other assets used as cover would be considered illiquid to the
extent described under "Restricted Securities and Illiquid Investments."
The Fund may purchase and sell put and call options on indices to serve as
a hedge against overall fluctuations in the securities markets (or a market
sector) rather than anticipated increases or decreases in the value of a
particular security. An index assigns relative values to the securities included
in the index and fluctuates with changes in such values. Index options operate
in the same way as the more traditional equity or debt options, except that
settlements of index options are effected with cash payments and do not involve
delivery of securities. Thus, upon settlement of an index option, the purchaser
will realize, and the writer will pay, an amount based on the difference between
the exercise price and the closing price of the index. The effectiveness of
hedging techniques using index options will depend on the extent to which price
movements in the index selected correlate with price movements of the securities
in which the Fund invests.
The Fund may write put and call options on an index. A written put or call
option on an index is similar to a written put or call option on a security
except that, on exercise, the writer pays the buyer a settlement payment in cash
equal to the difference between the exercise price and the value of the index.
The operation of put and call options on indices in other respects, including
their related risks and rewards, is substantially identical to that of put and
call options on securities. The Fund may write put options in circumstances when
the Subadviser believes that the market price of the securities covered by the
index will not decline below the exercise price less the premiums received. The
Fund may write call options on an index in circumstances when the Subadviser
believes that the market price of the securities covered by the index will not
increase above the exercise price plus the premiums received. If the put option
is not exercised, the Fund will realize income in the amount of the premium
received. These techniques could be used to enhance current return during
periods of market uncertainty. The risk in such a transaction would be that the
value of the index would decline below the exercise price less the premiums
received in the case of a written put option, or increase above the exercise
price plus the premiums received in the case of a written call option, in which
case the Fund would expect to suffer a loss.
Currently, many options on equity securities are exchange-traded, whereas
options on debt securities are primarily traded on the OTC market.
Exchange-traded options in the U.S. are issued by a clearing organization that,
in effect, guarantees completion of every exchange-traded option transaction. In
contrast, OTC options are contracts between the Fund and the opposite party with
no clearing organization guarantee. Thus, when the Fund purchases an OTC option,
it relies on the dealer from which it has purchased the OTC option to make or
take delivery of the securities underlying the option or otherwise perform its
obligations with respect to an index option. Failure by the dealer to do so
would result in the loss of the premium paid by the Fund as well as the loss of
the expected benefit of the transaction.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING. The Fund may
effectively terminate its right or obligation under an option by entering into a
closing transaction. If the Fund wishes to terminate its obligation to sell
securities under a call or put option it has written, the Fund may purchase a
call or put option of the same series (that is, a call or put option identical
in its terms to the call or put option previously written); this is known as a
closing purchase transaction. Conversely, in order to terminate its right to
purchase or sell specified securities under a call or put option it has
purchased, the Fund may write an option of the same series, as the option held;
this is known as a closing sale transaction. Closing transactions essentially
permit the Fund to realize profits or limit losses on its options positions
prior to the exercise or expiration of the option.
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The value of an option position will reflect, among other things, the
current market price of the underlying index, the time remaining until
expiration, the relationship of the exercise price to the market price, the
historical price volatility of the underlying index and general market
conditions. For this reason, the successful use of options depends upon the
Subadviser'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.
Unless an option purchased by the Fund is exercised or unless a closing
transaction is effected with respect to that position, a loss will be realized
in the amount of the premium paid and any transaction costs.
A position in an exchange-listed option may be closed out only on an
exchange that provides a secondary market for identical options. The ability to
establish and close out positions on the exchanges is subject to the maintenance
of a liquid secondary market. 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. There is no assurance
that the Fund will be able to liquidate an OTC option at a favorable price at
any time prior to expiration. If the opposite party becomes insolvent, the Fund
may be unable to liquidate an OTC option. Accordingly, it may not be possible to
effect closing transactions with respect to certain options, with the result
that the Fund would have to exercise those options that it has purchased in
order to realize any profit. With respect to options written by the Fund, the
inability to enter into a closing transaction may result in material losses to
the Fund. For example, because the Fund must maintain a covered position or
segregate assets with respect to any call option it writes, the Fund may not
sell the underlying assets used to cover an option during the period it is
obligated under the option. This requirement may impair the Fund's ability to
sell a portfolio security or make an investment at a time when such a sale or
investment might be advantageous.
Index options are settled exclusively in cash. If the Fund purchases an
option on an index, the option is settled based on the closing value of the
index on the exercise date. Thus, a holder of an index option who exercises it
before the closing index value for that day is available runs the risk that the
level of the underlying index may subsequently change. For example, in the case
of a call option, if such a change causes the closing index value to fall below
the exercise price of the option on the index, the exercising holder will be
required to pay the difference between the closing index value and the exercise
price of the option.
The Fund's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs; however, the Fund also
may save on commissions by using options as a hedge rather than buying or
selling individual securities in anticipation or as a result of market
movements.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Fund may purchase
and sell futures contracts and options on futures contracts to attempt to reduce
the overall investment risk that would normally be expected to be associated
with ownership of the securities in which it invests. The Fund may sell index
futures contracts in anticipation of a general market or market sector decline
that could adversely affect the market value of the Fund's portfolio. To the
extent that a portion of the Fund's portfolio correlates with a given index, the
sale of futures contracts on that index could reduce the risks associated with a
market decline and thus provide an alternative to the liquidation of securities
positions. The Fund may purchase an index futures contract if a significant
market or market sector advance is anticipated. Such a purchase would serve as a
temporary substitute for the purchase of individual securities, which securities
may then be purchased in an orderly fashion. This strategy may minimize the
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<PAGE>
effect of all or part of an increase in the market price of securities that the
Fund intends to purchase. A rise in the price of the securities should be
partially or wholly offset by gains in the futures position.
The Fund may purchase a call option on an index future to hedge against a
market or market sector advance in securities that the Fund plans to purchase at
a future date. The Fund may also write put options on an index futures contract
as a partial hedge against a market or market sector advance in securities the
Fund plans to purchase at a future date. The Fund may write call options on
index futures as a partial hedge against a decline in the prices of stocks held
in the Fund's portfolio. The Fund also may purchase put options on index futures
contracts as a hedge against a market or market sector decline.
