First Investors Life Variable Annuity Fund D
Individual Variable Annuity Contracts
Offered By
First Investors Life Insurance Company
95 Wall Street, New York, New York 10005/(212) 858-8200
This Prospectus describes Variable Annuity Contracts (the "Contracts")
offered by First Investors Life Insurance Company ("First Investors Life"). The
Contracts are designed for individual investors who desire to accumulate capital
on a tax-deferred basis for retirement or other long-term purposes. The
Contracts may be purchased on a nonqualified basis. The Contracts may also be
purchased through (1) qualified individual retirement accounts and (2) qualified
corporate employee pension and profit-sharing plans. The Contracts offered are
flexible premium deferred variable annuity contracts ("Deferred Variable Annuity
Contracts") under which annuity payments will begin on a selected future date. A
penalty may be assessed on early withdrawals (see "Federal Income Tax Status").
The Contracts contain a 10-day revocation right (see "Variable Annuity
Contracts--Ten-Day Revocation Right"). The Contracts provide for the
accumulation of values on a variable basis. Payment of annuity benefits will be
on a variable basis, unless a fixed basis or a combination of variable and fixed
bases is selected by the Contractowner. Unless otherwise stated, this Prospectus
describes only the variable aspects of the Contracts. The Contracts contain
information on the fixed aspects.
Contractowners' purchase payments are paid into a unit investment trust,
First Investors Life Variable Annuity Fund D ("Separate Account D"). A
Contractowner elects to have his or her purchase payments paid into any one or
more of the eleven subaccounts of Separate Account D (the "Subaccounts"). The
assets of each Subaccount are invested at net asset value in shares of the
related series of First Investors Life Series Fund (the "Life Series Fund"), an
open-end, diversified management investment company.
This Prospectus sets forth the information about Separate Account D that a
prospective investor should know before investing and should be kept for future
reference. A Statement of Additional Information, dated July 8, 1997, has been
filed with the Securities and Exchange Commission and is incorporated herein by
reference in its entirety. (See page 23 of this Prospectus for the Table of
Contents of the Statement of Additional Information.) The Statement of
Additional Information is available at no charge upon request to First Investors
Life at the address or telephone number indicated above. Additional information
about Separate Account D has been filed with the Securities and Exchange
Commission.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS VALID ONLY WHEN ATTACHED TO THE CURRENT
PROSPECTUS OF FIRST INVESTORS LIFE SERIES FUND.
The date of this Prospectus is July 8, 1997
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GLOSSARY OF SPECIAL TERMS
Accumulated Value - The value of all the Accumulation Units credited to the
Contract.
Accumulation Period - The period between the date of issue of a Contract
and the Annuity Commencement Date.
Accumulation Unit - A unit used to measure the value of a Contractowner's
interest in a Subaccount of Separate Account D prior to the Annuity Commencement
Date.
Additional Payment - A purchase payment made to First Investors Life after
issuance of a deferred annuity.
Annuitant - The person designated to receive or the person who is actually
receiving annuity payments under a Contract.
Annuity Commencement Date - The date on which annuity payments are to
commence.
Annuity Unit - A unit used to determine the amount of each annuity payment
after the first.
Beneficiary - The person designated to receive any benefits under a
Contract upon the death of the Annuitant in accordance with the terms of the
Contract.
Contract - An individual variable annuity contract offered by this
Prospectus.
Contractowner - The person or entity with legal rights of ownership of the
Contract.
Fixed Annuity - An annuity with annuity payments which remain fixed as to
dollar amount throughout the payment period.
General Account - All assets of First Investors Life other than those
allocated to Separate Account D and other segregated investment accounts of
First Investors Life.
Joint Annuitant - The designated second person under joint and survivor
life annuity.
Separate Account D - The segregated investment account entitled "First
Investors Life Variable Annuity Fund D," established by First Investors Life
pursuant to applicable law and registered as a unit investment trust under the
Investment Company Act of 1940, as amended.
Single Payment - A one-time purchase payment made to First Investors Life
to purchase a deferred annuity.
Subaccount - A segregated investment subaccount under Separate Account D
which corresponds to a series of the Life Series Fund. The assets of the
Subaccount are invested in shares of the corresponding series of the Life Series
Fund.
Valuation Date - Any date on which the New York Stock Exchange ("NYSE") is
open for regular trading. Each Valuation Date ends as of the close of regular
trading on the NYSE (normally 4:00 p.m., Eastern Time). The NYSE currently
observes the following holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Valuation Period - The period beginning on the date after any Valuation
Date and ending at the end of the next Valuation Date.
Variable Annuity - An annuity with annuity payments varying in amount in
accordance with the net investment experience of the Subaccounts.
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FEE TABLE
The following table has been prepared to assist the investor in
understanding the various costs and expenses a Contractowner will directly or
indirectly bear. The table reflects expenses of Separate Account D as well as
the series (each a "Fund" and collectively "Funds") of the Life Series Fund. The
Fee Table reflects Fund expenses expected to be incurred in 1997.
<TABLE>
<CAPTION>
CONTRACTOWNER TRANSACTION EXPENSES
<S> <C>
Sales Load Imposed on Purchases (as a percentage of purchase payments) ................................ None
Maximum Contingent Deferred Sales Charge .............................................................. 7.00%*
ANNUAL CONTRACT MAINTENANCE CHARGE ......................................................................... $30.00(Yen)
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Charges ................................................................ 1.25%
Administrative Charge ............................................................................. .15%
========
Total Separate Account Annual Expenses ............................................................ 1.40%
</TABLE>
FUND ANNUAL EXPENSES
(as a percentage of Fund average net assets)
Total Fund
Management Other Operating
Fees(1) Expenses(2) Expenses(3)
------- ----------- -----------
Blue Chip Fund ......................... 0.75% 0.09% 0.84%
Cash Management Fund ................... 0.60+ 0.10+ 0.70+
Discovery Fund ......................... 0.75 0.10 0.85
Government Fund ........................ 0.60+ -0-+ 0.60+
Growth Fund ............................ 0.75 0.10 0.85
High Yield Fund ........................ 0.75 0.10 0.85
International Securities Fund .......... 0.75 0.37 1.12
Investment Grade Fund .................. 0.60+ -0-+ 0.60+
Target Maturity 2007 Fund .............. 0.60+ -0-+ 0.60+
Target Maturity 2010 Fund .............. 0.60+ -0-+ 0.60+
Utilities Income Fund .................. 0.60+ 0.11 0.71+
- ----------
* The Maximum Contingent Deferred sales Charges is a percentage of the value of
the Accumulation Units surrendered (not to exceed the aggregate amount of the
purchase payments made for such Units). It decreases 1% each year so that there
is no charge after 7 years. Each year up to 10% of total purchase payments may
be surrendered without a contingent deferred sales charge. Additional purchase
payments do not cause the contingent deferred sales charge percentages to start
over on prior purchase payments.
(Yen) The Contract Maintenance Charge of $30 will be deducted from the
Accumulated Value, provided that in no case will this charge exceed 2% of such
value. For more information, see "Contract Maintenance Charge."
+ Net of waiver and/or reimbursement.
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(1) For the fiscal year ended December 31, 1996, the Adviser waived Management
Fees in excess of 0.60% for Cash Management Fund, Government Fund,
Investment Grade Fund, Target Maturity 2007 Fund, Target Maturity 2010 Fund
and Utilities Income Fund. Absent the waiver, Management Fees would have
been 0.75% for each of these Funds. The Adviser will continue to waive such
fees for a minimum period ending December 31, 1997.
(2) Other Expenses have been restated for Cash Management Fund and Utilities
Income Fund to reflect current expenses. The Adviser will reimburse
Government Fund, Investment Grade Fund, Target Maturity 2007 Fund and
Target Maturity 2010 Fund for all Other Expenses and Cash Management Fund
for Other Expenses in excess of 0.10% for a minimum period ending December
31, 1997. Otherwise, Other Expenses would have been 0.36% for Cash
Management Fund, 0.19% for Government Fund, 0.13% for Investment Grade
Fund, and 0.07% for Target Maturity 2007 Fund and are estimated to be 0.23%
for Target Maturity 2010 Fund.
(3) If certain fees and expenses were not waived or reimbursed, Total Fund
Operating Expenses would have been 1.11% for Cash Management Fund, 0.94%
for Government Fund, 0.88% for Investment Grade Fund, 0.82% for Target
Maturity 2007 Fund, 0.86% for Utilities Income Fund and are estimated to be
0.98% for Target Maturity 2010 Fund. Each Fund, other than International
Securities Fund, has an expense offset arrangement that may reduce the
Fund's custodian fee based on the amount of cash maintained by the Fund
with its custodian. Any such fee reductions are not reflected under Total
Fund Operating Expenses.
For more complete descriptions of the various costs and expenses shown,
please refer to "Purchases, Charges and Expenses." In addition, Premium taxes
may be applicable (see "Other Charges").
EXAMPLE
If you surrender your Contract at the end of the applicable time period, you
would pay the following expenses on a $1,000 investment, assuming 5% annual
return on assets:
1 year 3 years
------ -------
Blue Chip Fund............................... 123 210
Cash Management Fund......................... 121 206
Discovery Fund............................... 123 210
Government Fund.............................. 120 203
Growth Fund.................................. 123 210
High Yield Fund.............................. 123 210
International Securities Fund................ 126 218
Investment Grade Fund........................ 120 203
Target Maturity 2007 Fund.................... 120 203
Target Maturity 2010 Fund.................... 120 203
Utilities Income Fund........................ 121 206
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EXAMPLE
If you do not surrender your contract, you would pay the following expenses on a
$1,000 investment, assuming 5% annual return on assets:
1 year 3 years
------ -------
Blue Chip Fund............................... 53 160
Cash Management Fund......................... 51 156
Discovery Fund............................... 53 160
Government Fund.............................. 50 153
Growth Fund.................................. 53 160
High Yield Fund.............................. 53 160
International Securities Fund................ 56 168
Investment Grade Fund........................ 50 153
Target Maturity 2007 Fund.................... 50 153
Target Maturity 2010 Fund.................... 50 153
Utilities Income Fund........................ 51 156
The expenses in the Examples should not be considered a representation of
past or future expenses. Actual expenses in future years may be greater or less
than those shown.
GENERAL DESCRIPTION
First Investors Life Insurance Company. First Investors Life Insurance
Company, 95 Wall Street, New York, New York 10005 ("First Investors Life"), a
stock life insurance company incorporated under the laws of the State of New
York in 1962, writes life insurance, annuities and accident and health
insurance. First Investors Consolidated Corporation ("FICC"), a holding company,
owns all of the voting common stock of First Investors Management Company, Inc.
("FIMCO" or "Adviser") and all of the outstanding stock of First Investors Life,
First Investors Corporation ("FIC" or "Underwriter") and Administrative Data
Management Corp., the transfer agent for the Life Series Fund. Mr. Glenn O.
Head, Chairman of FICC, controls FICC, and, therefore, controls the Adviser and
First Investors Life.
Separate Account D. First Investors Life Variable Annuity Fund D, also
known by its proprietary name, the "Tax Tamer II" ("Separate Account D"), was
established on April 8, 1997 under the provisions of the New York Insurance Law.
The assets of Separate Account D are segregated from the assets of First
Investors Life, and that portion of such assets having a value equal to, or
approximately equal to, the reserves and contract liabilities under the
Contracts are not chargeable with liabilities arising out of any other business
of First Investors Life. Separate Account D is registered with the Securities
and Exchange Commission ("Commission") as a unit investment trust under the
Investment Company Act of 1940, as amended ("1940 Act"), but such registration
does not involve any supervision by the Commission of the management or
investment practices or policies of Separate Account D.
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The assets of each Subaccount of Separate Account D are invested at net
asset value in shares of the corresponding Fund of Life Series Fund. For
example, the Blue Chip Subaccount invests in the Blue Chip Fund, the Government
Subaccount invests in the Government Fund, and so on. The Life Series Fund's
Prospectus describes the risks attendant to an investment in each Fund of the
Life Series Fund.
Income, gains and losses, whether or not realized, from assets allocated to
the Subaccounts of Separate Account D are, in accordance with the applicable
Contracts, credited to or charged against the Subaccounts of Separate Account D
without regard to other income, gains or losses of First Investors Life. The
obligations under the Contracts are obligations of First Investors Life.
Any and all distributions received from a Fund will be paid in shares of
the distributing Fund or if in cash, will be reinvested in shares of that Fund
at net asset value for the corresponding Subaccount. Accordingly, no cash
distributions will be made to Contractowners. Deductions and redemptions from
any Subaccount of Separate Account D may be effected by redeeming the number of
applicable Fund shares, at net asset value, necessary to satisfy the amount to
be deducted or redeemed. Shares of the Funds in the Subaccounts will be valued
at their net asset values.
Separate Account D is divided into the following Subaccounts, each of which
corresponds to the following Funds of the Life Series Fund:
Separate Account D Subaccount Fund
- ----------------------------- ----
Blue Chip Subaccount Blue Chip Fund
Cash Management Subaccount Cash Management Fund
Discovery Subaccount Discovery Fund
Government Subaccount Government Fund
Growth Subaccount Growth Fund
High Yield Subaccount High Yield Fund
International Securities Subaccount International Securities Fund
Investment Grade Subaccount Investment Grade Fund
Target Maturity 2007 Subaccount Target Maturity 2007 Fund
Target Maturity 2010 Subaccount Target Maturity 2010 Fund
Utilities Income Subaccount Utilities Income Fund
Each Contractowner designates the Subaccount in which his or her purchase
payment will be invested. That Subaccount in turn invests in the corresponding
Fund of the Life Series Fund as set forth above.
Subject to applicable law, First Investors Life reserves the right to make
certain changes if, in its judgment, they would best serve the interests of the
Contractowners and Annuitants or would be appropriate in carrying out the
purposes of the Contracts. First Investors Life will obtain, when required, the
necessary Contractowner approval or regulatory approval for any changes and
provide, when required, the appropriate notification to Contractowners prior to
making such changes. Examples of the changes First Investors Life may make
include, but are not limited to:
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o To operate Separate Account D in any form permitted under the 1940 Act
or in any other form permitted by law.
o To add, delete, combine, or modify the Subaccounts in Separate Account
D.
o To add, delete, or substitute for the Fund shares held in any
Subaccount, the shares of any investment company or series thereof, or
any investment permitted by law.
o To make any amendments to the Contracts necessary for the Contracts to
comply with the provisions of the Internal Revenue Code or any other
applicable Federal or state law.
Your Choice of Investment Objective. When you purchase a Contract you
decide to place your purchase payment and any additional purchase payments into
at least one but not more than five of the Subaccounts of Separate Account D,
provided the allocation to any one Subaccount is not less than 10% of the
purchase payment. Each Subaccount corresponds to a Fund of the Life Series Fund.
The investment objectives of each Fund of the Life Series Fund are set forth
below. There is no assurance that the investment objective of any Fund of the
Life Series Fund will be realized. Because each Fund of the Life Series Fund is
intended to serve a different investment objective, each is subject to varying
degrees of financial and market risks. In addition, total operating expenses
vary by Fund. Twelve (12) times during any Contract year, you may transfer part
or all of your cash value from the Subaccounts you are in to other Subaccounts
provided the cash value is not allocated to more than five of the Subaccounts,
and provided the allocation to any one Subaccount is not less than 10% of the
cash value of the Contract. The cash value of the Contract may increase or
decrease depending on the investment performance of the Subaccounts selected.
First Investors Life reserves the right to adjust allocations to eliminate
fractional percentages.
The Fund. First Investors Life Series Fund is a diversified open-end
management investment company registered under the 1940 Act. Registration of
Life Series Fund with the Commission does not involve supervision by the
Commission of the management or investment practices or policies of the Life
Series Fund. The Life Series Fund consists of eleven separate Funds. The shares
of the Funds are not sold directly to the general public but are available only
through the purchase of an annuity contract or a variable life insurance policy
issued by First Investors Life. Life Series Fund reserves the right to offer
shares of its Funds to other separate accounts of First Investors Life or
directly to First Investors Life. The eleven Funds of Life Series Fund may be
referred to as: First Investors Life Blue Chip Fund, First Investors Life Cash
Management Fund, First Investors Life Discovery Fund, First Investors Life
Government Fund, First Investors Life Growth Fund, First Investors Life High
Yield Fund, First Investors Life International Securities Fund, First Investors
Life Investment Grade Fund, First Investors Life Target Maturity 2007 Fund,
First Investors Life Target Maturity 2010 Fund and First Investors Life
Utilities Income Fund.
The investment objectives of each Fund of the Life Series Fund are as
follows:
Blue Chip Fund. The investment objective of Blue Chip Fund is to seek high
total investment return consistent with the preservation of capital. This goal
will be sought by
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investing, under normal market conditions, primarily in equity securities of
"Blue Chip" companies that the Adviser believes have potential earnings growth
that is greater than the average company included in the Standard & Poor's 500
Composite Stock Price Index.
Cash Management Fund. The objective of Cash Management Fund is to seek to
earn a high rate of current income consistent with the preservation of capital
and maintenance of liquidity. The Cash Management Fund will invest in money
market obligations, including high quality securities issued or guaranteed by
the U.S. Government or its agencies and instrumentalities, bank obligations and
high grade corporate instruments. An investment in the Fund is neither insured
nor guaranteed by the U.S. Government. There can be no assurance that the Fund
will be able to maintain a stable net asset value of $1.00 per share.
Discovery Fund. The investment objective of Discovery Fund is to seek
long-term capital appreciation, without regard to dividend or interest income,
through investment in the common stock of companies with small to medium market
capitalization that the Adviser considers to be undervalued or less well known
in the current marketplace and to have the potential for capital growth.
Government Fund. The investment objective of Government Fund is to seek to
achieve a significant level of current income which is consistent with security
and liquidity of principal by investing, under normal market conditions,
primarily in obligations issued or guaranteed as to principal and interest by
the U.S. Government, its agencies or instrumentalities (including
mortgage-backed securities).
Growth Fund. The investment objective of Growth Fund is to seek long-term
capital appreciation. This goal will be sought by investing, under normal market
conditions, primarily in common stocks of companies and industries selected for
their growth potential.
High Yield Fund. The primary objective of High Yield Fund is to seek to
earn a high level of current income. The Fund actively seeks to achieve its
secondary objective of capital appreciation to the extent consistent with its
primary objective. The Fund seeks to attain its objectives primarily through
investments in lower-grade, high-yielding, high risk debt securities.
Investments in high yield, high risk securities, commonly referred to as "junk
bonds," may entail risks that are different or more pronounced than those
involved in higher-rated securities. See "High Yield Securities--Risk Factors"
in the Life Series Fund's Prospectus.
International Securities Fund. The primary objective of International
Securities Fund is to seek long-term capital growth. As a secondary objective,
the Fund seeks to earn a reasonable level of current income. These objectives
are sought, under normal market conditions, through investment in common stocks,
rights and warrants, preferred stocks, bonds and other debt obligations issued
by companies or governments of any nation, subject to certain restrictions with
respect to concentration and diversification.
Investment Grade Fund. The investment objective of Investment Grade Fund is
to seek a maximum level of income consistent with investment in investment grade
debt securities. The Fund seeks to achieve its objective primarily by investing,
under normal market conditions, in debt securities of U.S. issuers that are
rated in one of the four highest rating categories by
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Moody's Investors Service, Inc. or Standard & Poor's Ratings Group or, if
unrated, are deemed to be of comparable quality by the Adviser.
Target Maturity 2007 Fund. The investment objective of Target Maturity 2007
Fund is to seek a predictable compounded investment return for investors who
hold their Fund shares until the Fund's maturity, consistent with the
preservation of capital. The Fund will seek its objective by investing, under
normal market conditions, in zero coupon securities which are issued by the U.S.
Government, its agencies or instrumentalities or created by third parties using
securities issued by the U.S. Government, its agencies or instrumentalities.
Target Maturity 2010 Fund. The investment objective of Target Maturity 2010
Fund is to seek a predictable compounded investment return for investors who
hold their Fund shares until the Fund's maturity, consistent with the
preservation of capital. The Fund will seek its objective by investing, under
normal market conditions, in zero coupon securities which are issued by the U.S.
Government, its agencies or instrumentalities or created by third parties using
securities issued by the U.S. Government, its agencies or instrumentalities.
Utilities Income Fund. The primary objective of Utilities Income Fund is to
seek high current income. Long-term capital appreciation is a secondary
objective. These objectives are sought, under normal market conditions, through
investment in equity and debt securities issued by companies primarily engaged
in the public utilities industry.
No offer will be made of a Contract funded by the underlying Fund unless a
current Life Series Fund Prospectus has been delivered. Each Fund of the Life
Series Fund may be referred to as "Fund" or "Series" in the underlying
Contracts.
For more complete information about each of the Funds underlying Separate
Account D, including management fees and other expenses, see Life Series Fund's
Prospectus. The Prospectus details each Fund's investment goals, management
strategies, investment restrictions, portfolio turnover rate, the market and
financial risks of an investment in the Fund's shares, as well as the risk of
investing in a fund that sells its shares to other separate accounts, including
variable life insurance company separate accounts. Because the Life Series Fund
sells its shares to more than one separate account, the possibility arises that
violation of the Federal tax laws by another separate account investing in Life
Series Fund could cause the Contracts funded through Separate Account D to lose
their tax-deferred status, unless remedial action were taken. It is important to
read the Prospectus carefully before you decide to invest. Additional copies of
Life Series Fund's Prospectus, which is attached hereto, may be obtained by
writing to First Investors Life Insurance Company, 95 Wall Street, New York, New
York 10005 or by calling (212) 858-8200. There can be no assurance that any of
the objectives of the Funds will be achieved.
Adviser. First Investors Management Company, Inc. (the "Adviser"), an
affiliate of First Investors Life, is the investment adviser of each Fund. The
Adviser supervises and manages the investments and operations of each Fund,
except for International Securities Fund and Growth Fund. The Adviser is a New
York corporation located at 95 Wall Street, New York, NY 10005.
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Subadviser. Wellington Management Company, LLP ("WMC" or "Subadviser") has
been retained by the Adviser and the Life Series Fund, on behalf of
International Securities Fund and Growth Fund, as each of those Funds'
investment subadviser. The Adviser has delegated discretionary trading authority
to WMC with respect to all the assets of International Securities Fund and
Growth Fund, subject to the continuing oversight and supervision of the Adviser
and the Life Series Fund's Board of Trustees. As compensation for its services,
WMC is paid by the Adviser, and not by either Fund, a fee which is computed
daily and paid monthly.
WMC, located at 75 State Street, Boston, MA 02109, is a Massachusetts
limited liability partnership of which Robert W. Doran, Duncan M. McFarland and
John R. Ryan are Managing Partners. WMC is a professional investment counseling
firm which provides investment services to investment companies, employee
benefit plans, endowment funds, foundations and other institutions and
individuals. As of December 31, 1996, WMC held investment management authority
with respect to approximately $133 billion of assets. Of that amount, WMC acted
as investment adviser or subadviser to approximately 84 registered investment
companies or series of such companies, with net assets of approximately $90
billion as of December 31, 1996. WMC is not affiliated with the Adviser or any
of its affiliates.