The Fund may use interest rate futures contracts and options thereon to
hedge the debt portion of its portfolio against changes in the general level of
interest rates. The Fund may purchase an interest rate futures contract when it
intends to purchase debt securities. This strategy may minimize the effect of
all or part of an increase in the market price of those securities because a
rise in the price of the securities prior to their purchase may either be offset
by an increase in the value of the futures contract purchased by the Fund or
avoided by taking delivery of the debt securities under the futures contract.
Conversely, a fall in the market price of the underlying debt securities may
result in a corresponding decrease in the value of the futures position. The
Fund may sell an interest rate futures contract in order to continue to receive
the income from a debt security, while endeavoring to avoid part or all of the
decline in the market value of that security that would accompany an increase in
interest rates.
The Fund may purchase a call option on an interest rate futures contract
to hedge against a market advance in debt securities that the Fund plans to
acquire at a future date. The Fund may also write a put option on an interest
rate futures contract as a partial hedge against a market advance in debt
securities that the Fund plans to acquire at a future date. The Fund also may
write call options on interest rate futures contracts as a partial hedge against
a decline in the price of debt securities held in the Fund's portfolio or
purchase put options on interest rate futures contracts in order to hedge
against a decline in the value of debt securities held in the Fund's portfolio.
FUTURES GUIDELINES. To the extent the Fund enters into futures contracts
or options thereon other than for bona fide hedging purposes (as defined by the
CFTC), the aggregate initial margin and premiums required to establish these
positions (excluding the in-the-money amount for options that are in-the-money
at the time of purchase) will not exceed 5% of the 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 the Fund's
assets at risk to 5%.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES TRADING. No price is paid
upon entering into futures contracts. Instead, upon entering into a futures
contract, the Fund is required to deposit an amount of cash or U.S. Government
securities generally equal to 10% or less of the contract value. This amount is
known as "initial margin." When writing a call or put option on a futures
contract, margin also must be deposited in accordance with applicable exchange
rules. Initial margin is in the nature of a performance bond or good-faith
deposit that is returned to the Fund upon termination of the transaction,
assuming all obligations have been satisfied. Under certain circumstances, such
as periods of high volatility, the Fund may be required by an exchange to
increase the level of its initial margin deposit. Subsequent payments, called
"variation margin," to and from the broker, are made on a daily basis as the
value of the futures or written option position varies, a process known as
"marking to market." Variation margin does not involve borrowing to finance the
futures or written options transactions, but rather represents a daily
settlement of the Fund's obligation to or from a clearing organization.
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Purchasers and sellers of futures positions and options thereon can enter
into offsetting closing transactions, similar to closing transactions on options
on securities, by selling or purchasing, respectively, a futures position or
options position with the same terms as the position or option purchased or
sold. Positions in futures contracts and options thereon may be closed only on
an exchange or board of trade providing a secondary market for such futures or
options.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract or option may vary either up
or down from the previous day's settlement price. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because
prices could move to the daily limit for several consecutive trading days with
little or no trading and thereby prevent prompt liquidation of unfavorable
positions. In such event, it may not be possible for the Fund to close a
position and, in the event of adverse price movements, the Fund would have to
make daily cash payments of variation margin (except in the case of purchased
options). However, when futures contracts or options have been used to hedge
portfolio securities, such securities may not be sold until the contracts can be
terminated. In such circumstances, an increase in the price of the securities,
if any, may partially or completely offset losses on the futures contract or
option. However, there is no guarantee that the price of the securities will, in
fact, correlate with the price movements in the contracts and thus provide an
offset to losses on the contracts.
Successful use by the Fund of futures contracts and options thereon will
depend upon the Subadviser's ability to predict movements in the direction of
the overall securities [and interest rate] markets, which requires different
skills and techniques than predicting changes in the prices of individual
securities. Moreover, futures contracts relate not to the current price level of
the underlying instrument but to the anticipated levels at some point in the
future. There is, in addition, the risk that the movements in the price of the
futures contract or option will not correlate with the movements in prices of
the securities being hedged. In addition, if the Fund has insufficient cash, it
may have to sell assets from its portfolio to meet daily variation margin
requirements. Any such sale of assets may or may not be made at prices that
reflect the rising market. Consequently, the Fund may need to sell assets at a
time when such sales are disadvantageous to the Fund. If the price of the
futures contract or option moves more than the price of the underlying
securities, the Fund will experience either a loss or a gain on the futures
contract or option that may or may not be completely offset by movements in the
price of the securities that are the subject of the hedge.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between price movements in the futures or option
position and the securities being hedged, movements in the prices of futures
contracts and options may not correlate perfectly with movements in the prices
of the hedged securities because of price distortions in the futures market. As
a result, a correct forecast of general market trends may not result in
successful hedging through the use of futures contracts or options over the
short term.
Positions in futures contracts and options may be closed out only on an
exchange or board of trade that provides a secondary market for such futures
contracts or options. There is no assurance that such a market will exist for
any particular futures contract or option at any particular time. In such event,
it may not be possible to close a futures or option position and, in the event
of adverse price movements, the Fund would continue to be required to make
variation margin payments.
Like options on securities, options on futures contracts have a limited
life. A purchased option that expires unexercised has no value.
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
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<PAGE>
are subject to additional margin calls that could be substantial in the event of
adverse price movements. In addition, although the maximum amount at risk when
the Fund purchases an option is the premium paid for the option and the
transaction costs, there may be circumstances when the purchase of an option on
a futures contract would result in a loss to the Fund when the use of a futures
contract would not, such as when there is no movement in the level of the
underlying index or the value of the securities being hedged.
The Fund's activities in the futures and options markets may result in a
higher portfolio turnover rate and additional transaction costs in the form of
added brokerage commissions; however, the Fund also may save on commissions by
using futures and options as a hedge rather than buying or selling individual
securities in anticipation or as a result of market movements.