Underwriter. First Investors Life and Separate Account D have entered into
an Underwriting Agreement with their affiliate, FIC, 95 Wall Street, New York,
New York 10005. First Investors Life has reserved the right in the Underwriting
Agreement to sell the Contracts directly. The Contracts are sold by insurance
agents licensed to sell variable annuities, who are registered representatives
of the Underwriter or broker-dealers who have sales agreements with the
Underwriter.
Voting Rights. First Investors Life will vote the shares of any Fund held
in a corresponding Subaccount or directly, at any Fund shareholders meeting, in
accordance with its view of present law. It will vote Fund shares held in any
corresponding Subaccount as follows: shares attributable to Contractowners for
which it receives instructions, in accordance with the instructions; shares
attributable to Contractowners for which it does not receive instructions, in
the same proportion that it votes shares held in the Subaccount for which it
receives instructions; and shares not attributable to Contractowners, in the
same proportion that it votes shares held in the Subaccount that are
attributable to Contractowners and for which it receives instructions. It will
vote Fund shares held directly in the same proportion that it votes shares held
in any corresponding subaccounts that are attributable to Contractowners and for
which it receives instructions, except that where there are no shares held in
any subaccount it will vote its own shares as it deems appropriate. All of the
shares of any Fund held by First Investors Life through a Subaccount or directly
will be presented at any Fund shareholders meeting for purposes of determining a
quorum.
Prior to the Annuity Commencement Date, the number of Fund shares held in a
corresponding Subaccount that is attributable to each Contractowner is
determined by dividing the Subaccount's Accumulated Value by the net asset value
of one Fund share. After the Annuity Commencement Date, the number of Fund
shares held in a corresponding Subaccount that is attributable to each
Contractowner is determined by dividing the reserve held in the Subaccount for
the variable annuity payment under the Contract by the net asset value of one
Fund share. As this reserve fluctuates, the number of votes fluctuates. The
number of votes that a
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Contractowner has the right to cast will be determined as of the record date
established by Life Series Fund.
Voting instructions will be solicited by written communication prior to the
date of the meeting at which votes are to be cast. Each Contractowner having a
voting interest in a Subaccount will be sent meeting and other materials
relating to the corresponding Fund.
First Investors Life reserves the right to proceed other than as described
above, including the right to vote shares of any Fund in its own right, to the
extent permitted by law.
PURCHASES, CHARGES AND EXPENSES
Purchase Payments. Purchase payments are used to purchase Accumulation
Units of one or more Subaccounts and not shares of the Fund or Funds in which
the Subaccount or Subaccounts invest.
The minimum initial purchase payment is $25,000 for a Deferred Variable
Annuity Contract. Additional Payments under a Deferred Variable Annuity Contract
in the minimum amount of $200 may be made at any time after the issuance of the
Contract.
Initial purchase payments will be credited to a Contractowner's Account on
the Valuation Date they are received by First Investors Life, provided that
First Investors Life has received a duly completed application. Additional
payments will be credited to a Contractowner's Account on the Valuation Date
they are received by First Investors Life. In the event First Investors Life
receives an incomplete application, all required information shall be provided
not later than five business days following the receipt of such application or
the purchase payment will be returned to the applicant at the end of such
five-day period.
Purchase payments will be allocated to the appropriate Subaccount or
Subaccounts based upon the next computed value of an Accumulation Unit following
receipt by First Investors Life at its Executive Office or other designated
office. Accumulation Units are valued at the end of each Valuation Date (i.e.,
as of the close of regular trading on the NYSE, normally 4:00 p.m., Eastern
Time).
Contingent Deferred Sales Charge. Separate Account D Deferred Variable
Annuity Contracts are sold without an initial sales charge, but may be subject
to a contingent deferred sales charge ("CDSC") upon a full or partial surrender
of the Contract. The CDSC is a percentage of the value of the Accumulation Units
surrendered (not to exceed the aggregate amount of the purchase payments made
for such Units) and declines, in accordance with the Table below, from 7% to 0%
over a seven year period. Purchase payments will be deemed surrendered in the
order in which they were received (first-in, first-out) and all surrenders will
be first from purchase payments and then from other contract values.
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Contingent Deferred Sales Charge Table
Contingent Deferred Sales Charge
as a Percentage of Purchase Payments Length of Time from Purchase Payment in
Surrendered Years
7% Less than 1
6% 1-2
5% 2-3
4% 3-4
3% 4-5
2% 5-6
1% 6-7
0% More than 7
No CDSC will be assessed (i) in the event of the death of the Annuitant or
the Contractowner, as applicable, (ii) if the contract values are applied to an
annuity option provided for under this contract, (iii) for surrenders up to the
annual limit of the Withdrawal Privilege, or (iv) for surrenders used to pay
Premium taxes. For information concerning the Annuity Options and the Withdrawal
Privilege, see "Annuity Options" and "Surrender and Termination (Redemption)
During the Accumulation Period."
Mortality and Expense Risk Charges. Although the amount of each variable
annuity payment made to an Annuitant will vary in accordance with the investment
performance of the Subaccounts, the amount will not be affected by the mortality
experience (death rate) of persons receiving such payments or of the general
population. First Investors Life assumes this "mortality risk" by virtue of
annuity rates incorporated in the Contracts which cannot be changed.
The mortality risk assumed by First Investors Life arises from its
obligation to continue to make fixed or variable annuity payments, determined in
accordance with the annuity tables and other provisions of the Contracts, to
each Annuitant regardless of how long that person lives and regardless of how
long all payees as a group live. This assures an Annuitant that neither the
Annuitant's own longevity nor an improvement in life expectancy generally will
have any adverse effect on the variable annuity payments the Annuitant will
receive under the Contract, and relieves the Annuitant of the risk that the
Annuitant will outlive the funds that the Annuitant has accumulated for
retirement. First Investors Life also assumes mortality risk as a result of its
guarantee of a minimum payment in the event the Annuitant or the Contractowner
named in the original application for the Contract dies prior to the Annuity
Commencement Date.
In addition, First Investors Life assumes the risk that the charges for
administrative expenses may not be adequate to cover such expenses and assures
that it will not increase the amount charged for administrative expenses. In
consideration for its assumption of these mortality and expense risks, First
Investors Life deducts an amount equal on an annual basis to 1.25% of the daily
net asset value of the Subaccounts. Of such charge, approximately 0.85% is for
assuming the mortality risk and 0.4% is for assuming the expense risk.
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First Investors Life guarantees that it will not increase the mortality and
expense risk charges during the term of any Contract. If the charges are
insufficient to cover the actual cost of the mortality and expense risks, the
loss will fall on First Investors Life; conversely, if the deductions prove more
than sufficient, the excess will be a profit to First Investors Life. Any
profits resulting to First Investors Life for over-estimates of the actual costs
of the mortality and expense risks can be used by First Investors Life for any
business purpose, including the payment of expenses of distributing the
Contracts, and will not remain in Separate Account D.
Administrative Charge. First Investors Life deducts an amount equal on an
annual basis to .15% of the daily net asset value of the Subaccounts as an
administrative charge. This charge will not be increased during the term of any
Contract.
Contract Maintenance Charge. On the last business day of each Contract Year
or on the date of surrender of the Contract, if earlier, the Company deducts a
$30.00 Contract Maintenance Charge from the Accumulated Value, provided that in
no case will this charge exceed 2% of such value. It will be charged against the
Accumulated Value by proportionately reducing the number of Accumulation Units
held on that date with respect to each active Subaccount of Separate Account D.
This charge will not be increased during the term of any Contract.
Other Charges. Some states assess Premium taxes which presently range from
0% to 2.35% at the time purchase payments are made; others assess Premium taxes
at the time of surrender or when annuity payments begin. First Investors Life
currently advances any Premium taxes due at the time purchase payments are made
and then deducts Premium taxes from the Accumulated Value of the Contract at the
time of surrender, upon death of the Annuitant or when annuity payments begin.
First Investors Life, however, reserves the right to deduct Premium taxes when
incurred. See "Appendix I" for Premium tax table.
Expenses. There are deductions from and expenses paid out of the assets of
the Funds that are described in the Prospectus for the Funds.
VARIABLE ANNUITY CONTRACTS
This Prospectus offers individual Deferred Variable Annuity Contracts under
which annuity payments will begin on a selected future date. First Investors
Life is offering the Contracts in states where it has the authority to issue the
Contracts. The individual Deferred Variable Annuity Contracts offered by this
Prospectus are designed to provide lifetime annuity payments to Annuitants in
accordance with the plan adopted by the Contractowner. The amount of annuity
payments will vary with the investment performance of the Subaccounts. The
Contracts obligate First Investors Life to make payments for the lifetime of the
Annuitant in accordance with the annuity rates contained in the Contract,
regardless of actual mortality experience (see "Annuity Period"). Upon the death
of the Annuitant under a Contract before the Annuity Commencement Date, First
Investors Life will pay a death benefit to the Beneficiary designated by the
Annuitant. For a discussion of the amount and manner of payment of this benefit,
see "Death of Annuitant."
All or a portion of the Accumulated Value may be surrendered during the
Accumulation Period. For a discussion on withdrawals during the Accumulation
Period, see "Surrender and Termination (Redemption) During the Accumulation
Period." For Federal income tax
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consequences of a withdrawal, see "Federal Income Tax Status." The exercise of
Contract rights herein described, including the right to make a withdrawal
during the Accumulation Period, will be subject to the terms and conditions of
any qualified trust or plan under which the Contracts are purchased. This
Prospectus contains no information concerning such trust or plan.
First Investors Life reserves the right to amend the Contracts to meet the
requirements of the 1940 Act or other applicable Federal or state laws or
regulations.
Contractowners with any inquiries concerning their account should write to
First Investors Life Insurance Company at its Executive Office, 95 Wall Street,
New York, New York 10005.
Deferred Variable Annuities--Accumulation Period
Crediting Accumulation Units. During the Accumulation Period, purchase
payments on Deferred Variable Annuity Contracts are credited to the
Contractowner's Account in the form of Accumulation Units. The number of
Accumulation Units credited to a Contractowner for the Subaccounts is determined
by dividing the purchase payment by the value of an Accumulation Unit for the
Subaccount based upon the next computed value of an Accumulation Unit following
receipt of the purchase payment by First Investors Life at its Executive Office
or other designated office. The value of the Contractowner's Individual Account
varies with the value of the assets of the Subaccounts. The investment
performance of the Subaccounts, expenses and deduction of certain charges affect
the value of an Accumulation Unit. There is no assurance that the value of a
Contractowner's Individual Account will equal or exceed purchase payments. The
value of a Contractowner's Individual Account for a Valuation Period can be
determined by multiplying the total number of Accumulation Units credited to the
account for the Subaccount by the value of an Accumulation Unit for the
Subaccount for the Valuation Period.
Annuity Period
Commencement Date. Annuity payments will begin on the Annuity Commencement
Date selected by the Contractowner. Not later than 30 days prior to the Annuity
Commencement Date, the Contractowner may elect in writing to advance or defer
the Annuity Commencement Date. The Annuity Commencement Date may not be deferred
beyond the Contract anniversary date following the Annuitant's 90th birthday. If
no other date is elected, annuity payments will commence on the Contract
anniversary date following the Annuitant's 90th birthday.
If the Net Accumulated Value on the Annuity Commencement Date is less than
$2,000, First Investors Life may pay such value in one sum in lieu of annuity
payments. If the Net Accumulated Value is not less than $2,000 but the variable
annuity payments provided for would be or become less than $20, First Investors
Life may change the frequency of annuity payments to such intervals as will
result in payments of at least $20.
Assumed Investment Rate. A 3.5% assumed investment rate is built into the
Annuity Tables in the Contract. This is based on First Investors Life's opinion
that it is the average result to be expected from a diversified portfolio of
common stocks during a relatively stable economy. A higher assumption would mean
a higher initial payment but more slowly rising and more rapidly falling
subsequent variable annuity payments. A lower assumption would have the opposite
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effect. If the actual net investment rate of the respective Subaccount is at the
annual rate of 3.5%, the variable annuity payments will be level. A fixed
annuity is an annuity with annuity payments which remain fixed as to dollar
amount throughout the payment period and is based on an assumed interest rate of
3.5% per year built into the Annuity Tables in the Contract.
Annuity Options. The Contractowner may, at any time at least 30 days prior
to the Annuity Commencement Date upon written notice to First Investors Life at
its Executive Office or other designated office, elect to have payments made
under any one of the Annuity Options provided in the Contract. If no election is
in effect on the Annuity Commencement Date, annuity payments will be made on a
variable basis only under Annuity Option 3 below, Life Annuity with 120 Monthly
Payments Guaranteed, which is the Basic Annuity.
The material factors that determine the level of annuity benefits are (i)
the value of a Contractowner's Individual Account determined in the manner
described in this Prospectus before the Annuity Commencement Date, (ii) the
Annuity Option selected by the Contractowner, (iii) the sex and adjusted age of
the Annuitant and any Joint Annuitant at the Annuity Commencement Date and, (iv)
in the case of a variable annuity, the investment performance of the Subaccounts
selected.
On the Annuity Commencement Date, First Investors Life shall apply the
Accumulated Value, reduced by any applicable Premium taxes not previously
deducted, to provide the Basic Annuity or, if an Annuity Option has been
elected, to provide one of the Annuity Options described below.
The Contracts provide for the six Annuity Options described below:
Option 1 - Life Annuity - An annuity payable monthly during the lifetime of
the Annuitant, ceasing with the last payment due prior to the death of the
Annuitant. If this Option is elected, annuity payments terminate automatically
and immediately on the death of the Annuitant without regard to the number or
total amount of payments received.
Option 2a - Joint and Survivor Life Annuity - An annuity payable monthly
during the joint lifetime of the Annuitant and the Joint Annuitant and
continuing thereafter during the lifetime of the survivor, ceasing with the last
payment due prior to the death of the survivor.
Option 2b - Joint and Two-Thirds to Survivor Life Annuity - An annuity
payable monthly during the joint lifetime of the Annuitant and the Joint
Annuitant and continuing thereafter during the lifetime of the survivor at an
amount equal to two-thirds of the joint annuity payment, ceasing with the last
payment due prior to the death of the survivor.
Option 2c - Joint and One-Half to Survivor Life Annuity - An annuity
payable monthly during the joint lifetime of the Annuitant and the Joint
Annuitant and continuing thereafter during the lifetime of the survivor at an
amount equal to one-half of the joint annuity payment, ceasing with the last
payment due prior to the death of the survivor.
Under Annuity Options 2a, 2b and 2c, annuity payments terminate
automatically and immediately on the deaths of both the Annuitant and the Joint
Annuitant without regard to the number or total amount of payments received.
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Option 3 - Life Annuity with 60, 120 or 240 Monthly Payments Guaranteed -
An annuity payable monthly during the lifetime of the Annuitant, with the
guarantee that if, at his or her death, payments have been made for less than
60, 120 or 240 monthly periods, as elected, any guaranteed annuity payments will
be continued during the remainder at the selected period to the Beneficiary.
Option 4 - Unit Refund Life Annuity - An annuity payable monthly during the
lifetime of the Annuitant, terminating with the last payment due prior to the
death of the Annuitant. An additional annuity payment will be made to the
Beneficiary equal to the Annuity Unit Value of the Subaccount or Subaccounts as
of the date that notice of death in writing is received by First Investors Life
at its Executive Office or other designated office, multiplied by the excess, if
any, of (a) over (b) where (a) is the Net Accumulated Value allocated to each
Subaccount and applied under the option at the Annuity Commencement Date,
divided by the corresponding Annuity Unit Value as of the Annuity Commencement
Date, and (b) is the product of the number of Annuity Units applicable under the
Subaccount represented by each annuity payment and the number of annuity
payments made. (For an illustration of this calculation, see Appendix II,
Example A, in the Statement of Additional Information.)
Allocation of Annuity. The Contractowner may elect to have the Net
Accumulated Value applied at the Annuity Commencement Date to provide a Fixed
Annuity, a Variable Annuity, or any combination thereof. After the Annuity
Commencement Date, no transfers or redemptions are allowed. Such elections must
be made in writing to First Investors Life at its Executive Office or other
designated office, at least 30 days prior to the Annuity Commencement Date. In
the absence of an election, annuity payments will be made on a variable basis
only under Annuity Option 3 above, Life Annuity with 120 Monthly Payments
Guaranteed, which is the Basic Annuity.
Death of Annuitant
If the Annuitant dies prior to the Annuity Commencement Date, First
Investors Life will pay a Death Benefit to the Beneficiary designated by the
Contractowner upon receipt of a death certificate or similar proof of the death
of the Annuitant ("Due Proof of Death") and notification of the Beneficiary's
election to receive payment in either the form of a single sum settlement or an
annuity option ("Notification"). The value of the Death Benefit will be
determined as of the next computed value of the Accumulation Units following
receipt of Due Proof of Death and Notification by First Investors Life at its
Executive Office or other designated office.
If payment of the Death Benefit under one of the Annuity Options was not
elected by the Contractowner prior to the Annuitant's death, the Beneficiary may
elect to have the Death Benefit paid in a single sum or applied to provide an
annuity under one of the Annuity Options or as otherwise permitted by First
Investors Life. If a single sum settlement is requested, the amount of the Death
Benefit will be paid within seven days of receipt of Due Proof of Death and
Notification. In the event that only Due Proof of Death or Notification is
received, the Death Benefit will remain invested in the Separate Account in
accordance with the original investment choices of the Contractowner until both
pieces of information are received by First Investors Life at its Executive
Office or other designated office. If an Annuity Option is elected, the
Beneficiary will have up to ninety days commencing with the date of receipt of
Due Proof of Death and
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Notification in which to select from among the available options. During the
ninety day period, the Death Benefit will remain invested in the Separate
Account in accordance with the original investment choices of the Contractowner.
If such a selection is not made by the end of the ninety-day period, a single
sum settlement will be made to the Beneficiary. If any Annuity Option is
selected, the Annuity Commencement Date shall be the date specified in the
election but no later than ninety days after receipt by First Investors Life of
Due Proof of Death and Notification.
The amount of the Death Benefit payable upon the death of the Annuitant
will be the greatest of (1) the Accumulated Value on the date of receipt of Due
Proof of Death and Notification at the Executive Office of First Investors Life
or other designated office, (2) the Accumulated Value on the preceding Specified
Contract Anniversary, increased by any additional purchase payments and
decreased by any partial surrenders since that anniversary, or (3) the sum of
all purchase payments made under the Contract, decreased by any partial
surrenders. The Specified Contact Anniversary is every seventh contract
anniversary (i.e., 7th, 14th, 21st, etc.).
On receipt of Due Proof of Death of the Annuitant after Annuity Payments
have begun under an Annuity Option, if any payments remain under the Option they
will be paid to the Beneficiary as provided by the Option.
Unless otherwise provided in the Beneficiary designation, if no Beneficiary
survives the Annuitant, the proceeds will be paid in one sum to the
Contractowner, if living; otherwise, to the Contractowner's estate.
Surrender and Termination (Redemption) During the Accumulation Period
A Contractowner may elect, at any time before the earlier of the Annuity
Commencement Date or the death of the Annuitant, to surrender the Contract for
all or any part of the Contractowner's Individual Account. In the case of a
partial surrender, the amount remaining after the surrender must be at least
equal to First Investors Life's minimum amount rule then in effect (currently
$5,000). In the event of the termination of the Contract, First Investors Life
will, upon due surrender of the Contract at the Executive Office of First
Investors Life or other designated office, pay to the Contractowner the
Accumulated Value of the Contract less (1) any applicable CDSC, (2) the Contract
Maintenance Charge and (3) any applicable Premium Taxes not previously deducted.
For a more detailed discussion of these charges see "Purchases, Charges and
Expenses." However, on a non-cumulative basis, the Contractowner may make
partial surrenders during any Contract Year up to the annual Withdrawal
Privilege Amount of 10% of Purchase Payments and not incur CDSC on this amount.
Amounts surrendered pursuant to this Withdrawal Privilege will be deemed to be
from Accumulated Values other than Purchase Payments.
Any amount requested as a partial surrender shall be deducted from the
Subaccount resulting in a corresponding reduction in the number of Accumulation
Units credited to the Contractowner in the Subaccount. For any partial or full
surrender, the deduction will be based upon the next computed value of an
Accumulation Unit following receipt of a written request by First Investors Life
at its Executive Office or other designated office. First Investors Life may
defer any such payment for a period of not more than seven days. However, First
Investors Life may postpone such payment during any period when (a) trading on
the NYSE is restricted as determined by the
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Commission or the NYSE is closed for other than weekends and holidays, (b) the
Commission has by order permitted such suspension or (c) any emergency, as
defined by the rules of the Commission, exists during which time the sale of
portfolio securities or calculation of securities is not reasonably practicable.
For information as to Federal tax consequences resulting from surrenders, see
"Federal Income Tax Status." For information as to State Premium tax
consequences, see "Other Charge" and "Appendix I."
Maturity Date Exchange Privilege. If this Contract is liquidated during the
one-year period preceding its maturity date ("Annuity Commencement Date"), the
proceeds can be used to purchase Class A shares of First Investors mutual funds
without incurring a sales charge.
Death of Contractowner
If the Contractowner dies before the entire interest in the Contract has
been distributed, the value of the Contract must be distributed to the
Beneficiary as provided below so that the Contract qualifies as an annuity under
Section 72(s) of the Internal Revenue Code of 1986, as amended (the "Code"). If
the Contractowner who dies is the one named in the original application for the
Contract, the entire interest of that Contactowner in the Contract will be the
same as if the Contractowner had been the Annuitant; if the Contractowner who
dies is not the one named in the original application for the Contract, the
entire interest of that Contractowner shall be the Accumulated Value of the
Contract.
If the death of the Contractowner occurs on or after the Annuity
Commencement Date, the entire interest in the Contract will be distributed at
least as rapidly as under the Annuity Option in effect on the date of death.
If the death of the Contractowner occurs prior to the Annuity Commencement
Date, the entire interest in the Contract will be (1) distributed to the
Beneficiary within five years, or (2) distributed under an Annuity Option
beginning within one year which provides that annuity payments will be made over
a period not longer than the life or life expectancy of the Beneficiary. If the
Contract is payable to (or for the benefit of) the Contractowner's surviving
spouse, no distributions will be required and the Contract may be continued with
the surviving spouse as the new Contractowner. If the Contractowner is also the
Annuitant, such spouse shall have the right to become the Annuitant under the
Contract. Likewise, if the Annuitant dies and the Contractowner is not a natural
person, the Annuitant's surviving spouse shall have the right to become the
Contractowner and the Annuitant.