PORTFOLIO TURNOVER
Although the 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 Subadviser,
investment considerations warrant such action. Portfolio turnover rate is
calculated by dividing (1) the lesser of purchases or sales of portfolio
securities for the fiscal year by (2) the monthly average of the value of
portfolio securities owned during the fiscal year. A 100% turnover rate would
occur if all the securities in the 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. The Fund does not
expect its turnover rate to exceed 100%.
INVESTMENT RESTRICTIONS
The investment restrictions set forth below have been adopted by the 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 the
Fund. As provided in the 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 the Fund's assets as a whole will not cause a
violation of the following investment restrictions so long as percentage
restrictions are observed by the Fund at the time it purchases any security.
The Fund will not:
(1) Borrow money, except that the Fund may borrow money in an amount not
exceeding 33 1/3% of its total assets including the amount borrowed
less liabilities (other than borrowings).
(2) Issue senior securities, except as permitted under the 1940 Act.
(3) Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an
underwriter under certain federal securities laws.
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<PAGE>
(4) Buy or sell 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 that invest or deal in real estate and
publicly traded securities or real estate investment trusts.
(5) Make loans, except as permitted under the 1940 Act.
(6) Concentrate its investments in the securities of issuers engaged in
any industry. (The SEC currently defines concentration within an
industry as the investment of more than 25% of a fund's assets in any
one industry.)
(7) Buy or sell physical commodities; however, this policy shall not
prevent the Fund from purchasing and selling foreign currency, futures
contracts, options, forward contracts, swaps, caps, collars, floors
and other financial instruments.
The following investment restriction is not fundamental and may be changed
without shareholder approval. The Fund will not:
(1) Purchase any security if, as a result, more than 15% of its net assets
would be invested in illiquid securities, including repurchase agreements not
entitling the holder to payment of principal and interest within seven days and
any securities that are illiquid by virtue of legal or contractual restrictions
on resale or the absence of a readily available market. The Directors, or the
Subadviser 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 1933 Act or any other applicable rule,
and therefore that such securities are not subject to the foregoing limitation.
The Subadviser will monitor the liquidity of such restricted securities under
the supervision of the Board.
DIRECTORS AND OFFICERS
The following table lists the Directors and executive officers of Series
Fund II, their business address and principal occupations during the past five
years. Unless otherwise noted, an individual's business address is 95 Wall
Street, New York, New York 10005.
GLENN O. HEAD*+ (73), President and Director. Chairman of the Board and
Director, Administrative Data Management Corp. ("ADM"), First Investors
Management Company, Inc. ("FIMCO" or "Adviser") 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.
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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.
PATRICIA D. POITRA (42), Vice President. Vice President, First Investors Series
Fund, First Investors U.S. Government Plus Fund and Executive Investors Trust;
Director of Equities, FIMCO.
* These Directors may be deemed to be "interested persons," as defined in the
1940 Act.
** 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, 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.
MANAGEMENT
ADVISER. Investment advisory services to the Fund are provided by First
Investors Management Company, Inc. pursuant to an Investment Advisory Agreement
("Advisory Agreement") with Series Fund II. Under the Advisory Agreement, FIMCO
shall supervise and manage the Fund's investments, determine the Fund's
portfolio transactions and supervise all aspects of the Fund's operations,
subject to review by the Directors. The Advisory Agreement also provides that
FIMCO shall provide the Fund with certain executive, administrative and clerical
personnel, office facilities and supplies, conduct the business and details of
the operation of the Fund and assume certain expenses thereof, other than
obligations or liabilities of the Fund. The Advisory Agreement may be terminated
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at any time, with respect to the Fund, without penalty by the Directors or by a
majority of the outstanding voting securities of the Fund, or by FIMCO, in each
instance on not less than 60 days' written notice, and shall automatically
terminate in the event of its assignment (as defined in the 1940 Act). The
Advisory Agreement also provides that it will continue in effect 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 the Fund,
and, in either case, by a vote of a majority of the directors who are not
"interested persons," as that term is defined in the 1940 Act, of the Fund
("Independent Directors") voting in person at a meeting called for the purpose
of voting on such approval.
Under the Advisory Agreement, the Fund is obligated to pay the Adviser an
annual fee, paid monthly, according to the following schedule:
AVERAGE DAILY NET ASSETS....................................ANNUAL RATE
Up to $300 million.......................................... 0.75%
In excess of $300 million up to $500 million................ 0.72
In excess of $500 million up to $750 million................ 0.69
Over $750 million........................................... 0.66
The 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 regularly to discuss the composition
of the portfolio of the Fund and to review additions to and deletions from the
portfolios.
SUBADVISER. A&SB, Inc. has been retained by the Adviser and the Fund as
the Subadviser to the Fund under a subadvisory agreement dated ___________, 1999
("Subadvisory Agreement"). The Subadvisory Agreement provides that it will
continue for a period of more than two years from the date of execution only so
long as such continuance is approved annually by either the Board 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 meeting called
for the purpose of voting on such approval. The Subadvisory Agreement provides
that it will terminate automatically if assigned or upon the termination of the
Advisory Agreement, and that it may be terminated at any time without penalty by
the Board or a vote of a majority of the outstanding voting securities of the
Fund or by A&SB, Inc. upon not more than 60 days' nor less than 30 days' written
notice. The Subadvisory Agreement provides that A&SB, Inc. 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, negligence or reckless
disregard of its obligations and duties.
Under the Subadvisory Agreement, the Adviser will pay to A&SB, Inc. a fee
at an annual rate of 0.40% of the average daily net assets of the Fund up to and
including $100 million; 0.275% of the average daily net assets in excess of $100
million up to and including $500 million, and 0.20% of the average daily net
assets in excess of $500 million. This fee will be computed daily and paid
monthly.
The Fund bears all expenses of its operations other than those assumed by
the Adviser or its underwriter under the terms of its advisory or underwriting
agreements. Fund expenses include, but are not limited to: the advisory fee;
shareholder servicing fees and expenses; custodian fees and expenses; legal and
auditing fees; expenses of communicating to existing shareholders, including
preparing, printing and mailing prospectuses and shareholder reports to such
shareholders; and proxy and shareholder meeting expenses.
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UNDERWRITER
Series Fund II has entered into an Underwriting Agreement ("Underwriting
Agreement") with First Investors Corporation ("Underwriter" or "FIC") which
requires the Underwriter to use its best efforts to sell shares of the Fund. The
Underwriting Agreement was approved by the Fund's Board, including a majority of
the Independent Directors. The Underwriting Agreement provides that it will
continue in effect from year to year 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 the 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.
DISTRIBUTION PLANS
As stated in the Fund's Prospectus, pursuant to a separate plan of
distribution for each class of shares adopted by Series Fund II pursuant to Rule
12b-1 under the 1940 Act ("Class A Plan" and "Class B Plan" and, collectively,
"Plans), the Fund is authorized to compensate the Underwriter for certain
expenses incurred in the distribution of the Fund's shares and the servicing or
maintenance of existing Fund shareholder accounts.
The Plan was approved by the Fund's Board, including a majority of the
Independent Directors, and by a majority of the outstanding voting securities of
the relevant class of the Fund. The Plan will continue in effect from year to
year, 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 the Fund. In either case, to continue, each Plan must be approved
by the vote of a majority of the Independent Directors. The Board reviews
quarterly and annually a written report provided by the Treasurer of the amounts
expended under the applicable Plan and the purposes for which such expenditures
were made. While each Plan is in effect, the selection and nomination of the
Independent Directors will be committed to the discretion of such Independent
Directors then in office.
Each Plan can be terminated at any time by a vote of a majority of the
Independent Directors or by a vote of a majority of the outstanding voting
securities of the relevant class of shares of that Fund. Any change to any Plan
that would materially increase the costs to that class of shares of the Fund may
not be instituted without the approval of the outstanding voting securities of
the class of shares of the Fund as well as any class of shares that converts
into that class. Such changes also require approval by a majority of the
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 the
Fund and its class of shareholders. The Board believes that the amounts spent
pursuant to each Plan will assist the 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 the Fund.
In reporting amounts expended under the Plans to the Directors, FIMCO will
allocate expenses attributable to the sale of each class of the 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 the Fund's shares will not be
used to subsidize the sale of any other class of the Fund's shares.
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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 OTC market (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, the
Fund may determine the value of debt securities based upon prices furnished by
outside pricing services. 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 Fund's officers in a
manner specifically authorized by the Board.
With respect to the 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.
The Fund's Board may suspend the determination of the 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 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 the 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 Fund 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
Fund will apply the following procedures:
1. The Fund 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 Fund on an Emergency Closed Day, even if neither the Fund 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 the Fund when the postal service has delivered it to FICA'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
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(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 Fund is unable to segregate orders received on the Emergency
Closed Day from those received on the next day the Fund is open for business,
the Fund 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 Fund may determine not to price its portfolio
securities if such prices would lead to a distortion for the Fund and its
shareholders.
ALLOCATION OF PORTFOLIO BROKERAGE
The Subadviser 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 Subadviser normally purchases fixed-income securities on a net basis from
primary market makers acting as principals for the securities. The Subadviser
may purchase certain money market instruments directly from an issuer without
paying commissions or discounts. The Subadviser 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 Subadviser may utilize a broker to purchase OTC
securities and pay a commission.
In purchasing and selling portfolio securities on behalf of the Fund, the
Subadviser will seek to obtain best execution. The Fund may pay more than the
lowest available commission in return for brokerage and research 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, and reports and analysis concerning issuers and their
creditworthiness. The Subadviser may use research and other services to service
all of its clients, rather than the particular client whose commissions may pay
for research or other services. In other words, the Fund's brokerage may be used
to pay for a research service that is used in managing another client of the
Subadviser.
In selecting the broker-dealers to execute the Fund's portfolio
transactions, the Subadviser 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 Subadviser or an affiliate of the
Subadviser may execute brokerage transactions on behalf of the Fund. The Board
has adopted procedures in conformity with Rule 17e-1 under the 1940 Act to
ensure that all brokerage commissions paid to the Subadviser or any affiliate of
the Subadviser are reasonable and fair in the context of the market in which
they are operating. Any such transactions will be effected and related
compensation paid only in accordance with applicable SEC regulations.
The Subadviser may combine transaction orders placed on behalf of the Fund
with orders placed on behalf of any other client or private account managed by
the Subadviser 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.
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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 the Fund.
REDEMPTIONS-IN-KIND. If the Fund's Board should determine that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay redemption proceeds in
whole or in part by a distribution in kind of securities from the portfolio of
the Fund, in compliance with the Fund's election to be governed by Rule 18f-1
under the 1940 Act. Pursuant to Rule 18f-1 the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net asset value
of the Fund during any 90-day period for any one shareholder. If shares are
redeemed in kind, the redeeming shareholder will likely incur brokerage costs in
converting the assets into cash. The method of valuing portfolio securities for
this purpose is described under "Determination of Net Asset Value."
TAXES
In order to qualify for treatment as a regulated investment company
("RIC") under the Internal Revenue Code of 1986, as amended, the Fund 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 the Fund these requirements include the following: (1) the
Fund must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of securities or 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 the 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 the 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.
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A portion of the dividends from the 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 the 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.
The 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 the Fund and gains realized by the Fund
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 the 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, the Fund would treat those taxes as
dividends paid 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. If the
Fund makes this election, it 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.
The Fund may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation - other than a "controlled foreign
corporation" (i.e., a foreign corporation in which, on any day during its
taxable year, more than 50% of the total voting power of all voting stock
therein or the total value of all stock therein is owned, directly, indirectly,
or constructively, by "U.S. shareholders," defined as U.S. persons that
individually own, directly, indirectly, or constructively, at least 10% of that
voting power) as to which the Fund is a U.S. shareholder that, in general, meets
either of the following tests: (1) at least 75% of its gross income is passive
or (2) an average of at least 50% of its assets produce, or are held for the
production of, passive income. Under certain circumstances, if the Fund holds
stock of a PFIC, it will be subject to Federal income tax on a portion of any
"excess distribution" received on the stock or of any gain on disposition of the
stock (collectively, "PFIC income"), plus interest thereon, even if the Fund
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Fund's investment company
taxable income and, accordingly, will not be taxable to it to the extent it
distributes that income to its shareholders.