Ten-Day Revocation Right
A Contractowner may, within ten days from the date the Contract is
delivered to the Contractowner (or longer as required by applicable state law),
elect to cancel the Contract. First Investors Life will, upon surrender of the
Contract, together with a written request for cancellation, at the Executive
Office of First Investors Life or other designated office, pay to the
Contractowner an amount equal to the Accumulated Value of the Contract on the
date of surrender. The amount refunded to Contractowners may be more or less
than their initial purchase payment depending on the investment results of the
designated Subaccount(s). In those states where a full refund of premiums is
required if the Contractowner elects to exercise to
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cancel the Contract under the ten-day revocation right, such Contractowner shall
be entitled to a full refund of premiums paid upon such cancellation.
FEDERAL INCOME TAX STATUS
The Contracts are designed for use by individuals who desire to accumulate
capital on a tax-deferred basis for retirement or other long-term purposes. The
Contracts may be purchased on a nonqualified basis or through the following
retirement plans qualified for special tax treatment under the Code (1)
individual retirement accounts and (2) qualified corporate employee pension and
profit-sharing plans.
In general, a Contract acquired by a person who is not an individual will
be treated as one which is not an annuity to the extent of contributions made
after February 28, 1986, and any income credited to a Contractowner's Individual
Account will accordingly be includable in the Contractowner's gross income on a
current basis in accordance with that person's method of accounting. The
preceding sentence will not apply to any annuity contract that is (i) acquired
by a decedent's estate by reason of the decedent's death, (ii) held under a
qualified pension, profit-sharing or stock bonus plan described under Section
401(a) of the Code or an employee annuity program described under Section 403(a)
of the Code (or that is purchased by an employer upon the termination of such
plan or program and that is held by the employer until all amounts under a
Contract are distributed to the employee for whom the Contract was purchased or
the employee's beneficiary), (iii) held under an individual retirement plan or
an employee annuity program described under Section 403(b) of the Code, or (iv)
an immediate annuity (as defined in Section 72(u)(4) of the Code).
The ultimate effect of Federal income taxes on Accumulated Values, on
annuity payments and on the economic benefit to the Contractowner, Annuitant or
Beneficiary depends on the tax status of both First Investors Life and the
individual concerned. The discussion contained herein is general in nature and
is not intended as tax advice. No attempt is made to consider any applicable
state or other tax laws. Moreover, the discussion herein is based upon First
Investors Life's understanding of Federal income tax laws as they are currently
interpreted. No representation is made regarding the likelihood of continuation
of current Federal income tax laws or the current interpretations of the
Internal Revenue Service. Prospective Contractowners should consult their tax
advisors as to the tax consequences of purchasing Contracts.
First Investors Life is taxed as a life insurance company under the Code.
Since Separate Account D is not a separate entity from First Investors Life and
its operation forms part of First Investors Life, it will not be taxed
separately as a "regulated investment company" under Subchapter M of the Code.
Under existing Federal income tax law, investment income of the Subaccounts of
Separate Account D, to the extent that it is applied (after taking into account
the mortality risk and expense risk charges) to increase reserves under the
Contract, is not taxed and may be compounded through reinvestment without
additional tax to First Investors Life to the extent income is so applied. Thus,
the Funds may realize net investment income and pay dividends and the
Subaccounts of Separate Account D may receive and reinvest them on behalf of
Contractowners, all without Federal income tax consequences for Separate Account
D or the Contractowner.
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Under current interpretations of the Code, the Contractowner is not subject
to income tax on increases in the value of the Contractowner's Individual
Account until payments are received by the Contractowner under the Contract.
Annuity payments received after the Annuity Commencement Date will be taxed to
the Contractowner as ordinary income in accordance with Section 72 of the Code.
However, that portion of each payment which represents the Contractowner's
investment in the Contract , which is ordinarily the amount of purchase payments
made under the Contract with certain adjustments, will be excluded from gross
income. The investment in the Contract is divided by the Contractowner's life
expectancy or other period for which annuity payments are expected to be made,
in the case of variable annuity payments, and by the expected return, in the
case of fixed annuity payments, to determine the annual exclusion. Annuity
payments received each year in excess of this annual exclusion are taxable as
ordinary income as provided in Section 72 of the Code.
In order that the Contracts be treated as annuities for Federal income tax
purposes, other than Contracts issued in connection with retirement plans that
are qualified under the Code, Separate Account D must satisfy certain
diversification requirements that are generally applicable to variable annuity
contract segregated asset accounts under Subchapter L of the Code. Ownership by
the Subaccounts of shares of the Funds will not fail the diversification
requirements provided that each Fund is taxed as a regulated investment company
under Subchapter M of the Code, and that each Fund meets such diversification
requirements, and all shares of the Funds are owned only by the Subaccounts (and
similar accounts of First Investors Life or other insurance companies), and
access to the Funds is available exclusively through the purchase of Contracts
(and additional variable annuity or life insurance products of First Investors
Life or other insurance companies). Fund shares also may be held by the Adviser
provided such shares are being held in connection with the creation or
management of the Fund. The Adviser does not intend to sell any Fund shares it
owns to the general public. It is expected that the Adviser will cause the
assets of the Funds to be invested in a manner that complies with the asset
diversification requirements.
The tax law does not currently provide guidance as to circumstances in
which a Contractowner may be said to have "control" over Separate Account D
assets and thus be subject to current taxation on income credited to the
Contractowner's Contract. The Treasury Department has said that it may provide
such guidance by a ruling or regulation. It is not clear what this additional
guidance would provide, nor whether it would be applied on a retroactive basis.
First Investors Life reserves the right to amend the Contracts in any
appropriate way and take other action necessary to avoid such current taxation.
With respect to withdrawals before the start of annuity payments, the Code
currently provides that: (i) withdrawals from an annuity contract are taxable as
ordinary income in the year of receipt to the extent that the Contract's
Accumulated Value exceeds the investment in the Contract, (ii) a loan under, or
an assignment or pledge of an annuity contract is treated as a distribution, and
(iii) a 10 percent penalty will be assessed, subject to certain exceptions, on
the taxable portion of withdrawals made prior to the taxpayer's attainment of
age 59 1/2.
In determining the amount of any distribution that is includable in gross
income, all annuity contracts issued by the same company to the same
Contractowner during any calendar year will be treated as one annuity contract.
Contractowners should consult their tax advisors before
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purchasing more than one Contract during any calendar year.
Under the Code, income tax must generally be withheld from all "designated
distributions." A designated distribution includes the taxable portion of any
distribution or payment from an annuity. A partial surrender of an annuity
contract is considered a distribution subject to withholding.
The amount of withholding depends on the type of payment: "periodic" or
"non-periodic." For a periodic payment (e.g., an annuity payment), unless the
recipient files an appropriate withholding certificate, the tax withheld from
the taxable portion of the payment is based on a payroll withholding schedule
which assumes a married recipient claiming three withholding exemptions. For a
non-periodic payment distribution (e.g., a partial surrender of an annuity
contract), the tax withheld will generally be 10 percent of the taxable portion
of the payment.
A recipient may elect not to have the withholding rules apply. For periodic
payments, an election is effective for the calendar year for which it is made
and for each necessary year until amended or modified. For non-periodic
distributions, an election is effective only for the distribution for which it
is made. Payors must notify recipients of their right to elect to have taxes
withheld.
Insurers are required to report all designated distribution payments to the
Internal Revenue Service.
With respect to the Contracts issued in connection with retirement or
deferred compensation plans which do not meet the requirements applicable to tax
qualified plans, the tax status of the Annuitant is determined by the provisions
of the plan. In general, the Annuitant is not taxed until the Annuitant receives
annuity payments. The rules for taxation of payments under non-qualified plans
are, in general, similar to those for taxation of payments under a qualified
plan; however, the special income averaging treatment available for certain lump
sum payments under qualified plans is not available for similar payments under
nonqualified plans.
The Contracts may be purchased in connection with the following types of
tax-favored retirement plans: (1) individual retirement annuities and (2)
pension and profit-sharing plans of corporations qualified under Section 401(a)
or employee annuity programs described in Section 403(a) of the Code. The tax
rules applicable to these plans, including restrictions on contributions and
benefits, taxation of distribution and any tax penalties, vary according to the
type of plan and its terms and conditions. Participants under such plans, as
well as Contractowners, Annuitants and Beneficiaries, should be aware that the
rights of any person to any benefits under such plans may be subject to the
terms and conditions of the plans themselves, regardless of the terms and
conditions of the Contracts. Purchasers of Contracts for use with any qualified
plan, as well as plan participants and Beneficiaries, should consult counsel and
other competent advisors as to the suitability of the Contracts to their special
needs, and as to applicable Code limitations and tax consequences.
It should be noted that the laws and regulations with respect to the
foregoing tax matters are subject to change at any time by Congress and the
Treasury Department, respectively, and that the interpretations of such laws and
regulations now in effect are subject to change by judicial
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decision or by the Treasury Department.
PERFORMANCE INFORMATION
For further information on performance calculations , see "Performance
Information" in the Statement of Additional Information.
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TABLE OF CONTENTS
OF THE STATEMENT OF ADDITIONAL
INFORMATION
Item Page
---- ----
General Description ............................................... 2
Services .......................................................... 2
Annuity Payments .................................................. 4
Other Information ................................................. 5
Performance Information ........................................... 6
Relevance of Financial Statements ................................. 7
Appendices ........................................................ 8
Financial Statements .............................................. 13
APPENDIX I
STATE AND LOCAL TAXES*
Alabama ................................................... 1.00%
Alaska .................................................... --
Arizona ................................................... --
Arkansas .................................................. --
California ................................................ 2.35
Colorado .................................................. --
Connecticut ............................................... --
Delaware .................................................. --
District of Columbia ...................................... 2.25
Florida ................................................... --
Georgia ................................................... --
Illinois .................................................. --
Indiana ................................................... --
Iowa ...................................................... --
Kentucky .................................................. 2.00
Louisiana ................................................. --
Maryland .................................................. --
Massachusetts ............................................. --
Michigan .................................................. --
Minnesota ................................................. --
Mississippi .............................................. 2.00%
Missouri ................................................. --
Nebraska ................................................. --
New Jersey ............................................... --
New Mexico ............................................... --
New York ................................................. --
North Carolina ........................................... --
Ohio ..................................................... --
Oklahoma ................................................. --
Oregon ................................................... --
Pennsylvania ............................................. --
Rhode Island ............................................. --
South Carolina ........................................... --
Tennessee ................................................ --
Texas .................................................... --
Utah ..................................................... --
Virginia ................................................. --
Washington ............................................... --
West Virginia ............................................ 1.00
Wisconsin ................................................ --
Wyoming .................................................. 1.00
- ----------
Note: The foregoing rates are subject to amendment by legislation and the
applicability of the stated rates may be subject to administrative
interpretation.
o Includes local annuity Premium taxation.
23
<PAGE>
First Investors Life
Variable Annuity
Fund D
- ---------------------------
Individual Variable
Annuity Contracts
- ---------------------------
Prospectus
- ---------------------------
July 8, 1997
First Investors Logo
Logo is described as follows: the arabic numeral one separated into seven
vertical segments followed by the words "First Investors."
Verticle line from top to bottom in center of page about 1/2 inch in thickness
To the left of the verticle line is the following language:
TABLE OF CONTENTS
- -------------------------------------
Glossary of Special Terms ...................................... 2
Fee Table ...................................................... 3
General Description ............................................ 5
Purchases, Charges and Expenses ................................ 11
Variable Annuity Contracts ..................................... 13
Federal Income Tax Status ...................................... 19
Performance Information ........................................ 22
Table of Contents of the
Statement of Additional Information ........................... 23
Appendix I - State and Local Taxes ............................. 23
<PAGE>
First Investors Life Series Fund
95 Wall Street, New York, New York 10005/(212) 858-8200
This is a Prospectus for First Investors Life Series Fund ("Life Series
Fund"), an open-end, diversified management investment company. The Fund offers
eleven separate investment series, each of which has different investment
objectives and policies: First Investors Life Blue Chip Fund ("Blue Chip Fund"),
First Investors Life Cash Management Fund ("Cash Management Fund"), First
Investors Life Discovery Fund ("Discovery Fund"), First Investors Life
Government Fund ("Government Fund"), First Investors Life Growth Fund ("Growth
Fund"), First Investors Life High Yield Fund ("High Yield Fund"), First
Investors Life International Securities Fund ("International Securities Fund"),
First Investors Life Investment Grade Fund ("Investment Grade Fund"), First
Investors Life Target Maturity 2007 Fund ("Target Maturity 2007 Fund"), First
Investors Life Target Maturity 2010 Fund ("Target Maturity 2010 Fund") and First
Investors Life Utilities Income Fund ("Utilities Income Fund") (each, a Fund,
and collectively, "Funds"). Each Fund's investment objectives are listed on the
inside cover.
Investments in a Fund are only available through purchases of the Level
Premium Variable Life Insurance Policies ("Policies") or the Individual Variable
Annuity Contracts ("Contracts") offered by First Investors Life Insurance
Company ("First Investors Life"). Policy premiums, net of certain expenses, are
paid into a unit investment trust, First Investors Life Insurance Company
Separate Account B ("Separate Account B"). Purchase payments for the Contracts,
net of certain expenses, are also paid into a unit investment trust, First
Investors Life Variable Annuity Fund C ("Separate Account C"). Purchase payments
for the Contracts are also paid into a unit investment trust, First Investors
Life Variable Annuity Fund D ("Separate Account D"). Separate Account B,
Separate Account C and Separate Account D ("Separate Accounts") pool these
proceeds to purchase shares of a Fund designated by purchasers of the Policies
or Contracts. Investments in a Fund are used to fund benefits under the Policies
and Contracts. Target Maturity 2007 Fund and Target Maturity 2010 Fund are only
offered to Contractowners of Separate Account C and Separate Account D.
An investment in Life Series Fund, including Cash Management Fund, is
neither insured nor guaranteed by the U.S. Government. There can be no assurance
that the Cash Management Fund will be able to maintain a stable net asset value
of $1.00 per share. Investments by the High Yield Fund in high-yield, high risk
securities, commonly referred to as "junk bonds," may entail risks that are
different or more pronounced than those that would result from investment in
higher-rated securities. See "High Yield Securities--Risk Factors."
This Prospectus sets forth concisely the information about the Funds that a
prospective investor should know before investing and should be retained for
future reference. First Investors Management Company, Inc. ("FIMCO" or
"Adviser") serves as investment adviser to the Funds. A Statement of Additional
Information ("SAI"), dated April 30, 1997, as amended July 21, 1997 (which is
incorporated by reference herein), has been filed with the Securities and
Exchange Commission. The SAI is available at no charge upon request to the Funds
at the address or telephone number indicated above.
An investment in these securities is not a deposit or obligation of, or
guaranteed or endorsed by, any bank and is not federally insured or protected by
the Federal Deposit Insurance Corporation, the Federal Reserve Board or any
other governmental agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is April 30, 1997,
as amended July 21, 1997
<PAGE>
The investment objectives of each Fund of Life Series Fund offered by this
Prospectus are as follows:
Blue Chip Fund. The investment objective of the Fund is to seek high total
investment return consistent with the preservation of capital. This goal will be
sought by investing, under normal market conditions, primarily in equity
securities of "Blue Chip" companies that the Adviser believes have potential
earnings growth that is greater than the average company included in the
Standard & Poor's 500 Composite Stock Price Index.
Cash Management Fund. The objective of the Fund is to seek to earn a high
rate of current income consistent with the preservation of capital and
maintenance of liquidity. The Fund will invest in money market obligations,
including high quality securities issued or guaranteed by the U.S. Government or
its agencies and instrumentalities, bank obligations and high grade corporate
instruments.
Discovery Fund. The investment objective of the Fund is to seek long-term
capital appreciation, without regard to dividend or interest income, through
investment in the common stock of companies with small to medium market
capitalization that the Adviser considers to be undervalued or less well known
in the current marketplace and to have the potential for capital growth.
Government Fund. The investment objective of the Fund is to seek to achieve
a significant level of current income which is consistent with security and
liquidity of principal by investing, under normal market conditions, primarily
in obligations issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities (including mortgage-backed
securities).
Growth Fund. The investment objective of the Fund is to seek long-term
capital appreciation. This goal will be sought by investing, under normal market
conditions, primarily in common stocks of companies and industries selected for
their growth potential.
High Yield Fund. The primary objective of the Fund is to seek to earn a
high level of current income. The Fund actively seeks to achieve its secondary
objective of capital appreciation to the extent consistent with its primary
objective. The Fund seeks to attain its objectives primarily through investments
in lower-grade, high-yielding, high risk debt securities, commonly referred to
as "junk bonds" ("High Yield Securities"). Investments in High Yield Securities
may entail risks that are different or more pronounced than those involved in
higher-rated securities. See "High Yield Securities--Risk Factors."
International Securities Fund. The primary objective of the Fund is to seek
long-term capital growth. As a secondary objective, the Fund seeks to earn a
reasonable level of current income. These objectives are sought, under normal
market conditions, through investment in common stocks, rights and warrants,
preferred stocks, bonds and other debt obligations issued by companies or
governments of any nation, subject to certain restrictions with respect to
concentration and diversification.
Investment Grade Fund. The investment objective of the Fund is to seek a
maximum level of income consistent with investment in investment grade debt
securities. The Fund seeks
2
<PAGE>
to achieve its objective primarily by investing, under normal market conditions,
in debt securities of U.S. issuers that are rated in one of the four highest
rating categories by Moody's Investors Service, Inc. or Standard & Poor's
Ratings Group or, if unrated, are deemed to be of comparable quality by the
Adviser.
Target Maturity 2007 Fund. The investment objective of the Fund is to seek
a predictable compounded investment return for investors who hold their Fund
shares until the Fund's maturity, consistent with preservation of capital. The
Fund intends to terminate in the year 2007.
Target Maturity 2010 Fund. The investment objective of the Fund is to seek
a predictable compounded investment return for investors who hold their Fund
shares until the Fund's maturity, consistent with preservation of capital. The
Fund intends to terminate in the year 2010.
Target Maturity 2007 Fund and Target Maturity 2010 Fund each will seek its
objective by investing, under normal market conditions, at least 65% of its
total assets in zero coupon securities which are issued by the U.S. Government,
its agencies or instrumentalities or created by third parties using securities
issued by the U.S. Government, its agencies or instrumentalities.
As a result of the volatile nature of the market for zero coupon
securities, the value of shares of Target Maturity 2007 Fund and Target Maturity
2010 Fund prior to each Fund's maturity may fluctuate significantly. Thus, to
achieve a predictable return, investors should hold their investments in either
of these two Funds until the Fund liquidates since the Fund's value changes
daily with market conditions. Accordingly, any investor who redeems his or her
shares prior to a Fund's maturity is likely to achieve a different investment
result than the return that was predicted on the date the investment was made,
and may even suffer a significant loss.
Utilities Income Fund. The primary investment objective of the Fund is to
seek high current income. Long-term capital appreciation is a secondary
objective. These objectives are sought, under normal market conditions, through
investment in equity and debt securities issued by companies primarily engaged
in the public utilities industry.
There can be no assurance that any Fund will achieve its investment
objectives. See "Investment Objectives and Policies" for a detailed description
of each Fund's investment objectives and policies.
Life Series Fund offers shares of each Fund to insurance company separate
accounts that fund Policies and Contracts. Due to differences in tax treatment
or other considerations, the interests of various Contract owners and Policy
owners might at some point be in conflict. Life Series Fund currently does not
foresee any such conflict. If such a conflict were to occur, one or more
Policies or Contracts offered by First Investors Life might be required to
withdraw its investments in one or more Funds. This might force a Fund to sell
securities at disadvantageous prices.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following table sets forth the per share operating performance data
for a share outstanding, total return, ratios to average net assets and other
supplemental data for each period indicated. The table below has been derived
from financial statements which have been examined by Tait, Weller & Baker,
independent certified public accountants, whose report thereon appears in the
Statement of Additional Information ("SAI"). This information should be read in
conjunction with the Financial Statements and Notes thereto, which also appear
in the SAI, available at no charge upon request to the Funds.
4
<PAGE>
[This Page Intentionally Left Blank]
5
<PAGE>
- --------------------------------------------------------------------------------
PER SHARE DATA
--------------------------------------------------------
<TABLE>
<CAPTION>
Less Distributions
Income from Investment Operations from
--------------------------------- ------------------
Net Realized
Net Asset and
Value Net Unrealized Total from Net
--------- Invest- Gain (Loss) Invest- Invest- Net Total
Beginning ment on ment ment Realized Distri-
of Period Income Investments Operations Income Gains butions
- ------------------------------------------------------------------------------------------------------------------------------------
BLUE CHIP
<S> <C> <C> <C> <C> <C> <C> <C>
3/8/90* to 12/31/90 ................ $10.00 $.07 $(.02) $ .05 $ -- $ -- $ --
1991 ............................... 10.05 .12 2.50 2.62 .05 -- .05
1992 ............................... 12.62 .16 .67 .83 .21 -- .21
1993 ............................... 13.24 .15 .97 1.12 .15 -- .15
1994 ............................... 14.21 .18 (.39) (.21) .08 .17 .25
1995 ............................... 13.75 .26 4.11 4.37 .19 .95 1.14
1996 ............................... 16.98 .22 3.31 3.53 .25 .49 .74
CASH MANAGEMENT **
1988 ............................... 1.00 .048 -- .048 .048 -- .048
1989 ............................... 1.00 .075 -- .075 .075 -- .075
1990 ............................... 1.00 .072 -- .072 .072 -- .072
1991 ............................... 1.00 .054 -- .054 .054 -- .054
1992 ............................... 1.00 .029 -- .029 .029 -- .029
1993 ............................... 1.00 .027 -- .027 .027 -- .027
1994 ............................... 1.00 .037 -- .037 .037 -- .037
1995 ............................... 1.00 .054 -- .054 .054 -- .054
1996 ............................... 1.00 .049 -- .049 .049 -- .049
DISCOVERY
1988 ............................... 10.02 .26 .10 .36 -- -- --
1989 ............................... 10.38 .19 2.19 2.38 .27 .09 .36
1990 ............................... 12.40 .14 (.78) (.64) .15 .90 1.05
1991 ............................... 10.71 .07 5.42 5.49 .18 -- .18
1992 ............................... 16.02 -- 2.51 2.51 .03 .15 .18
1993 ............................... 18.35 -- 3.92 3.92 -- .91 .91
1994 ............................... 21.36 .06 (.62) (.56) -- .94 .94
1995 ............................... 19.86 .11 4.62 4.73 .06 1.26 1.32
1996 ............................... 23.27 .13 2.66 2.79 .11 .89 1.00
</TABLE>
* Commencement of operations
** Adjusted to reflect ten-for-one stock split on May 1, 1991.
+ Some or all expenses have been waived or assumed by the investment adviser
from commencement of operations through December 31, 1996.
++ The effect of fees and charges incurred at the separate account level are
not reflected in these performance figures.
+++ Average commission rate (per share of security) as required by amended
disclosure requirements effective for (a) fiscal years beginning on or
after September 1, 1995.