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If the 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.
The 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 the Fund's adjusted basis in that stock as of the end of that year.
Pursuant to the election, the 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. The 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.)
The Fund's use of hedging strategies, such as selling (writing) and
purchasing options and futures contracts and entering into forward currency
contracts, involves 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 the Fund
with respect to its business of investing in securities or foreign currencies,
will qualify as permissible income under the Income Requirement.
The Fund may acquire zero coupon or other securities issued with original
issue discount. As a holder of those securities, the 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, the Fund must include in its gross income
securities it receives as "interest" on pay-in-kind securities. Because the 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, the
Fund may be required in a particular year to distribute as a dividend an amount
that is greater than the total amount of cash it actually receives. Those
distributions will be made from the Fund's cash assets or from the proceeds of
sales of portfolio securities, if necessary. The 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 the Fund has an "appreciated financial position" - generally, an
interest (including an interest through an option, futures or forward contract
or short sale) with respect to any stock, debt instrument (other than "straight
debt") or partnership interest the fair market value of which exceeds its
adjusted basis - and enters into a "constructive sale" of the same or
substantially similar property, the Fund will be treated as having made an
actual sale thereof, with the result that gain will be recognized at that time.
A constructive sale generally consists of a short sale, an offsetting notional
principal contract or futures or forward contract entered into by the Fund or a
related person with respect to the same or substantially similar property. In
addition, if the appreciated financial position is itself a short sale or such a
contract, acquisition of the underlying property or substantially similar
property will be deemed a constructive sale.
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PERFORMANCE INFORMATION
The Fund may advertise its top holdings from time to time. The Fund may
also advertise its performance in various ways.
The Fund's "average annual total return" ("T") is an average annual
compounded rate of return. The calculation produces an average annual total
return for the number of years measured. It is the rate of return based on
factors which include a hypothetical initial investment of $1,000 ("P") over a
number of years ("n") with an Ending Redeemable Value ("ERV") of that
investment, according to the following formula:
T=[(ERV/P)(1/n)]-1
The "total return" uses the same factors, but does not average the rate of
return on an annual basis. Total return is determined as follows:
(ERV-P)/P = TOTAL RETURN
Total return is calculated by finding the average annual change in the
value of an initial $1,000 investment over the period. In calculating the ending
redeemable value for Class A shares, the 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 the 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 the 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 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
The 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.
From time to time, in reports and promotional literature, the Fund may
compare its 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
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broad groups of unmanaged securities considered to be representative of, or
similar to, the Fund's portfolio holdings, such as:
Lipper Analytical Services, Inc. ("Lipper") is a widely-recognized
independent service that monitors and ranks the performance of 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. Funds' 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 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.
25
<PAGE>
The Consumer Price Index, prepared by the U.S. Bureau of Labor
Statistics, is a commonly used measure of inflation. The Index shows
changes in the cost of selected consumer goods and does not represent a
return on an investment vehicle.
The 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
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.
26
<PAGE>
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.
GENERAL INFORMATION
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 shall from time to time establish. The shares of common stock of
Series Fund II are presently divided into four separate and distinct series,
each having two classes, designated Class A shares and Class B shares. Each
class of the 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 the Fund's outstanding shares, the Board will call a
special meeting of shareholders for any purpose, including the removal of
Directors. Each share of each Fund has equal voting rights except as noted
above.
CUSTODIAN. The Bank of New York, 48 Wall Street, New York, NY 10286, is
custodian of the securities and cash of the Fund.
AUDITS AND REPORTS. The accounts of the fund are audited twice a year by
Tait, Weller & Baker, independent certified public accountants, 8 Penn Center
Plaza, Philadelphia, PA, 19102-1707. Shareholders of the Fund receive
semi-annual and annual reports, including audited financial statements, and a
list of securities owned.
LEGAL COUNSEL. Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue,
N.W., Washington, D.C. 20036, serves as counsel to the Fund.
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 Fund and as redemption agent for regular redemptions. The fees charged
to the 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 the Fund; $5.00 for each partial withdrawal or complete liquidation;
27
<PAGE>
$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
Fund by the Transfer Agent are assumed by the Underwriter. The Transfer Agent
reserves the right to change the fees on prior notice to the Fund. 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.
TRADING BY PORTFOLIO MANAGERS AND OTHER ACCESS PERSONS. Pursuant to
Section 17(j) of the 1940 Act and Rule 17j-1 thereunder, the Fund, the Adviser
and the Subadviser 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 of the Fund: (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.
28
<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.
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
29
<PAGE>
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.
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.
30
<PAGE>
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.
31
<PAGE>
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 g28 senior debt obligations which have an original maturity not
exceeding one year. Obligations relying upon support mechanisms such as
letters-of-credit and bonds of indemnity are excluded unless explicitly rated.
Prime-1 Issuers (or supporting institutions) rated Prime-1 (P-1) have a
superior ability for repayment of senior short-term debt obligations. P-1
repayment ability will often be evidenced by many of the following
characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
32
<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>
SHAREHOLDER MANUAL
A GUIDE TO YOUR
FIRST INVESTORS
MUTUAL FUND ACCOUNT
<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
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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
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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
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|_| 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
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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.
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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.
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..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%
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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.
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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,
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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.
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|_| 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.
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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.
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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
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METHOD STEPS TO FOLLOW
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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.
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|_| 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)
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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
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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.
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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.
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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.
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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.
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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
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_
|_| 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.
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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.
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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.
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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.
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PART C. OTHER INFORMATION
Item 23. Exhibits
--------
(a)(i) Articles of Incorporation1(SUPERSCRIPT)
(ii) Articles Supplementary (dated 10/20/94)1(SUPERSCRIPT)
(iii) Articles of Amendment (dated 2/8/96) - filed herewith
(iv) Articles of Amendment (dated 9/18/97) - filed herewith
(v) Articles Supplementary (dated 12/17/98) - filed herewith
(b) By-laws1(SUPERSCRIPT)
(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)(i) Investment Advisory Agreement between Registrant and First
Investors Management Company, Inc.1(SUPERSCRIPT)
(d)(ii) Investment Subadvisory Agreement between First Investors
Management Company, Inc. and Arnhold and S. Bleichroeder,
Inc.6(SUPERSCRIPT)
(e)(i) Underwriting Agreement2(SUPERSCRIPT)
(e)(ii) Amended Underwriting Agreement6(SUPERSCRIPT)
(f) Bonus, profit sharing or pension plans - none
(g) Custodian Agreement between Registrant and The Bank of
New York2(SUPERSCRIPT)
(h)(i) Administration Agreement between Registrant, First Investors
Management Company, Inc., First Investors Corporation and
Administrative Data Management Corp.2(SUPERSCRIPT)
(h)(ii) Amended Schedule A to Administration Agreement3(SUPERSCRIPT)
(h)(iii) Organization Expense Reimbursement Agreement3(SUPERSCRIPT)
(h)(iv) Amended Schedule A to Administration Agreement6(SUPERSCRIPT)
1
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(i) Opinion and Consent of Counsel6(SUPERSCRIPT)
(j)(i) Consent of independent accountants - none
(ii) Powers of Attorney1,4(SUPERSCRIPT)
(k) Financial statements omitted from prospectus - none
(l) Initial Capital Agreements4(SUPERSCRIPT)
(m)(i) Class A Distribution Plan2(SUPERSCRIPT)
(ii) Class B Distribution Plan2(SUPERSCRIPT)
(iii) Amended Class A Distribution Plan6(SUPERSCRIPT)
(iv) Amended Class B Distribution Plan6(SUPERSCRIPT)
(n) Financial Data Schedules -- none
(o)(i) Rule 18f-3 Plan1(SUPERSCRIPT)
(ii) Amended Rule 18f-3 Plan6(SUPERSCRIPT)
____________________
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.
2
<PAGE>
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
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:
3
<PAGE>
(1) such person shall provide adequate security for his or her
undertaking;
(2) the Corporation shall be insured against losses arising by
reason of such advance; or
(3) a majority of a quorum of the directors of the Corporation
who are neither interested persons of the Corporation as
defined in the 1940 Act nor parties to the Proceeding, or
independent legal counsel in a written opinion, shall
determine, based on a review of readily available facts,
that there is reason to believe that such person will be
found to be entitled to indemnification.
Section 10.02. INSURANCE OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS:
The Corporation may purchase and maintain insurance or other sources of
reimbursement to the extent permitted by law on behalf of any person who is or
was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee,
partner, trustee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against him or her and
incurred by him or her in or arising out of his position.
Section 10.03. NON-EXCLUSIVITY: The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article X shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under the Articles of Incorporation,
these By-Laws, any agreement, vote of stockholders or directors, or otherwise,
both as to action in his or her official capacity and as to action in another
capacity while holding such office.
The Registrant's Investment Advisory Agreement provides as follows:
The Manager shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Company or any Series in connection with the
matters to which this Agreement relate except a loss resulting from the willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement. Any person, even though also an officer, partner, employee, or agent
of the Manager, who may be or become an officer, Board member, employee or agent
of the Company shall be deemed, when rendering services to the Company or acting
in any business of the Company, to be rendering such services to or acting
solely for the Company and not as an officer, partner, employee, or agent or one
under the control or direction of the Manager even though paid by it.
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
4
<PAGE>
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.
Item 26.I. 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."
II. Business and Other Connections of the Investment Subadviser
-----------------------------------------------------------
Arnhold and S. Bleichroeder, Inc. ("Subadviser") is an investment
adviser registered under the Investment Advisers Act of 1940, as amended
("Advisers Act"). The list required by this Item 26 of officers and directors of
the Subadviser, together with any information as to any business profession,
vocation or employment of a substantial nature engaged in by such officers and
directors during the past two years, is incorporated herein by reference to
Schedules A and D of Form ADV filed by the Subadviser pursuant to the Advisers
Act (SEC File No. 801-02114).
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.
5
<PAGE>
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
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
6
<PAGE>
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
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
7
<PAGE>
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
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.
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. 16 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 17th day of December, 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. 16 to this Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
/s/ Glenn O. Head Principal Executive December 17, 1998
- ----------------------------- Officer and Director
Glenn O. Head
/s/ Joseph I. Benedek Principal Financial December 17, 1998
- ----------------------------- and Accounting Officer
Joseph I. Benedek
Kathryn S. Head* Director December 17, 1998
- -----------------------------
Kathryn S. Head
/s/ Larry R. Lavoie Director December 17, 1998
- -----------------------------
Larry R. Lavoie
9
<PAGE>
Herbert Rubinstein* Director December 17, 1998
- -----------------------------
Herbert Rubinstein
Nancy Schaenen* Director December 17, 1998
- -----------------------------
Nancy Schaenen
James M. Srygley* Director December 17, 1998
- -----------------------------
James M. Srygley
John T. Sullivan* Director December 17, 1998
- -----------------------------
John T. Sullivan
Rex R. Reed* Director December 17, 1998
- -----------------------------
Rex R. Reed
Robert F. Wentworth* Director December 17, 1998
- -----------------------------
Robert F. Wentworth
*By: /s/ Larry R. Lavoie
Larry R. Lavoie
Attorney-in-fact
10
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description Page
- ------- ----------- ----
23(a)(i) Articles of Incorporation1(SUPERSCRIPT)
23(a)(ii) Articles Supplementary (dated 10/20/94)1(SUPERSCRIPT)
23(a)(iii) Articles of Amendment (dated 2/8/96) - filed herewith
23(a)(iv) Articles of Amendment (dated 9/18/97) - filed herewith
23(a)(v) Articles Supplementary (dated 12/17/98) - filed herewith
23(b) By-laws1(SUPERSCRIPT)
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)(i) Investment Advisory Agreement between Registrant and
First Investors Management Company, Inc.1(SUPERSCRIPT)
23(d)(ii) Investment Subadvisory Agreement between First Investors
Management Company, Inc. and Arnhold and S.