(a) Annualized
6
<PAGE>
- --------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
--------------------------------------------------------
<TABLE>
<CAPTION>
Ratio to Average Net
Assets Before
Ratio to Average Expenses Waived or
Net Assets + Assumed
---------------------- ------------------------
Net Asset Net Assets Net Net
Value End of Invest- Invest-
--------- Total Period ment ment Portfolio Average
End of Return ++ (in Expenses Income Expenses Income Turnover Commission
Period (%) thousands) (%) (%) (%) (%) Rate (%) Rate +++
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$10.05 .61(a) $ 3,656 -- 2.95(a) 1.92(a) 1.03(a) 15 $ N/A
12.62 26.17 13,142 1.00 1.88 1.55 1.34 21 N/A
13.24 6.67 23,765 .79 1.66 .86 1.60 40 N/A
14.21 8.51 34,030 .88 1.27 N/A N/A 37 N/A
13.75 (1.45) 41,424 .88 1.49 N/A N/A 82 N/A
16.98 34.00 66,900 .86 1.91 N/A N/A 26 N/A
19.77 21.52 100,078 .84 1.39 N/A N/A 45 .0692
1.00 4.94 33 -- 4.99 7.68 (2.69) N/A N/A
1.00 7.79 2,210 -- 7.84 1.35 6.49 N/A N/A
1.00 7.49 8,203 .39 6.90 1.15 6.15 N/A N/A
1.00 5.71 9,719 .57 5.39 .93 5.03 N/A N/A
1.00 3.02 8,341 .79 2.99 .98 2.81 N/A N/A
1.00 2.70 4,243 .60 2.67 1.05 2.22 N/A N/A
1.00 3.77 3,929 .60 3.69 1.04 3.25 N/A N/A
1.00 5.51 4,162 .60 5.36 1.10 4.87 N/A N/A
1.00 5.00 4,297 .60 4.89 1.11 4.38 N/A N/A
10.38 3.59 125 -- 3.80 3.10 .70 158 N/A
12.40 23.62 283 -- 2.43 4.78 (2.35) 231 N/A
10.71 (5.47) 960 -- 2.97 2.68 .28 104 N/A
16.02 51.73 4,661 .70 .48 1.49 (.31) 93 N/A
18.35 15.74 10,527 .91 .02 1.05 (.12) 91 N/A
21.36 22.20 21,221 .87 (.03) N/A N/A 69 N/A
19.86 (2.53) 30,244 .88 .36 N/A N/A 53 N/A
23.27 25.23 50,900 .87 .63 N/A N/A 78 N/A
25.06 12.48 70,899 .85 .63 N/A N/A 98 .0689
</TABLE>
7
<PAGE>
- --------------------------------------------------------------------------------
PER SHARE DATA
--------------------------------------------------------
<TABLE>
<CAPTION>
Less Distributions
Income from Investment Operations from
--------------------------------- ------------------
Net Realized
Net Asset and
Value Net Unrealized Total from Net
--------- Invest- Gain (Loss) Invest- Invest- Net Total
Beginning ment on ment ment Realized Distri-
of Period Income Investments Operations Income Gains butions
- ------------------------------------------------------------------------------------------------------------------------------------
GOVERNMENT
<S> <C> <C> <C> <C> <C> <C> <C>
1/7/92* to 12/31/92 .................. $10.00 $ .47 $ .51 $ .98 $ .33 $ -- $ .33
1993 ................................. 10.65 .64 .02 .66 .70 .19 .89
1994 ................................. 10.42 .79 (1.21) (.42) .25 .05 .30
1995 ................................. 9.70 .66 .78 1.44 .62 -- .62
1996 ................................. 10.52 .68 (.33) .35 .68 -- .68
GROWTH
1988 ................................. 10.02 .26 .51 .77 -- -- --
1989 ................................. 10.79 .02 2.51 2.53 .18 .12 .30
1990 ................................. 13.02 .16 (.55) (.39) .06 -- .06
1991 ................................. 12.57 .17 4.15 4.32 .18 -- .18
1992 ................................. 16.71 .08 1.41 1.49 .18 1.38 1.56
1993 ................................. 16.64 .07 .93 1.00 .09 .10 .19
1994 ................................. 17.45 .09 (.60) (.51) -- .21 .21
1995 ................................. 16.73 .18 3.94 4.12 .09 .29 .38
1996 ................................. 20.47 .18 4.68 4.86 .18 .59 .77
HIGH YIELD
1988 ................................. 10.00 .74 .82 1.56 -- -- --
1989 ................................. 11.56 .74 (.92) (.18) .56 .11 .67
1990 ................................. 10.71 1.08 (1.79) (.71) .83 -- .83
1991 ................................. 9.17 1.16 1.66 2.82 1.18 -- 1.18
1992 ................................. 10.81 1.11 .21 1.32 1.69 -- 1.69
1993 ................................. 10.44 .96 .88 1.84 1.12 -- 1.12
1994 ................................. 11.16 .87 (1.14) (.27) .31 -- .31
1995 ................................. 10.58 1.00 .95 1.95 .96 -- .96
1996 ................................. 10.57 1.02 .35 1.37 1.01 -- 1.01
</TABLE>
* Commencement of operations
+ Some or all expenses have been waived or assumed by the investment adviser
from commencement of operations through December 31, 1996.
++ The effect of fees and charges incurred at the separate account level are
not reflected in the performance figures.
+++ Average commission rate (per share of security) as required by amended
disclosure requirements effective for fiscal years beginning on or after
September 1, 1995.
(a) Annualized
8
<PAGE>
- --------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
--------------------------------------------------------
<TABLE>
<CAPTION>
Ratio to Average Net
Assets Before
Ratio to Average Expenses Waived or
Net Assets + Assumed
---------------------- ------------------------
Net Asset Net Assets Net Net
Value End of Invest- Invest-
--------- Total Period ment ment Portfolio Average
End of Return ++ (in Expenses Income Expenses Income Turnover Commission
Period (%) thousands) (%) (%) (%) (%) Rate (%) Rate +++
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$10.65 9.95(a) $ 5,064 .03(a) 6.64(a) .89(a) 5.79(a) 301 $ N/A
10.42 6.35 8,234 .35 6.60 .84 6.11 525 N/A
9.70 (4.10) 7,878 .35 6.74 .90 6.19 457 N/A
10.52 15.63 9,500 .40 6.79 .93 6.26 198 N/A
10.19 3.59 9,024 .60 6.75 .94 6.41 199 N/A
10.79 7.68 38 -- 3.20 8.70 (5.50) 31 N/A
13.02 24.00 570 -- 2.91 5.21 (2.30) 24 N/A
12.57 (2.99) 2,366 -- 3.03 1.64 1.40 28 N/A
16.71 34.68 7,743 .69 1.21 1.34 .55 148 N/A
16.64 9.78 16,385 .76 .75 1.20 .30 45 N/A
17.45 6.00 25,658 .91 .43 N/A N/A 51 N/A
16.73 (2.87) 32,797 .90 .60 N/A N/A 40 N/A
20.47 25.12 51,171 .88 1.11 N/A N/A 64 N/A
24.56 24.45 78,806 .85 .92 N/A N/A 49 .0485
11.56 15.60 4,565 -- 13.22 1.32 11.90 46 N/A
10.71 (1.76) 14,354 -- 12.05 .88 11.17 22 N/A
9.71 (5.77) 18,331 -- 13.21 .91 12.30 35 N/A
10.81 33.96 23,634 .53 11.95 .89 11.60 40 N/A
10.44 13.15 24,540 .91 10.48 .96 10.43 84 N/A
11.16 18.16 30,593 .91 9.49 N/A N/A 96 N/A
10.58 (1.56) 32,285 .88 9.43 N/A N/A 50 N/A
11.57 19.82 41,894 .87 9.86 N/A N/A 57 N/A
11.93 12.56 49,474 .85 9.43 N/A N/A 34 N/A
</TABLE>
9
<PAGE>
- --------------------------------------------------------------------------------
PER SHARE DATA
--------------------------------------------------------
<TABLE>
<CAPTION>
Less Distributions
Income from Investment Operations from
--------------------------------- ------------------
Net Realized
Net Asset and
Value Net Unrealized Total from Net
--------- Invest- Gain (Loss) Invest- Invest- Net Total
Beginning ment on ment ment Realized Distri-
of Period Income Investments Operations Income Gains butions
- ------------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL SECURITIES
<S> <C> <C> <C> <C> <C> <C> <C>
4/16/90* to 12/31/90 .................. $10.00 $ .03 $ .34 $ .37 $ -- $ -- $ --
1991 .................................. 10.37 .09 1.49 1.58 .03 .05 .08
1992 .................................. 11.87 .15 (.28) (.13) .15 .22 .37
1993 .................................. 11.37 .10 2.41 2.51 .14 -- .14
1994 .................................. 13.74 .14 (.32) (.18) .05 -- .05
1995 .................................. 13.51 .19 2.25 2.44 .12 .25 .37
1996 .................................. 15.58 .18 2.12 2.30 .19 .50 .69
INVESTMENT GRADE
1/7/92* to 12/31/92 ................... 10.00 .43 .44 .87 .34 -- .34
1993 .................................. 10.53 .65 .49 1.14 .71 .01 .72
1994 .................................. 10.95 .67 (1.06) (.39) .16 .09 .25
1995 .................................. 10.31 .67 1.28 1.95 .53 -- .53
1996 .................................. 11.73 .72 (.42) .30 .67 -- .67
TARGET MATURITY 2007
4/26/95* to 12/31/95 .................. 10.00 .26 2.00 2.26 -- -- --
1996 .................................. 12.26 .56 (.83) (.27) .23 .05 .28
TARGET MATURITY 2010
4/30/96* to 12/31/96 .................. 10.00 .26 .90 1.16 -- -- --
UTILITIES INCOME
11/15/93* to 12/31/93 ................. 10.00 .01 (.07) (.06) -- -- --
1994 .................................. 9.94 .24 (.96) (.72) .03 -- .03
1995 .................................. 9.19 .28 2.46 2.74 .19 -- .19
1996 .................................. 11.74 .32 .78 1.10 .27 -- .27
</TABLE>
* Commencement of operations
+ Some or all expenses have been waived or assumed by the investment adviser
from commencement of operations through December 31, 1996.
++ The effect of fees and charges incurred at the separate account level are
not reflected in the performance figures.
+++ Average commission rate (per share of security) as required by amended
disclosure requirements effective for fiscal years beginning on or after
September 1, 1995.
(a) Annualized
10
<PAGE>
- --------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
--------------------------------------------------------
<TABLE>
<CAPTION>
Ratio to Average Net
Assets Before
Ratio to Average Expenses Waived or
Net Assets + Assumed
---------------------- ------------------------
Net Asset Net Assets Net Net
Value End of Invest- Invest-
--------- Total Period ment ment Portfolio Average
End of Return ++ (in Expenses Income Expenses Income Turnover Commission
Period (%) thousands) (%) (%) (%) (%) Rate (%) Rate +++
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$10.37 5.21(a) $3,946 -- .99(a) 3.43(a) (2.43)(a) 29 $ N/A
11.87 15.24 8,653 1.70 .75 2.27 .18 70 N/A
11.37 (1.13) 12,246 1.03 1.55 1.38 1.20 36 N/A
13.74 22.17 21,009 1.14 .97 N/A N/A 37 N/A
13.51 (1.29) 31,308 1.03 1.22 N/A N/A 36 N/A
15.58 18.70 41,012 1.02 1.42 N/A N/A 45 N/A
17.19 15.23 57,955 1.12 1.25 N/A N/A 67 .0093
10.53 8.91(a) 4,707 .23(a) 6.16(a) .93(a) 5.46(a) 72 N/A
10.95 10.93 10,210 .35 6.32 .85 5.82 64 N/A
10.31 (3.53) 11,602 .37 6.61 .92 6.06 15 N/A
11.73 19.69 16,262 .51 6.80 .91 6.40 26 N/A
11.36 2.84 16,390 .60 6.47 .88 6.19 19 N/A
12.26 22.60 9,860 .04(a) 6.25(a) .87(a) 5.42(a) 28 N/A
11.71 (2.16) 14,647 .60 6.05 .82 5.83 13 N/A
11.16 11.60 2,195 .60(a) 6.05(a) .98(a) 5.67(a) 0 N/A
9.94 (4.66)(a) 494 -- 1.46(a) 3.99(a) (2.52)(a) 0 N/A
9.19 (7.24) 4,720 .17 4.13 .95 3.35 31 N/A
11.74 30.26 14,698 .41 4.23 .91 3.73 17 N/A
12.57 9.57 24,108 .60 3.48 .86 3.22 45 .0707
</TABLE>
11
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Blue Chip Fund
Blue Chip Fund seeks to provide investors with high total investment return
consistent with the preservation of capital. The Fund seeks to achieve its
objective by investing, under normal market conditions, at least 65% of its
total assets in equity securities of "Blue Chip" companies, including common and
preferred stocks and securities convertible into common stock, that the Adviser
believes have potential earnings growth that is greater than the average company
included in the Standard & Poor's 500 Composite Stock Price Index ("S&P 500").
The Fund also may invest up to 35% of its total assets in the equity securities
of non-Blue Chip companies that the Adviser believes have significant potential
for growth of capital or future income consistent with the preservation of
capital. When market conditions warrant, or when the Adviser believes it is
necessary to achieve the Fund's objective, the Fund may invest up to 25% of its
total assets in fixed income securities.
The Fund defines Blue Chip companies as those companies that are included
in the S&P 500. S&P 500 companies tend to be the companies with larger
capitalizations and histories of payment of dividends. Blue Chip companies are
considered to be of relatively high quality and generally exhibit superior
fundamental characteristics, which may include: potential for consistent
earnings growth, a history of profitability and payment of dividends, leadership
position in their industries and markets, proprietary products or services,
experienced management, high return on equity and a strong balance sheet. Blue
Chip companies usually exhibit less investment risk and share price volatility
than smaller, less established companies. Examples of Blue Chip companies are
Microsoft Corp., General Electric Co., Pepsico Inc. and Bristol-Myers Squibb Co.
The fixed income securities in which the Fund may invest include money
market instruments (including prime commercial paper, certificates of deposit of
domestic branches of U.S. banks and bankers' acceptances), obligations issued or
guaranteed as to principal or interest by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations") (including mortgage-backed
securities) and corporate debt securities. However, no more than 5% of the
Fund's net assets may be invested in corporate debt securities rated below Baa
by Moody's Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's
Ratings Group ("S&P"). The Fund may borrow money for temporary or emergency
purposes in amounts not exceeding 5% of its total assets. The Fund may also
invest up to 10% of its net assets in American Depository Receipts ("ADRs"),
enter into repurchase agreements and make loans of portfolio securities. See
"Description of Certain Securities, Other Investment Policies and Risk Factors,"
below, and the SAI for additional information concerning these securities.
Cash Management Fund
Cash Management Fund seeks to earn a high rate of current income consistent
with the preservation of capital and maintenance of liquidity. The Fund
generally can invest only in securities that mature within 397 days from the
date of purchase. In addition, the Fund maintains a dollar-weighted average
portfolio maturity of 90 days or less.
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Cash Management Fund invests primarily in (1) high quality marketable
securities issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities, (2) bank certificates of deposit,
bankers' acceptances, time deposits and other short-term obligations issued by
banks and (3) prime commercial paper and high quality, U.S. dollar denominated
short-term corporate bonds and notes. The U.S. Government securities in which
the Fund may invest include a variety of U.S. Treasury securities that differ in
their interest rates, maturities and dates of issue. Securities issued or
guaranteed by agencies or instrumentalities of the U.S. Government may be
supported by the full faith and credit of the United States or by the right of
the issuer to borrow from the U.S. Treasury. See the SAI for additional
information on U.S. Government securities. The Fund may invest in domestic bank
certificates of deposit (insured up to $100,000) and bankers' acceptances (not
insured) issued by domestic banks and savings institutions which are insured by
the Federal Deposit Insurance Corporation ("FDIC") and that have total assets
exceeding $500 million. The Fund also may invest in certificates of deposit
issued by London branches of domestic or foreign banks ("Eurodollar CDs"). The
Fund may invest in time deposits and other short-term obligations, including
uninsured, direct obligations bearing fixed, floating or variable interest
rates, issued by domestic banks, foreign branches of domestic banks, foreign
subsidiaries of domestic banks and domestic and foreign branches of foreign
banks. See Appendix A to the SAI for a description of commercial paper ratings
and Appendix B to the SAI for a description of municipal note ratings. The Fund
also may invest in repurchase agreements with banks that are members of the
Federal Reserve System or securities dealers that are members of a national
securities exchange or are market makers in U.S. Government securities, and, in
either case, only where the debt instrument subject to the repurchase agreement
is a U.S. Treasury or agency obligation. Repurchase agreements maturing in over
7 days are deemed illiquid securities, and can constitute no more than 10% of
the Fund's net assets.
Cash Management Fund also may purchase high quality, U.S. dollar
denominated short-term bonds and notes, including variable rate and master
demand notes issued by domestic and foreign corporations (including banks).
Floating and variable rate demand notes and bonds permit the Fund, as the
holder, to demand payment of principal at any time, or at specified intervals
not exceeding 397 days, in each case upon not more than 30 days' notice. The
Fund may borrow money for temporary or emergency purposes in amounts not
exceeding 5% of its total assets and make loans of portfolio securities. When
market conditions warrant, the Fund may purchase short-term, high quality fixed
and variable rate instruments issued by state and municipal governments and by
public authorities ("Municipal Instruments"). See "Description of Certain
Securities, Other Investment Policies and Risk Factors" for additional
information concerning these securities.
Cash Management Fund may purchase only obligations that (1) the Adviser
determines present minimal credit risks based on procedures adopted by Life
Series Fund's Board of Trustees, and (2) are either (a) rated in one of the top
two rating categories by any two nationally recognized statistical ratings
organizations ("NRSROs") (or one, if only one rated the security) or (b) unrated
securities that the Adviser determines are of comparable quality. Securities
qualify as being in the top rating category ("First Tier Securities") if at
least two NRSROs (or one, if only one rated the security) have given it the
highest rating, or unrated securities that the Adviser determines are of
comparable quality. The Fund's purchases of commercial paper are limited to
First Tier Securities. The Fund may not invest more than 5% of its total assets
in securities rated in the second highest rating category ("Second Tier
Securities"). Investments in Second Tier
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Securities of any one issuer are limited to the greater of 1% of the Fund's
total assets or $1 million. The Fund generally may invest no more than 5% of its
total assets in the securities of a single issuer (other than securities issued
by the U.S. Government, its agencies or instrumentalities).
Discovery Fund
Discovery Fund seeks long-term capital appreciation, without regard to
dividend or interest income. The Fund seeks to achieve its objective by
investing in the common stock of companies with small to medium market
capitalization that the Adviser considers to be undervalued or less well known
in the current marketplace and to have potential for capital growth.
The Fund seeks to invest in the common stock of companies that are
undervalued in the current market in relation to fundamental economic values
such as earnings, sales, cash flow and tangible book value; that are early in
their corporate development (i.e., before they become widely recognized and well
known and while their reputations and track records are still emerging); or that
offer the possibility of greater earnings because of revitalized management, new
products or structural changes in the economy. Such companies primarily are
those with small to medium market capitalization, which the Adviser currently
considers to be market capitalization of up to $1.5 billion, but which could be
higher under certain market conditions. The Adviser believes that, over time,
these securities are more likely to appreciate in price than securities whose
market prices have already reached their perceived economic value. In addition,
the Fund intends to diversify its holdings among as many companies and
industries as the Adviser deems appropriate.
Companies that are early in their corporate development may be dependent on
relatively few products or services, may lack adequate capital reserves, may be
dependent on one or two management individuals and may have less of a track
record or historical pattern of performance. In addition, there may be less
information available as to the issuers and their securities may not be well
known to the general public and may not yet have wide institutional ownership.
Thus, the investment risk is higher than that normally associated with larger,
older or better-known companies.
Investments in securities of companies with small to medium market
capitalization are generally considered to offer greater opportunity for
appreciation and to involve greater risk of depreciation than securities of
companies with larger market capitalization. Because the securities of most
companies with small to medium market capitalization are not as broadly traded
as those of companies with larger market capitalization, these securities are
often subject to wider and more abrupt fluctuations in market price. In the
past, there have been prolonged periods when these securities have substantially
underperformed or outperformed the securities of larger capitalization
companies. In addition, smaller capitalization companies generally have fewer
assets available to cushion an unforeseen adverse occurrence and thus such an
occurrence may have a disproportionately negative impact on these companies.
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The Fund may invest up to 15% of its total assets in common stocks issued by
foreign companies which are traded on a recognized domestic or foreign
securities exchange. In addition to the fundamental analysis of companies and
their industries which it performs for U.S. issuers, the Adviser evaluates the
economic and political climate of the country in which the company is located
and the principal securities markets in which such securities are traded.
Although the foreign stocks in which the Fund invests are primarily denominated
in foreign currencies, the Fund also may invest in ADRs. The Adviser does not
attempt to time actively either short-term market trends or short-term currency
trends in any market. See "Foreign Securities--Risk Factors" and "American
Depository Receipts and Global Depository Receipts."
The Fund may borrow money for temporary or emergency purposes in amounts
not exceeding 5% of its total assets. The Fund also may enter into repurchase
agreements and may make loans of portfolio securities. For temporary defensive
purposes, the Fund may invest all of its assets in U.S. Government Obligations,
prime commercial paper, certificates of deposit and bankers' acceptances. See
the SAI for more information regarding these securities.
Government Fund
Government Fund seeks to achieve a significant level of current income
which is consistent with security and liquidity of principal by investing, under
normal market conditions, at least 65% of its assets in U.S. Government
Obligations (including mortgage-backed securities). The Fund has no fixed policy
with respect to the duration of U.S. Government Obligations it purchases.
Securities issued or guaranteed as to principal and interest (but not market
value) by the U.S. Government include a variety of Treasury securities, which
differ only in their interest rates, maturities and times of issuance. Although
the payment of interest and principal on a portfolio security may be guaranteed
by the U.S. Government or one of its agencies or instrumentalities, shares of
the Fund are not insured or guaranteed by the U.S. Government or any agency or
instrumentality. The net asset value of shares of the Fund generally will
fluctuate in response to interest rate levels. When interest rates rise, prices
of fixed income securities generally decline; when interest rates decline,
prices of fixed income securities generally rise. See "U.S. Government
Obligations" and "Debt Securities-Risk Factors," below.
The Fund may invest in mortgage-backed securities, including those
involving Government National Mortgage Association ("GNMA") certificates,
Federal National Mortgage Association ("FNMA") certificates and Federal Home
Loan Mortgage Corporation ("FHLMC") certificates. The Fund also may invest in
securities issued or guaranteed by other U.S. Government agencies or
instrumentalities, including: the Federal Farm Credit System and the Federal
Home Loan Bank (each of which may not borrow from the U.S. Treasury and the
securities of which are not guaranteed by the U.S. Government); the Tennessee
Valley Authority, and the U.S. Postal Service (each of which may borrow from the
U.S. Treasury to meet its obligations); the Farmers Home Administration and the
Export-Import Bank (the securities of which are backed by the full faith and
credit of the United States). The Fund normally reinvests principal payments
(whether regular or pre-paid) in additional mortgage-backed securities. See
"Mortgage-Backed Securities," below.