Bleichroeder, Inc.6(SUPERSCRIPT)
23(e)(i) Underwriting Agreement2(SUPERSCRIPT)
23(e)(ii) Amended Underwriting Agreement6(SUPERSCRIPT)
23(f) Bonus or Profit Sharing Contracts--None
23(g) Custodian Agreement between Registrant and The Bank of
New York2(SUPERSCRIPT)
23(h)(i) Administration Agreement between Registrant, First
Investors Management Company, Inc., First Investors
Corporation and Administrative Data Management
Corp.2(SUPERSCRIPT)
23(h)(ii) Amended Schedule A to Administration
Agreement3(SUPERSCRIPT)
11
<PAGE>
23(h)(iii) Organization Expense Reimbursement
Agreement3(SUPERSCRIPT)
23(h)(iv) Amended Schedule A to Administration
Agreement6(SUPERSCRIPT)
23(i) Opinion and Consent of counsel6(SUPERSCRIPT)
23(j)(i) Consent of independent accountants -- none
23(j)(ii) Powers of Attorney1,4(SUPERSCRIPT)
23(k) Omitted Financial Statements -- none
23(l) Initial Capital Agreements4(SUPERSCRIPT)
23(m)(i) Class A Distribution Plan2(SUPERSCRIPT)
23(m)(ii) Class B Distribution Plan2(SUPERSCRIPT)
23(m)(iii) Amended Class A Distribution Plan6(SUPERSCRIPT)
23(m)(iv) Amended Class B Distribution Plan6(SUPERSCRIPT)
23(n) Financial Data Schedules -- none
23(o)(i) Rule 18f-3 Plan1(SUPERSCRIPT)
23(o)(ii) Amended Rule 18f-3 Plan6(SUPERSCRIPT)
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.
12
FIRST INVESTORS SERIES FUND II, INC.
ARTICLES OF AMENDMENT
First Investors Series Fund II, Inc., a Maryland corporation having its
principal office in Maryland in Baltimore City, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Charter of the Corporation is amended by redesignating all of the
issued and unissued shares of the Corporation's First Investors Made In The
U.S.A. Fund Class A capital stock as First Investors U.S.A. Mid-Cap Opportunity
Fund Class A capital stock and all of the issued and unissued shares of the
Corporation's First Investors Made In The U.S.A. Fund Class B capital stock as
First Investors U.S.A. Mid-Cap Opportunity Fund Class B capital stock.
Subsequent to such redesignation, the capital stock of the Corporation is
classified as follows:
Designation Number of Shares
----------- ----------------
First Investors U.S.A. Mid-Cap Opportunity
Fund Class A capital stock 50,000,000
First Investors U.S.A. Mid-Cap Opportunity
Fund Class B capital stock 50,000,000
First Investors Utilities Income
Fund Class A capital stock 50,000,000
First Investors Utilities Income
Fund Class B capital stock 50,000,000
First Investors Growth & Income
Fund Class A capital stock 50,000,000
First Investors Growth & Income
Fund Class B capital stock 50,000,000
Unclassified 100,000,000
-----------
400,000,000
<PAGE>
SECOND: The foregoing amendments to the Charter of the Corporation were
unanimously approved by the entire board of directors by written consent action
dated as of February 8, 1996.
THIRD: The foregoing amendments to the Charter of the Corporation are limited to
changes expressly permitted by Section 2-605 of Subtitle 6 of Title 2 of the
Maryland General Corporation Law to be made without action by stockholders.
FOURTH: The Corporation is registered as an open-end company under the
Investment Company Act of 1940, as amended.
FIFTH: These Articles of Amendment shall become effective at 12:01 a.m. on
February 15, 1996.
IN WITNESS WHEREOF, First Investors Series Fund II, Inc. has caused these
presents to be signed in its name and on its behalf by its duly authorized
officers who acknowledge that these Articles of Amendment are the act of the
Corporation and that to the best of their knowledge, information and belief, all
matters and facts set forth herein relating to the authorization and approval of
these Articles are true in all material respects and that this statement is made
under the penalties of perjury.
FIRST INVESTORS SERIES
FUND II, INC.
WITNESS:
/s/ Carol Lerner Brown By: /s/ C. Durso
- ----------------------------- --------------------
Name: Carol Lerner Brown Name: Concetta Durso
Title: Assistant Secretary Title: Vice President
FIRST INVESTORS SERIES FUND II, INC.
ARTICLES OF AMENDMENT
First Investors Series Fund II, Inc., a Maryland corporation having its
principal office in Maryland in Baltimore City, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Charter of the Corporation is amended by redesignating all of the
issued and unissued shares of the Corporation's First Investors U.S.A. Mid-Cap
Opportunity Fund Class A capital stock as First Investors Mid-Cap Opportunity
Fund Class A capital stock and all of the issued and unissued shares of the
Corporation's First Investors U.S.A. Mid-Cap Opportunity Fund Class B capital
stock as First Investors Mid-Cap Opportunity Fund Class B capital stock.
Subsequent to such redesignation, the capital stock of the Corporation is
classified as follows:
Designation Number of Shares
----------- ----------------
First Investors Mid-Cap Opportunity
Fund Class A capital stock 50,000,000
First Investors Mid-Cap Opportunity
Fund Class B capital stock 50,000,000
First Investors Utilities Income
Fund Class A capital stock 50,000,000
First Investors Utilities Income
Fund Class B capital stock 50,000,000
First Investors Growth & Income
Fund Class A capital stock 50,000,000
First Investors Growth & Income
Fund Class B capital stock 50,000,000
Unclassified 100,000,000
-----------
400,000,000
<PAGE>
SECOND: The foregoing amendments to the Charter of the Corporation were
unanimously approved by the entire board of directors at a Board of Directors
Meeting of the Corporation held on September 18, 1997. THIRD: The foregoing
amendments to the Charter of the Corporation are limited to changes expressly
permitted by Section 2-605 of Subtitle 6 of Title 2 of the Maryland General
Corporation Law to be made without action by stockholders.