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The Fund may invest up to 35% of its assets in securities other than U.S.
Government Obligations and mortgage-backed securities. These may include: prime
commercial paper, certificates of deposit of domestic branches of U.S. banks,
bankers' acceptances, repurchase agreements (applicable to U.S. Government
Obligations), insured certificates of deposit and certificates representing
accrual on U.S. Treasury securities. The Fund also may make loans of portfolio
securities and invest in zero coupon securities. The Fund may borrow money for
temporary or emergency purposes in amounts not exceeding 5% of its total assets.
See the SAI for a further discussion of these securities.
For temporary defensive purposes, the Fund may invest all of its assets in
cash, cash equivalents and money market instruments, including bank certificates
of deposit, bankers' acceptances and commercial paper issued by domestic
corporations, short-term fixed income securities or U.S. Government Obligations.
See the SAI for a description of these securities.
Growth Fund
The investment objective of Growth Fund is long-term capital appreciation.
Current income through the receipt of interest or dividends from investments
will merely be incidental to the Fund's efforts in pursuing its goal. It is the
policy of the Fund to invest, under normal market conditions, primarily in
common stocks and it is anticipated that the Fund will usually be so invested.
It also may invest to a limited degree in convertible securities and preferred
stocks. At least 75% of the value of the Fund's total assets (excluding
securities held for defensive purposes) shall be invested in securities of
companies in industries in which the Adviser, or the Fund's investment
subadviser, Wellington Management Company, LLP ("Subadviser" or "WMC"), believes
opportunities for capital growth exist. The Fund does not intend to concentrate
its investments in a particular industry, but it may invest up to 25% of the
value of its assets in a particular industry. The Fund may invest up to 5% of
its total assets in common stocks issued by foreign companies that are
denominated in U.S. currency; provided, however, that the Fund may invest
without limit in U.S. dollar denominated foreign securities listed on the New
York Stock Exchange ("NYSE"). The Fund may also invest in ADRs and Global
Depository Receipts ("GDRs"), purchase securities on a when-issued or delayed
delivery basis and make loans of portfolio securities. The Fund may borrow money
for temporary or emergency purposes in amounts not exceeding 5% of its total
assets. For temporary defensive purposes, the Fund may invest all of its assets
in U.S. Government Obligations, investment grade bonds, prime commercial paper,
certificates of deposit, bankers' acceptances, repurchase agreements and
participation interests. See the SAI for a description of these securities.
High Yield Fund
High Yield Fund primarily seeks high current income and secondarily seeks
growth of capital. The Fund actively seeks to achieve its secondary objective to
the extent consistent with its primary objective. The Fund seeks to achieve its
objectives by investing, under normal market conditions, at least 65% of its
total assets in high risk, high yield securities, commonly referred to as "junk
bonds" ("High Yield Securities"). High Yield Securities include the following
instruments: fixed, variable or floating rate debt obligations (including bonds,
debentures and notes) which are rated below Baa by Moody's or below BBB by S&P,
or, if unrated, are deemed to be of comparable quality by the Adviser; preferred
stocks and dividend-paying common stocks that have yields comparable to those of
high yielding debt securities; any of the foregoing
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<PAGE>
securities of companies that are financially troubled, in default or undergoing
bankruptcy or reorganization ("Deep Discount Securities"); and any securities
convertible into any of the foregoing. See "High Yield Securities--Risk Factors"
and "Deep Discount Securities."
The Fund may invest up to 5% of its total assets in debt securities issued
by foreign governments and companies located outside the United States and
denominated in U.S. or foreign currency. The Fund may borrow money for temporary
or emergency purposes in amounts not exceeding 5% of its total assets, make
loans of portfolio securities, enter into repurchase agreements and invest in
zero coupon and pay-in-kind securities. The Fund may also invest in securities
on a "when issued" or delayed delivery basis. See "Description of Certain
Securities, Other Investment Policies and Risk Factors," below, and the SAI for
more information concerning these securities.
The Fund may invest up to 35% of its total assets in securities other than
High Yield Securities, including: dividend-paying common stocks; securities
convertible into, or exchangeable for, common stock; debt obligations of all
types (including bonds, debentures and notes) rated A or better by Moody's or
S&P; U.S. Government Obligations; warrants; and money market instruments
consisting of prime commercial paper, certificates of deposit of domestic
branches of U.S. banks, bankers' acceptances and repurchase agreements. The
Adviser continually monitors the investments in the Fund's portfolio and
carefully calculates on a case-by-case basis whether to dispose of or retain a
debt obligation that has been downgraded.
In any period of market weakness or of uncertain market or economic
conditions, the Fund may establish a temporary defensive position to preserve
capital by having all or part of its assets invested in investment grade debt
securities or retained in cash or cash equivalents, including bank certificates
of deposit, bankers' acceptances, U.S. Government Obligations and commercial
paper issued by domestic corporations. See "Description of Certain Securities,
Other Investment Policies and Risk Factors," below.
The medium- to lower-rated, and certain of the unrated securities in which
the Fund invests tend to offer higher yields than higher-rated securities with
the same maturities because the historical financial condition of the issuers of
such securities may not be as strong as that of other issuers. Debt obligations
rated lower than Baa or BBB by Moody's or S&P, respectively, are speculative and
generally involve more risk of loss of principal and income than higher-rated
securities. Also, their yields and market value tend to fluctuate more than
higher quality securities. The greater risks and fluctuations in yield and value
occur because investors generally perceive issuers of lower-rated and unrated
securities to be less creditworthy. These risks cannot be eliminated, but may be
reduced by diversifying holdings to minimize the portfolio impact of any single
investment. In addition, fluctuations in market value does not affect the cash
income from the securities, but are reflected in the Fund's net asset value.
When interest rates rise, the net asset value of the Fund tends to decrease.
When interest rates decline, the net asset value of the Fund tends to increase.
Variable or floating rate debt obligations in which the Fund may invest
periodically adjust their interest rates to reflect changing economic
conditions. Thus, changing economic conditions specified by the terms of the
security would serve to change the interest rate and the return offered to the
investor. This reduces the effect of changing market conditions on the
security's underlying market value.
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A High Yield Security may itself be convertible into or exchangeable for
equity securities, or may carry with it the right to acquire equity securities
evidenced by warrants attached to the security or acquired as part of a unit
with the security. Although the Fund invests primarily in High Yield Securities,
securities received upon conversion or exercise of warrants and securities
remaining upon the break-up of units or detachment of warrants may be retained
to permit orderly disposition, to establish a long-term holding basis for
Federal income tax purposes or to seek capital appreciation.
Because of the greater number of investment considerations involved in
investing in High Yield Securities, the achievement of the Fund's investment
objectives depends more on the Adviser's research abilities than would be the
case if the Fund were investing primarily in securities in the higher rated
categories. Because medium- to lower-rated securities generally involve greater
risks of loss of income and principal than higher-rated securities, investors
should consider carefully the relative risks associated with investments in
securities that carry medium to lower ratings or, if unrated, deemed to be of
comparable quality by the Adviser. See "High Yield Securities--Risk Factors" and
Appendix A for a description of corporate bond ratings.
The dollar weighted average of credit ratings (based on ratings by Moody's)
of all bonds held by the Fund during the 1996 fiscal year, computed on a monthly
basis, is set forth below. This information reflects the average composition of
the Fund's assets during the 1996 fiscal year and is not necessarily
representative of the Fund as of the end of its 1996 fiscal year, the current
fiscal year or at any other time in the future.
Comparable Quality of
Unrated Securities to
Rated by Moody's Bonds Rated by Moody's
---------------- ----------------------
Ba 9.94% 0.0%
B 73.88 0.16
Caa 0.46 1.96
------- ------
Total 84.28% 2.12%
International Securities Fund
International Securities Fund primarily seeks long-term capital growth and
secondarily seeks to earn a reasonable level of current income. The Fund may
invest in all types of securities issued by companies and government
instrumentalities of any nation approved by the Board, subject only to industry
concentration and issuer diversification restrictions described below and in the
SAI. This investment flexibility permits the Fund to react to rapidly changing
economic conditions among countries which cause the relative attractiveness of
investments within national markets to be subject to frequent reappraisal. It is
a fundamental policy of the Fund that no more than 35% of its total assets will
be invested in securities issued by U.S. companies and U.S. Government
Obligations or cash and cash equivalents denominated in U.S. currency. In
addition, the Fund presently does not intend to invest more than 35% of its
total assets in any one particular country. Further, except for temporary
defensive purposes, the Fund's assets will be invested in securities of at least
three different countries outside the United States. See "Foreign
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Securities--Risk Factors". For defensive purposes, the Fund may temporarily
invest in securities issued by U.S. companies and the U.S. Government and its
agencies and instrumentalities, or cash equivalents denominated in U.S.
currency, without limitation as to amount.
The Fund may purchase securities traded on any foreign stock exchange. The
Fund may also purchase ADRs and GDRs. See "American Depository Receipts and
Global Depository Receipts," below. The Fund also may invest up to 25% of its
total assets in unlisted securities of foreign issuers; provided, however, that
no more than 15% of the value of its net assets may be invested in unlisted
securities with a limited trading market and other illiquid investments. The
investment standards for the selection of unlisted securities are the same as
those used in the purchase of securities traded on a stock exchange.
The Fund may invest in warrants, which may or may not be listed on a
recognized United States or foreign exchange. The Fund also may enter into
repurchase agreements, purchase securities on a when-issued or delayed delivery
basis and make loans of portfolio securities. The Fund also may borrow money for
temporary or emergency purposes in amounts not exceeding 5% of its total assets.
In addition, the Fund can engage in hedging and options strategies. See the SAI
for further information concerning these securities.
Investment Grade Fund
Investment Grade Fund seeks to generate a maximum level of income
consistent with investment in investment grade debt securities. The Fund seeks
to achieve its objective by investing, under normal market conditions, at least
65% of its total assets in debt securities of U.S. issuers that are rated in the
four highest rated categories by Moody's or S&P, or in unrated securities that
are deemed to be of comparable quality by the Adviser ("investment grade
securities"). The Fund may invest up to 35% of its total assets in U.S.
Government Obligations (including mortgage-backed securities) dividend-paying
common and preferred stocks, obligations convertible into common stocks,
repurchase agreements, debt securities rated below investment grade and money
market instruments. The Fund may invest up to 5% of its net assets in corporate
or government debt securities of foreign issuers which are U.S. dollar
denominated and traded in U.S. markets. The Fund may also borrow money for
temporary or emergency purposes in amounts not exceeding 5% of its total assets.
The Fund may purchase securities on a when-issued basis, make loans of portfolio
securities and invest in zero coupon or pay-in-kind securities. See "Description
of Certain Securities, Other Investment Policies and Risk Factors," below, and
the SAI for additional information concerning these securities.
The published reports of rating services are considered by the Adviser in
selecting rated securities for the Fund's portfolio. The Adviser also relies,
among other things, on its own credit analysis, which includes a study of the
existing debt's capital structure, the issuer's ability to service debt (or to
pay dividends, if investing in common or preferred stock) and the current trend
of earnings for the issuer. Although up to 100% of the Fund's total assets can
be invested in debt securities rated at least Baa by Moody's or at least BBB by
S&P, or unrated debt securities deemed to be of comparable quality by the
Adviser, no more than 5% of the Fund's net assets may be invested in debt
securities rated lower than Baa by Moody's or BBB by S&P (including securities
that have been downgraded), or, if unrated, deemed to be of comparable quality
by the Adviser, or in any equity securities of any issuer if a majority of the
debt securities of such issuer are rated lower than Baa by Moody's or BBB by
S&P. Securities rated BBB or Baa by S&P or
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Moody's, respectively, are considered to be speculative with respect to the
issuer's ability to make principal and interest payments. The Adviser
continually monitors the investments in the Fund's portfolio and carefully
evaluates on a case-by-case basis whether to dispose of or retain a debt
security which has been downgraded to a rating lower than investment grade. See
"Debt Securities--Risk Factors" and Appendix A for a description of corporate
bond ratings.
For temporary defensive purposes, the Fund may invest all of its assets in
money market instruments, short-term fixed income securities or U.S. Government
Obligations. See "Description of Certain Securities, Other Investment Policies
and Risk Factors," below, and the SAI.
Target Maturity 2007 Fund
Target Maturity 2010 Fund
Target Maturity 2007 Fund seeks to provide a predictable compounded
investment return for investors who hold their Fund shares until the Fund's
maturity, consistent with preservation of capital.
Target Maturity 2010 Fund seeks to provide a predictable compounded
investment return for investors who hold their Fund shares until the Fund's
maturity consistent with the preservation of capital.
Each Fund will seek its objective by investing, under normal market
conditions, at least 65% of its total assets in zero coupon securities which are
issued by the U.S. Government and its agencies and instrumentalities or created
by third parties using securities issued by the U.S. Government and its agencies
and instrumentalities. With respect to Target Maturity 2007 Fund, these
investments will mature no later than December 31, 2007 and, with respect to
Target Maturity 2010 Fund, these investments will mature no later than December
31, 2010. December 31, 2007 and December 31, 2010 are herein collectively
referred to as the "Maturity Date." On the Maturity Date, each Fund will be
converted to cash and distributed or reinvested in another Fund of Life Series
Fund at the investor's choice.
Each Fund seeks to provide investors with a positive total return at the
Maturity Date which, together with the reinvestment of all dividends and
distributions, exceeds their original investment in a Fund by a relatively
predictable amount. While the risk of fluctuation in the values of zero coupon
securities is greater when the period to maturity is longer, that risk tends to
diminish as the Maturity Date approaches. Although an investor can redeem shares
at the current net asset value at any time, any investor who redeems his or her
shares prior to the Maturity Date is likely to achieve a different investment
result than the return that was predicted on the date the investment was made,
and may even suffer a significant loss.
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. This discount varies depending on
the time remaining until maturity, prevailing interest rates, liquidity of the
security and the perceived credit quality of the issuer. When held to maturity,
the entire return of a zero coupon security, which consists of the accretion of
the discount, comes from the difference between its issue price and its maturity
value. This difference is known at the time
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of purchase, so investors holding zero coupon securities until maturity know the
amount of their investment return at the time of their investment. The market
values are subject to greater market fluctuations from changing interest rates
prior to maturity than the values of debt obligations of comparable maturities
that bear interest currently. See "Zero Coupon Securities-Risk Factors."
A portion of the total realized return from conventional interest-paying
bonds comes from the reinvestment of periodic interest. Since the rate to be
earned on these reinvestments may be higher or lower than the rate quoted on the
interest-paying bonds at the time of the original purchase, the total return of
interest-paying bonds is uncertain even for investors holding the security to
its maturity. This uncertainty is commonly referred to as reinvestment risk and
can have a significant impact on total realized investment return. With zero
coupon securities, however, there are no cash distributions to reinvest, so
investors bear no reinvestment risk if they hold the zero coupon securities to
maturity.
Each Fund primarily will purchase three types of zero coupon securities:
(1) U.S. Treasury STRIPS (Separately Traded Registered Interest and Principal
Securities), which are created when the coupon payments and the principal
payment are stripped from an outstanding Treasury security by the Federal
Reserve Bank. Bonds issued by the Resolution Funding Corporation (REFCORP) can
also be stripped in this fashion. (2) STRIPS which are created when a dealer
deposits a Treasury security or a Federal agency security with a custodian for
safekeeping and then sells the coupon payments and principal payment that will
be generated by this security. Bonds issued by the Financing Corporation (FICO)
can be stripped in this fashion. (3) Zero coupon securities of federal agencies
and instrumentalities either issued directly by an agency in the form of a zero
coupon bond or created by stripping an outstanding bond.
Each Fund may invest up to 35% of its total assets in the following
instruments: interest- bearing obligations issued by the U.S. Government and its
agencies and instrumentalities (see "U.S. Government Obligations"), including,
for Target Maturity 2007 Fund, zero coupon securities maturing beyond 2007, and,
for Target Maturity 2010 Fund, zero coupon securities maturing beyond 2010;
corporate debt securities, including corporate zero coupon securities;
repurchase agreements; and money market instruments consisting of prime
commercial paper, certificates of deposit of domestic branches of U.S. banks and
bankers' acceptances. Each Fund may only invest in debt securities rated A or
better by Moody's or S&P or in unrated securities that are deemed to be of
comparable quality by the Adviser. Debt obligations rated A or better by Moody's
or S&P comprise what are known as high-grade bonds and are regarded as having a
strong capacity to repay principal and make interest payments. See Appendix A
for a description of corporate bond ratings. Each Fund may also invest in
restricted and illiquid securities, make loans of portfolio securities and
purchase securities on a when-issued basis. See the SAI for more information
regarding these types of investments.
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Utilities Income Fund
The primary investment objective of Utilities Income Fund is to seek high
current income. Long-term capital appreciation is a secondary objective. The
Fund seeks its objectives by investing, under normal market conditions, at least
65% of its total assets in equity and debt securities issued by companies
primarily engaged in the public utilities industry. Equity securities in which
the Fund may invest include common stocks, preferred stocks, securities
convertible into common stocks or preferred stocks, and warrants to purchase
common or preferred stocks. Debt securities in which the Fund may invest will be
rated at the time of investment at least A by Moody's or S&P or, if unrated,
will be deemed to be of comparable quality as determined by the Adviser. Debt
securities rated A or higher by Moody's or S&P or, if unrated, deemed to be of
comparable quality by the Adviser, are regarded as having a strong capacity to
pay principal and interest. The Fund's policy is to attempt to sell, within a
reasonable time period, a debt security in its portfolio which has been
downgraded below A, provided that such disposition is in the best interests of
the Fund and its shareholders. See Appendix A for a description of corporate
bond ratings. The portion of the Fund's assets invested in equity securities and
in debt securities will vary from time to time due to changes in interest rates
and economic and other factors.
The utility companies in which the Fund invests include companies primarily
engaged in the ownership or operation of facilities used to provide electricity,
gas, water or telecommunications (including telephone, telegraph and satellite,
but not companies engaged in public broadcasting or cable television). For these
purposes, "primarily engaged" means that (1) more than 50% of the company's
assets are devoted to the ownership or operation of one or more facilities as
described above, or (2) more than 50% of the company's operating revenues are
derived from the business or combination of any of the businesses described
above. It should be noted that based on this definition, the Fund may invest in
companies which are also involved to a significant degree in non-public
utilities activities.
Utility stocks generally offer dividend yields that exceed those of
industrial companies and their prices tend to be less volatile than stocks of
industrial companies. However, utility stocks can still be affected by the risks
of the stock of industrial companies. Because the Fund concentrates its
investments in public utilities companies, the value of its shares will be
especially affected by factors peculiar to the utilities industry, and may
fluctuate more widely than the value of shares of a fund that invests in a
broader range of industries. See "Utilities Industries--Risk Factors."
The Fund may invest up to 35% of its total assets in the following
instruments: debt securities (rated at least A by Moody's or S&P) and common and
preferred stocks of non-utility companies; U.S. Government Obligations
(including mortgage-backed securities); cash; and money market instruments
consisting of prime commercial paper, bankers' acceptances, certificates of
deposit and repurchase agreements. The Fund may invest in securities on a
"when-issued" or delayed delivery basis and make loans of portfolio securities.
The Fund may invest up to 10% of its net assets in ADRs. The Fund may borrow
money for temporary or emergency purposes in amounts not exceeding 5% of its net
assets. The Fund also may invest in zero coupon and pay-in-kind securities. In
addition, in any period of market weakness or of uncertain market
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or economic conditions, the Fund may establish a temporary defensive position to
preserve capital by having all of its assets invested in short-term fixed income
securities or retained in cash or cash equivalents. See the SAI for a
description of these securities.
General. Each Fund's net asset value fluctuates based mainly upon changes
in the value of its portfolio securities. Each Fund's investment objectives and
certain investment limitations set forth in the SAI are fundamental policies
that may not be changed without shareholder approval. There can be no assurance
that any Fund will achieve its investment objectives.
Description of Certain Securities, Other Investment Policies and Risk Factors
American Depository Receipts and Global Depository Receipts. Blue Chip
Fund, International Securities Fund, Growth Fund, Utilities Income Fund and
Discovery Fund may invest in sponsored and unsponsored ADRs. ADRs are receipts
typically issued by a U.S. bank or trust company evidencing ownership of the
underlying securities of foreign issuers, and other forms of depository receipts
for securities of foreign issuers. Generally, ADRs, in registered form, are
denominated in U.S. dollars and are designed for use in the U.S. securities
markets. Thus, these securities are not denominated in the same currency as the
securities into which they may be converted. In addition, the issuers of the
securities underlying unsponsored ADRs are not obligated to disclose material
information in the United States and, therefore, there may be less information
available regarding such issuers and there may not be a correlation between such
information and the market value to the ADRs. International Securities Fund and
Growth Fund may also invest in sponsored and unsponsored GDRs. GDRs are issued
globally and evidence a similar ownership arrangement. Generally, GDRs are
designed for trading in non-U.S. securities markets. ADRs and GDRs are
considered to be foreign securities by each of the above Funds, as appropriate.
Bankers' Acceptances. Each Fund may invest in bankers' acceptances.
Bankers' acceptances are short-term credit instruments used to finance
commercial transactions. Generally, an acceptance is a time draft drawn on a
bank by an exporter or importer to obtain a stated amount of funds to pay for
specific merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an asset
or it may be sold in the secondary market at the going rate of interest for a
specific maturity. Although maturities for acceptances can be as long as 270
days, most acceptances have maturities of six months or less.
Certificates of Deposit. Each Fund may invest in bank certificates of
deposit ("CDs"). The FDIC 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.
Commercial Paper. Commercial paper is a promissory note issued by a
corporation to finance short-term credit needs which may either be unsecured or
backed by a letter of credit. Commercial paper includes notes, drafts or similar
instruments payable on demand or having a
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maturity at the time of issuance not exceeding nine months, exclusive of days of
grace or any renewal thereof. See Appendix A to the SAI for a description of
commercial paper ratings.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or
dividends paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Convertible securities have unique investment
characteristics in that they generally (1) have higher yields than common
stocks, but lower yields than comparable non-convertible securities, (2) are
less subject to fluctuation in value than the underlying stock because they have
fixed income characteristics, and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases. See
the SAI for more information on convertible securities.
Debt Securities--Risk Factors. The market value of debt securities is
influenced primarily by changes in the level of interest rates. Generally, as
interest rates rise, the market value of debt securities decreases. Conversely,
as interest rates fall, the market value of debt securities increases. Factors
which could result in a rise in interest rates, and a decrease in the market
value of debt securities, include an increase in inflation or inflation
expectations, an increase in the rate of U.S. economic growth, an expansion in
the Federal budget deficit or an increase in the price of commodities such as
oil. In addition, 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. Sale of debt securities prior to maturity
may result in a loss and the inability to replace the sold securities with debt
securities with a similar yield. Debt obligations rated lower than Baa by
Moody's or BBB by S&P, commonly referred to as "junk bonds," are speculative and
generally involve a higher risk of loss of principal and income than
higher-rated securities. See "High Yield Securities--Risk Factors" and Appendix
A for a description of corporate bond ratings.
Deep Discount Securities. High Yield Fund may invest up to 15% of its total
assets in securities of companies that are financially troubled, in default or
undergoing bankruptcy or reorganization. Such securities are usually available
at a deep discount from the face value of the instrument. The Fund will invest
in Deep Discount Securities when the Adviser believes that there exist factors
that are likely to restore the company to a healthy financial condition. Such
factors include a restructuring of debt, management changes, existence of
adequate assets or other unusual circumstances. Debt instruments purchased at
deep discounts may pay very high effective yields. In addition, if the financial
condition of the issuer improves, the underlying value of the security may
increase, resulting in a capital gain. If the company defaults on its
obligations or remains in default, or if the plan of reorganization is
insufficient for debtholders, the Deep Discount Securities may stop paying
interest and lose value or become worthless. The Adviser will attempt to balance
the benefits of Deep Discount Securities with their risks. While a diversified
portfolio may reduce the overall impact of a Deep Discount Security that is in
default or loses its value, the risk cannot be eliminated. See "High Yield
Securities--Risk Factors."
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Eurodollar Certificates of Deposit. Cash Management Fund may invest in
Eurodollar CDs, which are issued by London branches of domestic or foreign
banks. Such securities involve risks that differ from certificates of deposit
issued by domestic branches of U.S. banks. These risks include future political
and economic developments, the possible imposition of United Kingdom withholding
taxes on interest income payable on the securities, the possible establishment
of exchange controls, the possible seizure or nationalization of foreign
deposits or the adoption of other foreign governmental restrictions that might
adversely affect the payment of principal and interest on such securities.
Foreign Securities--Risk Factors. International Securities Fund, High Yield
Fund and Discovery 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 a 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. Because none of these Funds
intend to hedge their foreign investments, the Fund will be affected by changes
in exchange control regulations and fluctuations in the relative rates of
exchange between the currencies of different nations, as well as by economic and
political developments. Growth Fund may invest in securities issued by foreign
companies that are denominated in U.S. currency. Risks involved in foreign
securities include the following: there may be less publicly available
information about foreign companies comparable to the reports and ratings that
are published about companies in the United States; foreign companies are not
generally subject to uniform accounting, auditing and financial reporting
standards and requirements comparable to those applicable to U.S. companies;
some foreign stock markets have substantially less volume than U.S. markets, and
securities of some foreign companies are less liquid and more volatile than
securities of comparable U.S. companies; there may be less government
supervision and regulation of foreign stock exchanges, brokers and listed
companies than exist in the United States; and there may be the possibility of
expropriation or confiscatory taxation, political or social instability or
diplomatic developments which could affect assets of a Fund held in foreign
countries.
International Securities Fund's and Discovery 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 emerging market investments (in addition to the considerations regarding
foreign investments generally) may include, among others, greater political
uncertainties, an economy's dependence on revenues from particular commodities
or on international aid or development assistance, currency transfer
restrictions, a limited number of potential buyers for such securities and
delays and disruptions in securities settlement procedures.
High Yield Securities--Risk Factors. High Yield Securities are subject to
certain risks that may not be present with investments in higher grade
securities.
Effect of Interest Rate and Economic Changes. High Yield Securities rated
lower than Baa by Moody's or BBB by S&P, commonly referred to as "junk bonds,"
are speculative and generally involve a higher risk or loss of principal and
income than higher-rated securities. The prices of High Yield Securities tend to
be less sensitive to interest rate changes than higher-rated investments, but
may be more sensitive to adverse economic changes or individual corporate
developments. Periods of economic uncertainty and changes generally result in
increased
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volatility in the market prices and yields of High Yield Securities and thus in
a Fund's net asset value. A strong economic downturn or a substantial period of
rising interest rates could severely affect the market for High Yield
Securities. In these circumstances, highly leveraged companies might have
greater difficulty in making principal and interest payments, meeting projected
business goals, and obtaining additional financing. Thus, there could be a
higher incidence of default. This would affect the value of such securities and
thus a Fund's net asset value. Further, if the issuer of a security owned by a
Fund defaults, that Fund might incur additional expenses to seek recovery.
Generally, when interest rates rise, the value of fixed rate debt
obligations, including High Yield Securities, tends to decrease; when interest
rates fall, the value of fixed rate debt obligations tends to increase. If an
issuer of a High Yield Security containing a redemption or call provision
exercises either provision in a declining interest rate market, a Fund would
have to replace the security, which could result in a decreased return for
shareholders. Conversely, if a Fund experiences unexpected net redemptions in a
rising interest rate market, it might be forced to sell certain securities,
regardless of investment merit. This could result in decreasing the assets to
which Fund expenses could be allocated and in a reduced rate of return for that
Fund. While it is impossible to protect entirely against this risk,
diversification of a Fund's portfolio and the Adviser's careful analysis of
prospective portfolio securities should minimize the impact of a decrease in
value of a particular security or group of securities in a Fund's portfolio.
The High Yield Securities Market. The market for below investment grade
bonds expanded rapidly in recent years and its growth paralleled a long economic
expansion. In the past, the prices of many lower-rated debt securities declined
substantially, reflecting an expectation that many issuers of such securities
might experience financial difficulties. As a result, the yields on lower-rated
debt securities rose dramatically. However, such higher yields did not reflect
the value of the income streams that holders of such securities expected, but
rather the risk that holders of such securities could lose a substantial portion
of their value as a result of the issuers' financial restructuring or default.
There can be no assurance that such declines in the below investment grade
market will not reoccur. The market for below investment grade bonds generally
is thinner and less active than that for higher quality bonds, which may limit a
Fund's ability to sell such securities at fair value in response to changes in
the economy or the financial markets. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may also decrease the
values and liquidity of lower rated securities, especially in a thinly traded
market.
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. Although the Adviser
considers ratings of recognized rating services such as Moody's and S&P, the
Adviser primarily relies on its own credit analysis, which includes a study of
existing debt, capital structure, ability to service debt and to pay dividends,
the issuer's sensitivity to economic conditions, its operating history and the
current trend of earnings. High Yield Fund may invest in securities rated as low
as D by S&P or C by Moody's or, if unrated, deemed to be of comparable quality
by the Adviser. Debt obligations with these ratings either have defaulted or are
in great danger of defaulting and are considered to be highly speculative. See
"Deep Discount Securities." The Adviser continually
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monitors the investments in a Fund's portfolio and carefully evaluates whether
to dispose of or retain High Yield Securities whose credit ratings have changed.
See Appendix A for a description of corporate bond ratings.
Liquidity and Valuation. Lower-rated bonds are typically traded among a
smaller number of broker-dealers than in a broad secondary market. Purchasers of
High Yield Securities tend to be institutions, rather than individuals, which is
a factor that further limits the secondary market. To the extent that no
established retail secondary market exists, many High Yield Securities may not
be as liquid as higher-grade bonds. A less active and thinner market for High
Yield Securities than that available for higher quality securities may result in
more volatile valuations of a Fund's holdings and more difficulty in executing
trades at favorable prices during unsettled market conditions.
The ability of a Fund to value or sell High Yield Securities will be
adversely affected to the extent that such securities are thinly traded or
illiquid. During such periods, there may be less reliable objective information
available and thus the responsibility of Life Series Fund's Board of Trustees 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.
Legislation. Provisions of the Revenue Reconciliation Act of 1989 limit a
corporate issuer's deduction for a portion of the original issue discount on
"high yield discount" obligations (including certain pay-in-kind securities).
This limitation could have a materially adverse impact on the market for certain
High Yield Securities. From time to time, legislators and regulators have
proposed other legislation that would limit the use of high yield debt
securities in leveraged buyouts, mergers and acquisitions. It is not certain
whether such proposals, which also could adversely affect High Yield Securities,
will be enacted into law.
Mortgage-Backed Securities
Mortgage loans made by banks, savings and loan institutions and other
lenders are often assembled into pools, the interests in which are issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself. Interests in such pools are referred
to herein as "mortgage-backed securities." The market value of these securities
will fluctuate as interest rates and market conditions change. In addition,
prepayment of principal by the mortgagees, which often occurs with
mortgage-backed securities when interest rates decline, can significantly change
the realized yield of these securities.
GNMA certificates are backed as to the timely payment of principal and
interest by the full faith and credit of the U.S. Government. Payments of
principal and interest on FNMA certificates are guaranteed only by FNMA itself,
not by the full faith and credit of the U.S. Government. FHLMC certificates
represent mortgages for which FHLMC has guaranteed the timely payment of
principal and interest but, like a FNMA certificate, they are not guaranteed by
the full faith and credit of the U.S. Government.
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Collateralized Mortgage Obligations and Multiclass Pass-Through Securities.
Collateralized mortgage obligations ("CMOs") are debt obligations collateralized
by mortgage loans or mortgage pass-through securities. Typically, CMOs are
collateralized by GNMA certificates or other government mortgage-backed
securities (such collateral collectively hereinafter referred to as "Mortgage
Assets"). Multiclass pass-through securities are interests in trusts that are
comprised of Mortgage Assets. Unless the context indicates otherwise, references
herein to CMOs include multiclass pass-through securities. Payments of principal
of, and interest on, the Mortgage Assets, and any reinvestment income thereon,
provide the funds to pay debt service on the CMOs or to make scheduled
distributions on the multiclass pass-through securities. CMOs in which
Government Fund may invest are issued or guaranteed by U.S. Government agencies
or instrumentalities, such as FNMA and FHLMC. See the SAI for more information
on CMOs.
Stripped Mortgage-Backed Securities. Government Fund, Target Maturity 2007
Fund and Target Maturity 2010 Fund may invest in stripped mortgage-backed
securities ("SMBS"), which are derivative multiclass mortgage securities. SMBS
are usually structured with two classes that receive different proportions of
the interest and principal distributions from a pool of mortgage assets. A
common type of SMBS will have one class receiving most of the interest and the
remainder of the principal. In the most extreme case, one class will receive all
of the interest while the other class will receive all of the principal. If the
underlying Mortgage Assets experience greater than anticipated prepayments of
principal, the Fund may fail to fully recoup its initial investment in these
securities. The market value of the class consisting primarily or entirely of
principal payments generally is unusually volatile in response to changes in
interest rates.
Risks of Mortgage-Backed Securities. Investments in mortgage-backed
securities entail both market and prepayment risk. Fixed-rate mortgage-backed
securities are priced to reflect, among other things, current and perceived
interest rate conditions. As conditions change, market values will fluctuate. In
addition, the mortgages underlying mortgage-backed securities generally may be
prepaid in whole or in part at the option of the individual buyer. Prepayments
of the underlying mortgages can affect the yield to maturity on mortgage-backed
securities and, if interest rates decline, the prepayment may only be invested
at the then prevailing lower interest rate. Changes in market conditions,
particularly during periods of rapid or unanticipated changes in market interest
rates, may result in volatility and reduced liquidity of the market value of
certain mortgage-backed securities. CMOs and SMBS involve similar risks,
although they may be more volatile and even less liquid.
Preferred Stock. A preferred stock is a blend of the characteristics of a
bond and common stock. It can offer the higher yield of a bond and has priority
over common stock in equity ownership, but does not have the seniority of a bond
and, unlike common stock, its participation in the issuer's growth may be
limited. Preferred stock has preference over common stock in the receipt of
dividends and in any residual assets after payment to creditors should the
issuer be dissolved. Although the dividend is set at a fixed annual rate, in
some circumstances it can be changed or omitted by the issuer.
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Repurchase Agreements. Repurchase agreements are transactions in which a
Fund purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank or dealer at an
agreed-upon date and price reflecting a market rate of interest unrelated to the
coupon rate or maturity of the purchased securities. Each Fund's risk is limited
primarily to the ability of the seller to repurchase the securities at the
agreed-upon price upon the delivery date. See the SAI for more information
regarding repurchase agreements.
Restricted and Illiquid Securities. Each Fund, other than Cash Management
Fund, may invest up to 15% of its net assets in illiquid securities. Cash
Management Fund may invest up to 10% of its net assets in illiquid securities.
These securities include (1) securities that are illiquid due to the absence of
a readily available market or due to legal or contractual restrictions on resale
and (2) repurchase agreements maturing in more than seven days. However,
illiquid securities for purposes of this limitation do not include securities
eligible for resale to qualified institutional buyers pursuant to Rule 144A
under the Securities Act of 1933, as amended, which Life Series Fund's Board of
Trustees or the Adviser or the Subadviser, as applicable, has determined are
liquid under Board-approved guidelines. See the SAI for more information
regarding restricted and illiquid securities.
Under current guidelines of the staff of the SEC, interest-only and
principal-only classes of fixed-rate mortgage-backed securities in which
Government Fund may invest are considered illiquid. However, such securities
issued by the U.S. Government or one of its agencies or instrumentalities will
not be considered illiquid if the Adviser has determined that they are liquid
pursuant to guidelines established by Life Series Fund's Board of Trustees.
Government Fund, Target Maturity 2007 Fund and Target Maturity 2010 Fund may not
be able to sell illiquid securities when the Adviser considers it desirable to
do so or may have to sell such securities at a price lower than could be
obtained if they were more liquid. Also the sale of illiquid securities may
require more time and may result in higher dealer discounts and other selling
expenses than does the sale of securities that are not illiquid. Illiquid
securities may be more difficult to value due to the unavailability of reliable
market quotations for such securities, and investment in illiquid securities may
have an adverse impact on these Fund's net asset value.
Time Deposits. Cash Management Fund may invest in time deposits. Time
deposits are non-negotiable deposits maintained in a banking institution for a
specified period of time at a stated interest rate. For the most part, time
deposits which may be held by the Fund would not benefit from insurance from the
Bank Insurance Fund or the Savings Association Insurance Fund administered by
the FDIC.
U.S. Government Obligations. Securities issued or guaranteed as to
principal or interest by the U.S. Government include (1) U.S. Treasury
obligations which differ only in their interest rates, maturities and times of
issuance as follows: U.S. Treasury bills (maturities of one year or less), U.S.
Treasury notes (maturities of one to ten years), and U.S. Treasury bonds
(generally maturities of greater than ten years); and (2) obligations issued or
guaranteed by U.S. Government agencies and instrumentalities that are backed by
the full faith and credit of the United States, such as securities issued by the
Federal Housing Administration, GNMA, the Department of Housing and Urban
Development, the Export-Import Bank, the General Services
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Administration and the Maritime Administration and certain securities issued by
the Farmers Home Administration and the Small Business Administration. The range
of maturities of U.S. Government Obligations is usually three months to thirty
years.
Utilities Industry-Risk Factors. Stocks of utilities companies generally
offer dividend yields that exceed those of industrial companies and their prices
tend to be less volatile than stocks of industrial companies. However, utility
stocks can still be affected by the risks of the stock market in general, as
well as factors specific to public utilities companies.
Many utility companies, especially electric and gas and other
energy-related utility companies, have historically been subject to the risk of
increases in fuel and other operating costs, changes in interest rates on
borrowing for capital improvement programs, changes in applicable laws and
regulations, and costs and operating constraints associated with compliance with
environmental regulations. In particular, regulatory changes with respect to
nuclear and conventionally-fueled power generating facilities could increase
costs or impair the ability of utility companies to operate such facilities or
obtain adequate return on invested capital.
Certain utilities, especially gas and telephone utilities, have in recent
years been affected by increased competition, which could adversely affect the
profitability of such utility companies. In addition, expansion by companies
engaged in telephone communication services of their non-regulated activities
into other businesses (such as cellular telephone services, data processing,
equipment retailing, computer services and financial services) has provided the
opportunity for increases in earnings and dividends at faster rates than have
been allowed in traditional regulated businesses. However, technological
innovations and other structural changes also could adversely affect the
profitability of such companies in competition with utilities companies.
Because securities issued by utility companies are particularly sensitive
to movements in interest rates, the equity securities of such companies are more
affected by movements in interest rates than are the equity securities of other
companies.
Each of these risks could adversely affect the ability and inclination of
public utilities companies to declare or pay dividends and the ability of
holders of common stock, such as the Utilities Income Fund, to realize any value
from the assets of the company upon liquidation or bankruptcy.
Variable Rate and Floating Rate Notes. Cash Management Fund may invest in
derivative variable rate and floating rate notes. Issuers of such notes include
corporations, banks, broker-dealers and finance companies. Variable rate notes
include master demand notes which are obligations permitting the holder to
invest fluctuating amounts, which may change daily without penalty, pursuant to
direct arrangements between the Fund, as lender, and the borrower. The interest
rates on these notes fluctuate from time to time. The issuer of such obligations
normally has a corresponding right, after a given period, to prepay in its
discretion the outstanding principal amount of the obligations plus accrued
interest upon a specified number of days' notice to the holders of such
obligations. See the SAI for more information on these securities.
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Zero Coupon and Pay-In-Kind Securities. Zero coupon securities are debt
obligations that do not entitle the holder to any periodic payment of interest
prior to maturity or a specified date when the securities begin paying current
interest. They are issued and traded at a discount from their face amount or par
value, which discount varies depending on the time remaining until cash payments
begin, prevailing interest rates, liquidity of the security and the perceived
credit quality of the issuer. Pay-in-kind securities are those that pay interest
through the issuance of additional securities. The market prices of zero coupon
and pay-in-kind securities generally are more volatile than the prices of
securities that pay interest periodically and in cash and are likely to respond
to changes in interest rates to a greater degree than do other types of debt
securities having similar maturities and credit quality. Original issue discount
earned on zero coupon securities and the "interest" on pay-in-kind securities
must be included in a Fund's income. Thus, to continue to qualify for tax
treatment as a regulated investment company and to avoid a certain excise tax on
undistributed income, a Fund may be required to distribute as a dividend an
amount that is greater than the total amount of cash it actually receives. See
"Taxes" in the SAI. These distributions must be made from a Fund's cash assets
or, if necessary, from the proceeds of sales of portfolio securities. A 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.
Zero Coupon Securities-Risk Factors. Zero coupon securities are debt
securities and thus are subject to the same risk factors as all debt securities.
See "Debt Securities-Risk Factors." The market prices of zero coupon securities,
however, 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. As a result, the net asset value of
shares of the Target Maturity 2007 Fund and Target Maturity 2010 Fund may
fluctuate over a greater range than shares of the other Funds or mutual funds
that invest in debt obligations having similar maturities but that make current
distributions of interest.
Zero coupon securities can be sold prior to their due date in the secondary
market at their then prevailing market value, which depends primarily on the
time remaining to maturity, prevailing levels of interest rates and the
perceived credit quality of the issuer. The prevailing market value may be more
or less than the securities' value at the time of purchase. While the objective
of both the Target Maturity 2007 Fund and Target Maturity 2010 Fund is to seek a
predictable compounded investment return for investors who hold their Fund
shares until that Fund's maturity, a Fund cannot assure that it will be able to
achieve a certain level of return due to the possible necessity of having to
sell certain zero coupon securities to pay expenses, dividends or to meet
redemptions at times and at prices that might be disadvantageous or,
alternatively, the need to invest assets received from new purchases at
prevailing interest rates, which would expose a Fund to reinvestment risk. In
addition, no assurance can be given as to the liquidity of the market for
certain of these securities. Determination as to the liquidity of such
securities will be made in accordance with guidelines established by Life Series
Fund's Board of Trustees. In accordance with such guidelines, the Adviser will
monitor each Fund's investments in such securities with particular regard to
trading activity, availability of reliable price information and other relevant
information.
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Other Investment Policies -- Portfolio Turnover
The increase in interest rates during 1996 caused the Government Fund's
portfolio to be restructured during the year. In particular, increasing rates
decreased prepayments on mortgage-backed securities, causing their durations to
increase. In order to offset the increase in duration, the Government Fund
adjusted its holdings in mortgage-backed securities. This resulted in a
portfolio turnover rate for the fiscal year ended December 31, 1996 of 199%. A
high rate of portfolio turnover generally leads to increased transaction costs
and may result in a greater number of taxable transactions. See "Allocation of
Portfolio Brokerage" in the SAI. The Target Maturity 2010 Fund currently does
not expect its annual rate of portfolio turnover to exceed 100%. See the SAI for
the other Funds' portfolio turnover rate and for more information on portfolio
turnover.
HOW TO BUY SHARES
Investments in a Fund are only available through purchases of the Policies
or the Contracts offered by First Investors Life. Policy premiums, net of
certain expenses, are paid into a unit investment trust, Separate Account B.
Purchase payments for the Contracts, net of certain expenses, are also paid into
a unit investment trust, Separate Account C. Purchase payments for the Contracts
are also paid into a unit investment trust, Separate Account D. The Separate
Accounts pool these proceeds to purchase shares of a Fund designated by
purchasers of the Policies or Contracts. Orders for the purchase of Fund shares
received prior to the close of regular trading on the NYSE, generally 4:00 P.M.
(New York City time), on any business day the NYSE is open for trading, will be
processed and shares will be purchased at the net asset value determined at the
close of regular trading on the NYSE on that day. Orders received after the
close of regular trading on the NYSE will be processed at the net asset value
determined at the close of regular trading on the NYSE on the next trading day.
See "Determination of Net Asset Value." For a discussion of pricing when FIC's
Woodbridge offices are unable to open for business due to an emergency, see the
SAI.
HOW TO REDEEM SHARES
Shares of a Fund may be redeemed at the direction of Policyowners or
Contractowners, in accordance with the terms of the Policies or Contracts.
Redemptions will be made at the next determined net asset value, less any
applicable contingent deferred sales charge, of the respective Fund upon receipt
of a proper request for redemption or repurchase. Payment will be made by check
as soon as possible but within seven days after presentation. However, Life
Series Fund's Board of Trustees may suspend the right of redemption or postpone
the date of payment during any period when (a) trading on the NYSE is restricted
as determined by the Securities and Exchange Commission ("SEC") or the NYSE is
closed for other than weekends and holidays, (b) the SEC has by order permitted
such suspension, or (c) an emergency, as defined by rules of the SEC, exists
during which time the sale or valuation of portfolio securities held by a Fund
is not reasonably practicable.
MANAGEMENT
Board of Trustees. Life Series Fund's Board of Trustees, as part of its
overall management responsibility, oversees various organizations responsible
for each Fund's day-to-day
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management.
Adviser. First Investors Management Company, Inc. supervises and manages
each Fund's investments, supervises all aspects of each Fund's operations and,
except for International Securities Fund and Growth Fund, determines each Fund's
portfolio transactions. The Adviser is a New York corporation located at 95 Wall
Street, New York, NY 10005. First Investors Consolidated Corporation ("FICC")
owns all of the voting common stock of the Adviser and all of the outstanding
stock of First Investors Corporation and the Transfer Agent. Mr. Glenn O. Head
controls FICC and, therefore, controls the Adviser.