THIRD: The foregoing amendments to the Charter of the Corporation are limited to
changes expressly permitted by Section 2-605 of Subtitle 6 of Title 2 of
Maryland General Corporation Law to be made without action by stockholders.
FOURTH: The Corporation is registered as an open-end company under the
Investment Company Act of 1940, as amended.
FIFTH: These Articles of Amendment shall become effective at 12:01 a.m. on
December 31, 1997.
IN WITNESS WHEREOF, First Investors Series Fund II, Inc. has caused these
presents to be signed in its name and on its behalf by its duly authorized
officers who acknowledge that these Articles of Amendment are the act of the
Corporation and that to the best of their knowledge, information and belief, all
matters and facts set forth herein relating to the authorization and approval of
these Articles are true in all material respects and that this statement is made
under the penalties of perjury.
FIRST INVESTORS SERIES
FUND II, INC.
WITNESS:
/s/ Carol Lerner Brown By: /s/ C. Durso
- ------------------------- ---------------------
Name: Carol Lerner Brown Name: Concetta Durso
Title: Assistant Secretary Title: Vice President
FIRST INVESTORS SERIES FUND II, INC.
ARTICLES SUPPLEMENTARY
FIRST INVESTORS SERIES FUND II, INC., a Maryland corporation having its
principal office in Baltimore City, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: Pursuant to the authority expressly vested in the Board of Directors
("Board") of the Corporation by the Sixth Article of the Articles of
Incorporation of the Corporation ("Articles of Incorporation"), by action on
December 17, 1998, the Board has classified one hundred million (100,000,000)
shares of the authorized, but previously unissued and unclassified, common stock
of the Corporation, par value $0.001 per share, into a new series to be known as
First Investors Focused Equity Fund ("Focused Equity Fund"). Of these one
hundred million (100,000,000) shares, the Board has designated fifty million
(50,000,000) shares as Class A capital stock and fifty million (50,000,000)
shares as Class B capital stock.
The Class A capital stock and Class B capital stock of the Focused Equity
Fund shall represent interests in the same investment portfolio of the Focused
Equity Fund. All shares of each particular class of the Focused Equity Fund
shall represent an equal proportionate interest in that class and each share of
any particular class of the Focused Equity Fund shall be equal to each other
share of that class. Class A shares and Class B shares of the Focused Equity
Fund shall be subject to all provisions of Article VI in the Corporation's
Articles of Incorporation relating to stock of the Corporation generally and
shall have the same preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption, except as follows:
(1) The Class B capital stock of the Focused Equity Fund may convert into
Class A capital stock of the Focused Equity Fund in the manner as determined by
the Board of Directors;
(2) Each class of the Focused Equity Fund shall have separate exchange
privileges as determined by the Board of Directors from time to time;
(3) The Class A capital stock of the Focused Equity Fund shall be subject
to a front-end sales load and Rule 12b-1 service and distribution fee as
determined by the Board of Directors from time to time;
<PAGE>
(4) The Class B capital stock of the Focused Equity Fund shall be subject
to a contingent deferred sales charge and a Rule 12b-1 service and distribution
fee as determined by the Board of Directors from time to time; and
(5) Unless otherwise expressly provided in the Articles of Incorporation,
including any Articles Supplementary creating any class or series of capital
stock, on each matter submitted to a vote of stockholders of the Focused Equity
Fund, each holder of a share of capital stock of the Focused Equity Fund shall
be entitled to one vote for each share standing in such holder's name on the
books of the Corporation, irrespective of the class thereof, and all shares of
the classes shall vote together with all other classes or series of the
Corporation as a single class; provided, however, that
(a) as to any matter with respect to which a separate vote of any class or
series is required by the Investment Company Act of 1940, as amended
("1940 Act"), or any rules, regulations or orders issued thereunder, or
by the Maryland General Corporation Law, such requirement as to a
separate vote by that class or series shall apply in lieu of a general
vote of all classes and series as described above; and
(b) as to any matter which in the judgment of the Board of Directors (which
shall be conclusive) does not affect the interest of a particular class
or series, such class or series shall not be entitled to any vote and
only the holders of shares of the one or more affected classes and
series shall be entitled to vote.
SECOND: The previous designation of shares of capital stock of the series known
as First investors Mid-Cap Opportunity Fund into Class A and Class B shares, the
previous designation of shares of capital stock of the series known as First
Investors Utilities Income Fund into Class A and Class B shares, and the
previous designation of shares of capital stock of the series known as First
Investors Growth & Income Fund into Class A and Class B shares remains the same.
The par value of the shares of capital stock of each class of the Corporation
remains $0.001 per share, and the aggregate par value of all of the authorized
shares of the Corporation remains $400,000.
THIRD: The Corporation is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended. The stock
classified herein has been classified by the Board of Directors under authority
contained in the Articles of Incorporation and pursuant to Section 2-105(c) of
the Maryland General Corporation Law.
FOURTH: All other provisions of the Articles of Incorporation as previously
filed remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, First Investors Series Fund II, Inc. has caused these
Articles Supplementary to be signed in its name and on its behalf by its
President and witnessed by its Secretary on December 17, 1998.
FIRST INVESTORS SERIES FUND II, INC.
By: /s/ Glenn O. Head
------------------------
Glenn O. Head, President
Witness:
/s/ C. Durso
---------------------
C. Durso, Secretary
<PAGE>
THE UNDERSIGNED, President of First Investors Series Fund II, Inc., who, on
behalf of the Corporation, executed the Articles Supplementary to which this
Acknowledgment is attached and made a part, hereby acknowledges, in the name and
on behalf of said Corporation, the foregoing Articles Supplementary to be the
corporate act of said Corporation and hereby certifies that the matters and
facts set forth herein with respect to the authorization and approval thereof
are true in all material respects under the penalties of perjury.
By: /s/ Glenn O. Head
Glenn O. Head, President