As compensation for its services, the Adviser receives an annual fee from
each Fund, which is payable monthly. For the fiscal year ended December 31,
1996, the advisory fees were 0.75% of average daily net assets for each of Blue
Chip Fund, Discovery Fund, Growth Fund, High Yield Fund and International
Securities Fund, 0.60% of average daily net assets, net of waiver, for each of
Cash Management Fund, Government Fund, Investment Grade Fund, Target Maturity
2007 Fund and Utilities Income Fund and 0.40% of average daily net assets for
Target Maturity 2010 Fund.
Subadviser. Wellington Management Company, LLP has been retained by the
Adviser and Life Series Fund, on behalf of International Securities Fund and
Growth Fund, as each of those Fund's investment subadviser. The Adviser has
delegated discretionary trading authority to WMC with respect to all the assets
of International Securities Fund and Growth Fund, subject to the continuing
oversight and supervision of the Adviser and the Board of Trustees. As
compensation for its services, WMC is paid by the Adviser, and not by either
Fund, a fee which is computed daily and paid monthly.
WMC, located at 75 State Street, Boston, MA 02109, is a Massachusetts
limited liability partnership of which Robert W. Doran, Duncan M. McFarland and
John R. Ryan are Managing Partners. WMC is a professional investment counseling
firm which provides investment services to investment companies, employee
benefit plans, endowment funds, foundations and other institutions and
individuals. As of December 31, 1996, WMC held investment management authority
with respect to approximately $133 billion of assets. Of that amount, WMC acted
as investment adviser or subadviser to approximately 84 registered investment
companies or series of such companies, with net assets of approximately $90
billion as of December 31, 1996. WMC is not affiliated with the Adviser or any
of its affiliates.
For the fiscal year ended December 31, 1996, the Subadviser's fees amounted
to 0.31% of Growth Fund's average daily net assets and 0.40% of International
Securities Fund's average daily net assets, all of which was paid by the Adviser
and not by the Funds.
Portfolio Managers. Patricia D. Poitra, Director of Equities, has been
primarily responsible for the day-to-day management of the Discovery Fund since
1988. Since February 1997, the Blue Chip Fund has been co-managed by Ms. Poitra
and Dennis T. Fitzpatrick. From October 1994 to February 1997, Ms. Poitra had
primary responsibility for the day-to-day management of the Blue Chip Fund. Ms.
Poitra and Mr. Fitzpatrick also co-manage the Blue Chip Fund of Executive
Investors Trust and the Blue Chip Fund of First Investors Series Fund. Ms.
Poitra also is responsible for the management of the Special Situations Fund and
the equity portion of the Total Return Fund, series of First Investors Series
Fund, and the U.S.A. Mid-Cap
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Opportunity Fund of First Investors Series Fund II, Inc. Ms. Poitra joined FIMCO
in 1985 as a Senior Equity Analyst. Mr. Fitzpatrick joined FIMCO in October 1995
as a Large Cap Analyst. From July 1995 to October 1995, Mr. Fitzpatrick was a
Regional Surety Manager at United States Fidelity & Guaranty Co. and from 1988
to 1995 he was Northeast Surety Manager at American International Group.
George V. Ganter has been Portfolio Manager for High Yield Fund since 1989.
Mr. Ganter joined FIMCO in 1985 as a Senior Analyst. He has been Portfolio
Manager for First Investors Special Bond Fund, Inc. since 1986 and Portfolio
Manager for First Investors High Yield Fund, Inc. and Executive Investors High
Yield Fund since 1989.
Margaret R. Haggerty is Portfolio Manager for Utilities Income Fund. Ms.
Haggerty joined FIMCO in 1990 as an analyst for several First Investors equity
funds. In addition, she monitored the management of several First Investors
funds for which WMC was the subadviser. In early 1993, she became Portfolio
Manager for First Investors Utilities Income Fund of First Investors Series Fund
II, Inc.
Since late May 1997, the Investment Grade Fund has been co-managed by Ms.
Nancy Jones and Mr. Clark D. Wagner. From its inception to May 1997, Ms. Jones
has primarily responsibility for the day-to-day management of the Investment
Grade Fund. Ms. Jones joined FIMCO in 1983 as Director of Research in the High
Yield Department. In 1989, she became Portfolio Manager for First Investors Fund
For Income, Inc. Ms. Jones has been co manager of the Investment Grade Fund of
First Investors Series Fund since May 1997 and has managed the fixed income
corporate securities portion of Total Return Fund of First Investors Series Fund
since 1992.
Since October 1995, Clark D. Wagner has been primarily responsible for the
day-to-day management of the Government Fund and the Target Maturity 2007 Fund.
Mr. Wagner has also been primarily responsible for the day-to-day management of
Target Maturity 2010 Fund since its inception in 1996. Mr. Wagner has also been
co-manager of the Investment Grade Fund since May 1997. Since he joined FIMCO in
1991, Mr. Wagner has been Portfolio Manager for all of the First Investors
municipal bond funds. Mr. Wagner also is responsible for the day-to-day
management of First Investors Government Fund, Inc. and is co-manager of the
Investment Grade Fund of First Investors Series Fund. Mr. Wagner has been Chief
Investment Officer of FIMCO since 1992.
Since August 1995, WMC's Growth Investment Team, a group of equity
portfolio managers and senior investment professionals, has assumed
responsibility for managing the Growth Fund.
Since April 1, 1994, International Securities Fund has been managed by
WMC's Global Equity Strategy Group, a group of global portfolio managers and
senior investment professionals headed by Trond Skramstad. Prior to joining WMC
as a portfolio manager in 1993, Mr. Skramstad was a global portfolio manager at
Scudder, Stevens & Clark since 1990.
DETERMINATION OF NET ASSET VALUE
The net asset value of shares of each Fund is determined as of the close
of regular trading on
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the NYSE (generally 4:00 P.M., New York City time) on each day the NYSE is open
for trading, and at such other times as Life Series Fund's Board of Trustees
deems necessary by dividing the value of the securities held by a Fund, plus any
cash and other assets, less all liabilities, by the number of shares
outstanding. If there is no available market value, securities will be valued at
their fair value as determined in good faith pursuant to procedures adopted by
the Board of Trustees. The NYSE currently observes the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
The investments in Cash Management Fund, when purchased at a discount, are
valued at amortized cost and when purchased at face value, are valued at cost
plus accrued interest.
DIVIDENDS AND OTHER DISTRIBUTIONS
Dividends from net investment income are generally declared and paid
annually by each Fund, other than Cash Management Fund. Dividends from net
investment income are generally declared daily and paid monthly by Cash
Management Fund. For the purposes of determining dividends, the net investment
income of each Fund, other than Cash Management Fund, consists of interest and
dividends, earned discount and other income earned on portfolio securities less
expenses. Net investment income of Cash Management Fund consists of (i) accrued
interest, plus or minus (ii) all realized and unrealized gains and losses on the
Fund's securities, less (iii) accrued expenses. Dividends from net investment
income are generally declared and paid Distributions of a Fund's net capital
gain (the excess of net long-term capital gain over net short-term capital
loss), if any, after deducting any available capital loss carryovers, are
declared and paid annually by each Fund, other than Cash Management Fund, which
does not anticipate realizing any such gain. International Securities Fund and
High Yield Fund also distribute any net realized gains from foreign currency
transactions with their annual distribution. All dividends and other
distributions are paid in shares of the distributing Fund at net asset value
(without sales charge), generally determined as of the close of business on the
business day immediately following the record date of such distribution.
TAXES
Each Fund intends to continue to qualify for treatment as a regulated
investment company ("RIC") under Subchapter M of the Internal Revenue Code of
1986, as amended ("Code"), so that it will be relieved of Federal income tax on
that part of its investment company taxable income (consisting generally of net
investment income, net short-term capital gain and, for International Securities
Fund and High Yield Fund, net gains from certain foreign currency transactions)
and net capital gain that is distributed to its shareholders.
Shares of the Funds are offered only to the Separate Accounts, which are
insurance company separate accounts that fund variable annuity and variable life
insurance contracts. Under the Code, no tax is imposed on an insurance company
with respect to income of a qualifying separate account that is properly
allocable to the value of eligible variable annuity (or variable life insurance)
contracts. Please refer to "Federal Income Tax Status" in the Prospectuses of
Separate Accounts B, C and D for information as to the tax status of those
accounts and the holders of the Contracts or Policies.
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Each Fund intends to continue to comply with the diversification
requirements imposed by section 817(h) of the Code and the regulations
thereunder. These requirements, which are in addition to the diversification
requirements imposed on the Funds by the Investment Company Act of 1940, as
amended, and Subchapter M of the Code, place certain limitations on the assets
of Separate Accounts B, C and D -- and of a Fund, because section 817(h) and
those regulations treat the assets of a Fund as assets of Separate Accounts B, C
and D -- that may be invested in securities of a single issuer. Specifically,
the regulations provide that, except as permitted by the "safe harbor" described
below, as of the end of each calendar quarter (or within 30 days thereafter) no
more than 55% of a Fund's total assets may be represented by any one investment,
no more than 70% by any two investments, no more than 80% by any three
investments and no more than 90% by any four investments. For this purpose, all
securities of the same issuer are considered a single investment, and while each
U.S. Government agency and instrumentality is considered a separate issuer, a
particular foreign government and its agencies, instrumentalities and political
subdivisions are considered the same issuer. Section 817(h) provides, as a safe
harbor, that a separate account will be treated as being adequately diversified
if the diversification requirements under Subchapter M are satisfied and no more
than 55% of the value of the account's total assets are cash and cash items,
government securities and securities of other RICs. Failure of a Fund to satisfy
the section 817(h) requirements would result in taxation of First Investors Life
and treatment of the Contract holders and Policyowners other than as described
in the Prospectuses of Separate Accounts B, C and D.
The foregoing is only a summary of some of the important Federal income tax
considerations generally affecting each Fund and its shareholders; see the SAI
for a more detailed discussion. Shareholders are urged to consult their tax
advisers.
GENERAL INFORMATION
Organization. Life Series Fund is a Massachusetts business trust organized
on June 12, 1985. The Board of Trustees of Life Series Fund has authority to
issue an unlimited number of shares of beneficial interest of separate series,
no par value, of Life Series Fund. The shares of beneficial interest of Life
Series Fund are presently divided into eleven separate and distinct series. Life
Series Fund does not hold annual shareholder meetings. If requested to do so by
the holders of at least 10% of Life Series Fund's outstanding shares, the Board
of Trustees will call a special meeting of shareholders for any purpose,
including the removal of Trustees.
Custodian. The Bank of New York, 48 Wall Street, New York, NY 10286, is
custodian of the securities and cash of each Fund, except the International
Securities Fund. Brown Brothers Harriman & Co., 40 Water Street, Boston, MA
02109, is custodian of the securities and cash of the International Securities
Fund and employs foreign sub-custodians to provide custody of the Fund's foreign
assets.
Transfer Agent. Administrative Data Management Corp., 581 Main Street,
Woodbridge, NJ 07095-1198, an affiliate of FIMCO and FIC, acts as transfer agent
for each Fund and as redemption agent for regular redemptions.
Performance. Performance information is contained in Life Series Fund's
Annual Report which may be obtained without charge by contacting First Investors
Life at 212-858-8200.
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<PAGE>
Shareholder Inquiries. Shareholder inquiries can be made by calling First
Investors Life at 212-858-8200.
Annual and Semi-Annual Reports to Shareholders. It is Life Series Fund's
practice to mail only one copy of its annual and semi-annual reports to any
address at which more than one shareholder with the same last name has indicated
that mail is to be delivered. Additional copies of the reports will be mailed if
requested in writing or by telephone by any shareholder.
APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS
STANDARD & POOR'S RATINGS GROUP
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
any audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default-capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization, or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.
AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
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BB, B, CCC, CC, C Debt rated "BB," "B," "CCC," "CC" and "C" is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal. "BB" indicates the least degree of speculation and "C" the
highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"BB" or "BB-" rating.
CCC Debt rated "CCC" has a currently identifiable vulnerability to default
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
CC The rating "CC" typically is applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.
C The rating "C" typically is applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI The rating "CI" is reserved for income bonds on which no interest is
being paid.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace 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.
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<PAGE>
MOODY'S INVESTORS SERVICE, INC.
Aaa Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat greater than the Aaa securities.
A Bonds which are rated "A" possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.
Baa Bonds which are rated "Baa" are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba Bonds which are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B Bonds which are rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa Bonds which are rated "Caa" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca Bonds which are rated "Ca" represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated "C" are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
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.
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TABLE OF CONTENTS
================================================================================
Financial Highlights ...................................................... 4
Investment Objectives and Policies ........................................ 12
How to Buy Shares ......................................................... 32
How to Redeem Shares ...................................................... 32
Management ................................................................ 32
Determination of Net Asset Value .......................................... 34
Dividends and Other Distributions ......................................... 35
Taxes ..................................................................... 35
General Information ....................................................... 36
Appendix A ................................................................ 37
Investment Adviser Custodians
First Investors Management The Bank of New York
Company, Inc. 48 Wall Street
95 Wall Street New York, NY 10286
New York, NY 10005
Brown Brothers
Harriman & Co.
Subadviser 40 Water Street
Wellington Management Boston, MA 02109
Company, LLP
75 State Street Auditors
Boston, MA 02109 Tait, Weller & Baker
Two Penn Center Plaza
Transfer Agent Philadelphia, PA 19102-1707
Administrative Data
Management Corp. Legal Counsel
581 Main Street Kirkpatrick & Lockhart LLP
Woodbridge, NJ 07095-1198 1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036
This Prospectus is intended to constitute an offer by Life Series Fund only of
the securities of which it is the issuer and is not intended to constitute an
offer by any Fund of the securities of any other Fund whose securities are also
offered by this Prospectus. No Fund intends to make any representation as to the
accuracy or completeness of the disclosure in this Prospectus relating to any
other Fund. No dealer, salesman or any other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus or the Statement of Additional Information, and if given or
made, such information and representation must not be relied upon as having been
authorized by Life Series Fund, First Investors Corporation, or any affiliate
thereof. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy any of the shares offered hereby in any state to any person
to whom it is unlawful to make such offer in such state.
<PAGE>
First Investors
Life Series Fund
- ----------------------------
Blue Chip Fund
Cash Management Fund
Discovery Fund
Government Fund
Growth Fund
High Yield Fund
International Securities Fund
Investment Grade Fund
Target Maturity 2007 Fund
Target Maturity 2010 Fund
Utilities Income Fund
Prospectus
- ----------------------------
April 30, 1997,
as amended
July 21, 1997
First Investors Logo
Logo is described as follows: the arabic numeral one separated into seven
vertical segments followed by the words "First Investors."
Verticle line from top to bottom in center of page about 1/2 inch in thickness
The following language appears to the left of the above language in the printed
piece:
The words "BULK RATE U.S. POSTAGE PAID PERMIT NO. 7379" in a box to the right of
a circle containing the words "MAILED FROM ZIP CODE 11201" appears on the
righthand side.
The following language appears on the lefthand side.
FIRST INVESTORS LIFE SERIES FUND
95 WALL STREET
NEW YORK, NY 10005
First Investors Logo (as described above)
A MEMBER OF THE
FIRST INVESTORS
FINANCIAL NETWORK
<PAGE>
FIRST INVESTORS LIFE VARIABLE ANNUITY FUND D
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
OFFERED BY
FIRST INVESTORS LIFE INSURANCE COMPANY
Statement of Additional Information dated July 8, 1997
This Statement of Additional Information is not a Prospectus and should be
read in conjunction with the Prospectus for First Investors Life Variable
Annuity Fund D, dated July 8, 1997, which may be obtained at no cost by writing
to First Investors Life Insurance Company, 95 Wall Street, New York, New York
10005, or by telephoning (212) 858-8200.
TABLE OF CONTENTS
Page
----
General Description ................................................. 2
Services ............................................................ 2
Annuity Payments .................................................... 4
Other Information ................................................... 5
Performance Information ............................................. 6
Relevance of Financial Statements ................................... 7
Appendices .......................................................... 8
Financial Statements ................................................ 13
1
<PAGE>
GENERAL DESCRIPTION
First Investors Life Insurance Company. First Investors Life Insurance
Company, 95 Wall Street, New York, New York 10005 ("First Investors Life"), a
stock life insurance company incorporated under the laws of the State of New
York in 1962, writes life insurance, annuities and accident and health
insurance. First Investors Consolidated Corporation ("FICC"), a holding company,
owns all of the voting common stock of First Investors Management Company, Inc.
("FIMCO" or "Adviser") and all of the outstanding stock of First Investors Life,
First Investors Corporation ("FIC" or "Underwriter") and Administrative Data
Management Corp., the transfer agent for First Investors Life Series Fund ("Life
Series Fund"). Mr. Glenn O. Head, Chairman of FICC, controls FICC and,
therefore, controls the Adviser and First Investors Life.
Separate Account D. First Investors Life Variable Annuity Fund D ("Separate
Account D") was established on April 8, 1997 under the provisions of the New
York Insurance Law. The assets of Separate Account D are segregated from the
assets of First Investors Life, and that portion of such assets having a value
equal to, or approximately equal to, the reserves and contract liabilities under
the Contracts are not chargeable with liabilities arising out of any other
business of First Investors Life. Separate Account D is registered with the
Securities and Exchange Commission ("Commission") as a unit investment trust
under the Investment Company Act of 1940, as amended (the "1940 Act"), but such
registration does not involve any supervision by the Commission of the
management or investment practices or policies of Separate Account D.
The assets of each Subaccount of Separate Account D are invested at net
asset value in shares of the corresponding series (each a "Fund" and
collectively "Funds") of Life Series Fund. For example, the Blue Chip Subaccount
invests in the Blue Chip Fund, the Government Subaccount invests in the
Government Fund, and so on. The Life Series Fund's Prospectus describes the
risks attendant to an investment in each Fund of Life Series Fund. The eleven
Funds of Life Series Fund may be referred to as: First Investors Life Blue Chip
Fund, First Investors Life Cash Management Fund, First Investors Life Discovery
Fund, First Investors Life Government Fund, First Investors Life Growth Fund,
First Investors Life High Yield Fund, First Investors Life International
Securities Fund, First Investors Life Investment Grade Fund, First Investors
Life Target Maturity 2007 Fund, First Investors Life Target Maturity 2010 Fund
and First Investors Life Utilities Income Fund.
SERVICES
Custodian. First Investors Life, subject to applicable laws and
regulations, is the custodian of the securities of the Subaccounts of Separate
Account D. The assets of the Subaccounts of Separate Account D are held by
United States Trust Company of New York, 114 W. 47th Street, New York, New York
10036 under a safekeeping arrangement. Under the terms of a Safekeeping
Agreement dated December 13, 1979 between First Investors Life and United States
Trust Company of New York, securities and similar investments of the Subaccounts
of Separate Account D shall be deposited in the safekeeping of United States
Trust Company of New York. First Investors Life is responsible for the payment
of all expenses of, and compensation to, United States Trust Company of New York
in such amounts as may be agreed upon from time to time.
Independent Public Accountants. Tait, Weller & Baker, Two Penn Center
Plaza, Philadelphia, PA 19102, independent certified public accountants, has
been selected as the independent accountants for Separate Account D. First
Investors Life pays Tait, Weller & Baker a fee for serving as the independent
accountants for Separate Account D which is set by the Audit Committee of the
Board of Directors of First Investors Life.
Adviser. Investment advisory services to each Fund are provided by First
Investors Management Company, Inc., 95 Wall Street, New York, NY 10005 pursuant
to an Investment Advisory Agreement dated June 13, 1994 (the "Advisory
Agreement"). The Advisory Agreement was approved, with respect to each Fund, by
Life Series Fund's Board of Trustees, including a majority of the Trustees
2
<PAGE>
who are not parties to the Advisory Agreement or "interested persons" (as
defined in the 1940 Act) of any such party, in person at a meeting called for
such purpose and by the shareholders of each Fund.
Pursuant to the Advisory Agreement, FIMCO shall supervise and manage each
Fund's investments, determine each Fund's, other than Growth Fund and
International Securities Fund, portfolio transactions and supervise all aspects
of each Fund's operations, subject to review by Life Series Fund's Trustees. The
Advisory Agreement also provides that FIMCO shall provide Life Series Fund and
each Fund with certain executive, administrative and clerical personnel, office
facilities and supplies, conduct the business and details of the operation of
each Fund and assume certain expenses thereof, other than obligations or
liabilities of a Fund, such as 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.
Under the Advisory Agreement, each Fund pays the Adviser an annual fee,
paid monthly, according to the following schedule:
Annual
Average Daily Net Assets Rate
- ------------------------ --------
Up to $250 million .......................................... 0.75%
In excess of $250 million up to $500 million ................ 0.72
In excess of $500 million up to $750 million ................ 0.69
Over $750 million ........................................... 0.66
This fee is calculated separately for each Fund.
Subadviser. Investment subadvisory services are provided to Growth Fund and
International Securities Fund by Wellington Management Company, LLP ("WMC" or
"Subadviser") pursuant to a Subadvisory Agreement dated June 13, 1994 (the
"Subadvisory Agreement"). The Subadvisory Agreement was approved, with respect
to each Fund, by Life Series Fund's Board of Trustees, including a majority of
the Trustees who are not parties to the Subadvisory Agreement or "interested
persons" (as defined in the 1940 Act) of any such party, in person at a meeting
called for such purpose and by the shareholders of Growth Fund and International
Securities Fund. The Subadvisory Agreement provides that WMC shall manage the
investment operations of each Fund subject to the oversight and supervision of
the Adviser and the Board of Trustees.
Under the Subadvisory Agreement, the Adviser will pay to the Subadviser a
fee at an annual rate of 0.400% of the average daily net assets of each Fund
allocated to WMC up to and including $50 million; 0.275% of such average daily
net assets in excess of $50 million up to and including $150 million, 0.225% of
such average daily net assets in excess of $150 million up to and including $500
million; and 0.200% of such average daily net assets in excess of $500 million.
This fee is calculated separately for each Fund.
Underwriter. First Investors Life and Separate Account D have entered into
an Underwriting Agreement with First Investors Corporation. FIC, an affiliate of
First Investors Life, and of the Adviser, has its principal business address at
95 Wall Street, New York, New York 10005.
The Contracts are sold by insurance agents licensed to sell variable
annuities, who are registered representatives of the Underwriter or broker-
dealers who have sales agreements with the Underwriter.
3
<PAGE>
ANNUITY PAYMENTS
Value of an Accumulation Unit. For each Subaccount of Separate Account D,
the value of an Accumulation Unit was arbitrarily initially set at $10.00. The
value of an Accumulation Unit for any subsequent Valuation Period is determined
by multiplying the value of an Accumulation Unit for the immediately preceding
Valuation Period by the Net Investment Factor for the Valuation Period for which
the Accumulation Unit Value is being calculated (see Appendix I, Example B). The
investment performance of each Fund, expenses and deductions of certain charges
affect the Accumulation Unit Value. The value of an Accumulation Unit for the
Subaccounts may increase or decrease from Valuation Period to Valuation Period.
Net Investment Factor. The Net Investment Factor for each Subaccount for
any Valuation Period is determined by dividing (a) by (b) and subtracting (c)
from the result, where:
(a) is the net result of:
(1) the net asset value per share of the applicable Fund determined at the
end of the current Valuation Period, plus
(2) the per share amount of any dividend or capital gains distributions
made by the applicable Fund if the "ex-dividend" date occurs during
the current Valuation Period.
(b) is the net asset value per share of the applicable Fund determined as of
the end of the immediately preceding Valuation Period.
(c) is a factor representing the charges deducted for mortality and expense
risks and administration. Such factor is equal on an annual basis to 1.40%
of the daily net asset value of the applicable Subaccount. This percentage
represents approximately a 0.85% charge for the mortality risk assumed, a
0.4% charge for the expense risk assumed, and a 0.15% charge for
administration.
The Net Investment Factor may be greater or less than one, and therefore,
the value of an Accumulation Unit for any Subaccount may increase or decrease.
(For an illustration of this calculation, see Appendix I, Example A.)
Value of an Annuity Unit. For each Subaccount of Separate Account D, the
value of an Annuity Unit was arbitrarily initially set at $10.00. The value of
an Annuity Unit for any subsequent Valuation Period is determined by multiplying
the Annuity Unit Value for the immediately preceding Valuation Period by the Net
Investment Factor for the Valuation Period for which the Annuity Unit Value is
being calculated, and multiplying the result by an interest factor to offset the
effect of an investment earnings rate of 3.5% per annum, which is assumed in the
Annuity Tables contained in the Contract. (For an illustration of this
calculation, see Appendix III, Example A.)
Amount of Annuity Payments. When annuity payments are to commence, the
Accumulated Value to be applied to a variable annuity option will be determined
by multiplying the value of an Accumulation Unit for the Valuation Date on or
immediately preceding the seventh day before the Annuity Commencement Date by
the number of Accumulation Units owned. This seven day period is used to permit
calculation of amounts of annuity payments and mailing of checks in advance of
the due date. At that time, any applicable Premium taxes not previously deducted
will be deducted from the Accumulated Value to determine the Net Accumulated
Value. The resultant value is then applied to the Annuity Tables set forth in
the Contract to determine the amount of the first monthly annuity payment. The
Contract contains Annuity Tables setting forth the amount of the first monthly
installment for each $1,000 of Accumulated Value applied. These Annuity Tables
vary according to the Annuity Option selected by the Contractowner and according
to the sex and adjusted age of the Annuitant and any Joint Annuitant at the
Annuity Commencement Date. The Contract contains a
4
<PAGE>
formula for determining the adjusted age, and the Annuity Tables are determined
from the Progressive Annuity Table with interest at 3.5% per year and assumes
births prior to 1900, adjusted by a setback of four years of age for persons
born 1900 and later and an additional setback of one year of age for each
completed 5 years by which the year of birth is later than 1900. Annuity Tables
used by other insurers may provide greater or less benefits to the Annuitant.
The dollar amount of the first monthly Variable Payment, based on the
Subaccount determined as above, is divided by the value of an Annuity Unit for
the Subaccount for the Valuation Date on or immediately preceding the seventh
day before the Annuity Commencement Date to establish the number of Annuity
Units representing each monthly payment under the Subaccount. This seven day
period is used to permit calculation of amounts of annuity payments and mailing
of checks in advance of the due date. This number of Annuity Units remains fixed
for all variable annuity payments. The dollar amount of the second and
subsequent variable annuity payments is determined by multiplying the fixed
number of Annuity Units for the Subaccount by the applicable value of an Annuity
Value for the Valuation Date on or immediately preceding the seventh day before
the due date of the payment. The value of an Annuity Unit will vary with the
investment performance of the corresponding Fund, and, therefore, the dollar
amount of the second and subsequent variable annuity payments may change from
month to month. (For an illustration of the calculation of the first and
subsequent Variable Payments, see Appendix III, Examples B, C and D.)
A fixed annuity is an annuity with annuity payments which remain fixed as
to dollar amount throughout the payment period and is based on an assumed
interest rate of 3.5% per year built into the Annuity Tables in the Contract.
OTHER INFORMATION
Time of Payments. All payments due under the Contracts will ordinarily be
made within seven days of the payment due date or within seven days after the
date of receipt of a request for partial surrender or termination. However,
First Investors Life reserves the right to suspend or postpone the date of any
payment due under the Contracts (1) for any period during which the New York
Stock Exchange ("NYSE") is closed (other than customary weekend and holiday
closings) or during which trading on the NYSE, as determined by the Commission,
is restricted; (2) for any period during which an emergency, as determined by
the Commission, exists as a result of which disposal of securities held by the
Funds is not reasonably practical or it is not reasonably practical to determine
the value of the Funds' net assets; or (3) for such other periods as the
Commission may by order permit for the protection of security holders or as may
be permitted under the 1940 Act.
Reports to Contractowners. First Investors Life will mail to each
Contractowner, at the last known address of record at the Home Office of First
Investors Life, at least annually, a report containing such information as may
be required by any applicable law or regulation and a statement of the
Accumulation Units credited to the Contract for each Subaccount and the
Accumulation Unit Values. In addition, latest available reports of Life Series
Fund will be mailed to each Contractowner.
Assignment. Any amounts payable under the Contracts may not be commuted,
alienated, assigned or otherwise encumbered before they are due. To the extent
permitted by law, no such payments shall be subject in any way to any legal
process to subject them to payment of any claims against any Annuitant, Joint
Annuitant or Beneficiary. The Contracts may be assigned.
5
<PAGE>
PERFORMANCE INFORMATION
Separate Account D may advertise the performance of the Subaccounts in
various ways.
The yield for a Subaccount (other than Cash Management Subaccount) is
presented for a specified thirty-day period (the "base period"). Yield is based
on the amount determined by (i) calculating the aggregate amount of net
investment income earned by the Fund during the base period less expenses
accrued for that period (net of reimbursement), and (ii) dividing that amount by
the product of (A) the average daily number of Accumulation Units of the
Subaccount outstanding during the base period and (B) the pricnet asset value
per Accumulation Unit on the last day of the base period. The result is
annualized by compounding on a semi-annual basis to determine the Subaccount's
yield. For this calculation, interest earned on debt obligations held by the
underlying Fund is generally calculated using the yield to maturity (or first
expected call date) of such obligations based on their market values (or, in the
case of receivables-backed securities such as GNMA's, based on cost). Dividends
on equity securities are accrued daily at their estimated stated dividend rates.
A Subaccount'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" in the
formula below) 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
In providing such performance data, each Subaccount will assume the payment
of the applicable CDSC imposed on a surrender of purchase payments for the
applicable period and the payment of applicable Mortality and Expense Risk and
administrative charges of 1.40% ("P"). Each Subaccount will assume that during
the period covered all dividends and capital gain distributions are paid at net
asset value per Accumulation Unit, and that the investment is redeemed at the
end of the period.
Return information may be useful to investors in reviewing a Subaccount's
performance. However, the total return and average annual total return will
fluctuate over time and the return figures for any given past period is not an
indication or representation by Separate Account D of future rates of return of
any Subaccount
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 corresponding Subaccount's total return, average annual total
return and yield during the period of the waiver or reimbursement.
Each Subaccount may include in advertisements and sales literature,
examples, information and statistics that illustrate the effect of taxable
versus tax-deferred 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 gains distributions in additional Accumulation
Units. The examples may 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
6
<PAGE>
examples used will be for illustrative purposes only and are not representations
by any Subaccount of past or future yield or return of any of the Subaccounts.
From time to time, in reports and promotional literature, Separate Account
D may compare the performance of its Subaccounts to, or cite the historical
performance of, other variable annuities. The performance rankings and ratings
of variable annuities reported in L-VIPPAS, a monthly publication for insurance
companies and money managers published by Lipper Analytical Services, Inc. and
in Morningstar Variable Annuity Performance Report, also a monthly publication
published by Morningstar, Inc., may be used. Additionally, performance rankings
and ratings reported periodically in national financial publications such as
MONEY, FORBES, BUSINESS WEEK, BARRON'S, FINANCIAL TIMES, CHANGING TIMES,
FORTUNE, NATIONAL UNDERWRITER, etc., may also be used. Quotations from articles
appearing in daily newspaper publications such as THE NEW YORK TIMES, THE WALL
STREET JOURNAL and THE NEW YORK DAILY NEWS may be cited.
Determination of Current and Effective Yield. Separate Account D provides
current yield quotations for the Cash Management Subaccount based on the
underlying Fund's daily dividends. The underlying Fund declares dividends from
net investment income daily and pays them monthly.
For purposes of current yield quotations, dividends per Accumulation Unit
for a seven-day period are annualized (using a 365-day year basis) and divided
by the average value of an Accumulation Unit for the seven-day period.
The current yield quoted will be for a recent seven day period. Current
yields will fluctuate from time to time and are not necessarily representative
of future results. The investor should remember that yield is a function of the
type and quality of the instruments in the portfolio, portfolio maturity and
operating expenses. Current yield information is useful in reviewing the Cash
Management Subaccount's performance but, because current yield will fluctuate,
such information may not provide a basis for comparison with bank deposits or
other investments which may pay a fixed yield for a stated period of time, or
other investment companies, which may use a different method of calculating
yield.
In addition to providing current yield quotations, Separate Account D
provides effective yield quotations for the Cash Management Subaccount for a
base period return of seven days. An effective yield quotation is determined by
a formula which requires the compounding of the unannualized base period return.
Compounding is computed by adding 1 to the unannualized base period return,
raising the sum to a power equal to 365 divided by 7 and subtracting 1 from the
result.
RELEVANCE OF FINANCIAL STATEMENTS
The values of the interests of Contractowners under the variable portion of
the Contracts will be affected solely by the investment results of the
Subaccounts. The financial statements of First Investors Life as contained
herein should be considered only as bearing upon First Investors Life's ability
to meet its obligations to Contractowners under the Contracts, and they should
not be considered as bearing on the investment performance of the Subaccounts.
7
<PAGE>
APPENDICES
8
<PAGE>
APPENDIX I
EXAMPLE A
Formula and Illustration for Determining
the Net Investment Factor of a Subaccount
of Separate Account D
Net Investment Factor = (A + B /C)- D
Where:
<TABLE>
<S> <C>
A = The Net Asset Value of a Fund share as of the end of the current
Valuation Period.
Assume............................................................................. = $8.51000000
B = The per share amount of any dividend or capital gains distribution
since the end of the immediately preceding Valuation Period.
Assume............................................................................. = 0
C = The Net Asset Value of a Fund share at the end of the immediately
preceding Valuation Period.
Assume............................................................................. = $8.39000000
D = The daily deduction for charges for mortality and expense risks
and administration, which totals 1.4% on an annual basis.
On a daily basis................................................................... = .00003836
Then, the Net Investment Factor = (8.51000000 + 0 /8.39000000) - .00003836 ............ = 1.01426438
</TABLE>
EXAMPLE B
Formula and Illustration for Determining
Accumulation Unit Value of a Subaccount
of Separate Account D
Accumulation Unit Value = A x B
Where:
<TABLE>
<S> <C>
A = The Accumulation Unit Value for the immediately preceding Valuation
Period.
Assume............................................................................. = $1.46328760
B = The Net Investment Factor for the current Valuation Period.
Assume............................................................................. = 1.01426438
Then, the Accumulation Unit Value = $1.46328760 x 1.01426438........................... = 1.48416049
</TABLE>
9
<PAGE>
APPENDIX II
EXAMPLE A
Formula and Illustration for Determining
Death Benefit Payable Under
Annuity Option 4-Unit Refund Life Annuity
Upon the death of the Annuitant, the designated Beneficiary under this option
will receive under a Separate Account a lump sum death benefit of the then
dollar value of a number of Annuity Units computed using the following formula:
Annuity Units Payable= (A/B)-(CxD), if A/B is greater than CxD
Where:
<TABLE>
<S> <C>
A = The Net Accumulated Value applied on the Annuity Commencement Date
to purchase the Variable Annuity.
Assume............................................................................ = $20,000.00
B = The Annuity Unit Value at the Annuity Commencement Date.
Assume............................................................................ = $1.08353012
C = The number of Annuity Units represented by each payment made.
Assume............................................................................ = 116.61488844
D = The total number of monthly Variable Annuity Payments made prior to
the Annuitant's death.
Assume............................................................................ = 30
Then the number of Annuity Units Payable:
($20,000.00/ $1.08353012) - (116.61488844 x 30)
= 18,458.18554633 - 3,498.44665320
= 14,959.73889313
</TABLE>
If the value of an Annuity Unit on the date of receipt of notification of death
was $1.12173107 then the amount of the death benefit under the Separate Account
would be:
14,959.73889313 x $1.12173107 = $16,780.80
10
<PAGE>
APPENDIX III
EXAMPLE A
Formula and Illustration for Determining
Annuity Unit Value of
Separate Account D
Annuity Unit Value = A x B x C
Where:
<TABLE>
<S> <C>
A = Annuity Unit Value of the immediately preceding Valuation Period.
Assume............................................................................ = $1.10071211
B = Net Investment Factor for the Valuation Period for which the Annuity
Unit is being calculated.
Assume............................................................................ = 1.00083530
C = A factor to neutralize the assumed interest rate of 3 1/2% built
into the Annuity Tables used.
Daily factor equals............................................................... = 0.99990575
Then, the Annuity Value is:
$1.10071211 x 1.00083530 x 0.99990575 = $1.10152771
</TABLE>
EXAMPLE B
Formula and Illustration for Determining
Amount of First Monthly Variable Annuity Payment from
Separate Account D
First Monthly Variable Annuity Payment = (A / $1,000) x B
Where:
<TABLE>
<S> <C>
A = The Net Accumulated Value allocated to Separate Account D for the
Valuation Date on or immediately preceding the seventh day before the
Annuity Commencement Date.
Assume............................................................................ = $20,000.00
B = The Annuity purchase rate per $1,000 based upon the option selected,
the sex and adjusted age of the Annuitant according to the Annuity
Tables contained in the Contract.
Assume............................................................................ = $6.40
Then, the first Monthly Variable Payment = ($20,000 / $1,000) x $6.40 = $128.00
</TABLE>
11
<PAGE>
EXAMPLE C
Formula and Illustration for Determining
the Number of Annuity Units for Separate Account D
Represented by Each Monthly Variable Annuity Payment
Number of Annuity Units = (A / B)
Where:
<TABLE>
<S> <C>
A = The dollar amount of the first monthly Variable Annuity Payment.
Assume............................................................................ = $128.00
B = The Annuity Unit Value for the Valuation Date on or immediately
preceding the seventh day before the Annuity Commencement Date.
Assume............................................................................ = $1.09763000
Then, the number of Annuity Units = ($128.00 / $1.09763000) = 116.61488844
</TABLE>
EXAMPLE D
Formula and Illustration for Determining
the Amount of Second and Subsequent Monthly Variable
Annuity Payments From Separate Account D
Second Monthly Variable Annuity Payment = A x B
Where:
<TABLE>
<S> <C>
A = The Number of Annuity Units represented by each monthly Variable
Annuity Payment.
Assume............................................................................ = 116.61488844
B = The Annuity Unit Value for the Valuation Date on or immediately
preceding the seventh day before the date on which the second (or
subsequent) Variable Annuity Payment is due.
Assume............................................................................ = $1.11834234
Then, the second monthly Variable Annuity Payment = 116.61488844 x $1.11834234 = $130.42
</TABLE>
The above example was based upon the assumption of an increase in the Annuity
Unit Value since the initial Variable Annuity Payment due to favorable
investment results of the Separate Account and the Fund. If the investment
results were less favorable, a decrease in the Annuity Unit Value and in the
second monthly Variable Annuity Payment could result. Assume B above was
$1.08103230.
Then, the second monthly Variable Annuity Payment = 116.61488844 x $1.08103230 =
$126.06
12
<PAGE>
Financial Statements as of
December 31, 1996
13
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
First Investors Life Insurance Company
New York, New York
We have audited the accompanying balance sheets of First Investors Life
Insurance Company as of December 31, 1996 and 1995, and the related statements
of income, stockholder's equity and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of First Investors Life
Insurance Company as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 24, 1997
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31,1995
----------------- ----------------
<S> <C> <C>
Investments (note 2):
Available-for-sale securities......................... $114,011,891 $ 113,815,086
Held-to-maturity securities........................... 5,549,214 5,942,604
Short term investments................................ 7,667,491 5,160,201
Policy loans.......................................... 18,865,648 17,016,692
------------ ------------
Total investments.................................. 146,094,244 141,934,583
Cash ................................................... 901,980 1,189,030
Premiums and other receivables, net of allowances of
$30,000 in 1996 and 1995.............................. 3,998,210 4,334,595
Accrued investment income............................... 2,903,566 2,833,561
Deferred policy acquisition costs (note 6).............. 17,547,129 17,318,214
Deferred Federal income taxes (note 7).................. 934,000 12,000
Furniture, fixtures and equipment, at cost, less
accumulated depreciation of $925,736 in 1996 and
$800,593 in 1995..................................... 146,078 236,736
Other assets............................................ 136,302 123,509
Separate account assets................................. 465,456,848 344,568,486
------------ ------------
Total assets....................................... $638,118,357 $512,550,714
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
<CAPTION>
LIABILITIES:
Policyholder account balances (note 6).................. $113,295,474 $113,374,173
Claims and other contract liabilities................... 12,190,281 11,289,108
Accounts payable and accrued liabilities................ 3,730,943 4,150,250
Separate account liabilities............................ 464,852,507 343,956,938
------------ ------------
Total liabilities.................................. 594,069,205 472,770,469
------------ ------------
STOCKHOLDER'S EQUITY:
Common Stock, par value $4.75; authorized,
issued and outstanding 534,350 shares................. 2,538,163 2,538,163
Additional paid in capital.............................. 6,496,180 6,496,180
Unrealized holding gains (losses) on available-for-sale
securities (note 2)................................... 644,000 1,878,000
Retained earnings ...................................... 34,370,809 28,867,902
------------ ------------
Total stockholder's equity......................... 44,049,152 39,780,245
------------ ------------
Total liabilities and stockholder's equity......... $638,118,357 $512,550,714
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31,1995 DECEMBER 31,1994
----------------- ---------------- ----------------
<S> <C> <C> <C>
REVENUES
Policyholder fees................................... $ 22,955,165 $ 19,958,420 $ 16,433,269
Premiums............................................ 6,725,329 7,293,719 7,630,182
Investment income (note 2).......................... 9,771,389 9,363,212 8,835,356
Realized gain (loss) on investments................. (221,025) 373,582 (259,987)
Other income........................................ 704,678 835,703 701,355
------------ ------------ ------------
Total income..................................... 39,935,536 37,824,636 33,340,175
------------ ------------ ------------
BENEFITS AND EXPENSES
Benefits and increases in contract liabilities...... 12,912,810 13,027,516 14,297,499
Dividends to policyholders.......................... 964,913 954,384 910,754
Amortization of deferred acquisition costs (note 6). 1,454,408 1,672,429 1,573,216
Commissions and general expenses.................... 16,287,498 15,773,968 13,513,644
------------ ------------ ------------
Total benefits and expenses...................... 31,619,629 31,428,297 30,295,113
------------ ------------ ------------
Income before Federal income tax ..................... 8,315,907 6,396,339 3,045,062
Federal income tax (note 7):
Current............................................. 3,099,000 2,553,000 838,000
Deferred............................................ (286,000) (376,000) (352,000)
------------ ------------ ------------
2,813,000 2,177,000 486,000
------------ ------------ ------------
Net Income............................................ $ 5,502,907 $ 4,219,339 $ 2,559,062
============ ============ ============
Income per share, based on 534,350 shares outstanding
$ 10.30 $ 7.90 $ 4.79
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31,1996 DECEMBER 31,1995 DECEMBER 31, 1994
---------------- ---------------- -----------------
<S> <C> <C> <C>
Balance at beginning of year.............................. $ 39,780,245 $ 31,196,906 $ 34,173,844
Net income................................................ 5,502,907 4,219,339 2,559,062
Increase (decrease) in unrealized holding gains on
available-for-sale securities........................... (1,234,000) 4,364,000 (5,536,000)
------------ ------------- ------------
Balance at end of year.................................... $ 44,049,152 $ 39,780,245 $ 31,196,906
============ ============= ============
<CAPTION>
STATEMENTS OF CASH FLOWS
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31,1996 DECEMBER 31,1995 DECEMBER 31, 1994
---------------- ---------------- -----------------
<S> <C> <C> <C>
Increase (decrease) in cash:
Cash flows from operating activities:
Policyholder fees received.......................... $ 22,925,131 $ 19,374,522 $ 16,433,269
Premiums received................................... 6,413,009 6,895,096 7,366,276
Amounts received on policyholder accounts........... 105,489,481 87,156,662 63,526,544
Investment income received.......................... 9,964,169 9,360,894 8,886,847
Other receipts...................................... 55,779 69,621 46,581
Benefits and contract liabilities paid.............. (117,321,389) (101,642,156) (75,131,594)
Commissions and general expenses paid............... (20,857,687) (18,176,870) (15,252,935)
------------ ------------- -------------
Net cash provided by (used for) operating
activities....................................... 6,668,493 3,037,769 5,874,988
------------ ------------- -------------
Cash flows from investing activities:
Proceeds from sale of investment securities......... 39,062,702 58,755,827 36,751,082
Purchase of investment securities................... (44,134,604) (58,622,646) (42,164,770)
Purchase of furniture, equipment and other
assets........................................... (34,485) (128,442) (67,121)
Net increase in policy loans........................ (1,848,956) (2,330,591) (1,801,780)
Investment in Separate Account ..................... (200) (500,000) --
------------ ------------- -------------
Net cash provided by (used for) investing
activities....................................... (6,955,543) (2,825,852) (7,282,589)
------------ ------------- -------------
Net increase (decrease) in cash..................... (287,050) 211,917 (1,407,601)
Cash
Beginning of year ..................................... 1,189,030 977,113 2,384,714
------------ ------------- -------------
End of year............................................ $ 901,980 $ 1,189,030 $ 977,113
============ ============= =============
</TABLE>
The Company received a refund of Federal income tax of $102,000 in 1995 and paid
Federal income tax of $3,243,000 in 1996, $2,125,000 in 1995 and $1,368,000 in
1994.
See accompanying notes to financial statements.
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Reconciliation of net income to net cash provided by (used for) operating
activities:
Net income ............................................................ $ 5,502,907 $ 4,219,339 $ 2,559,062
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Depreciation and amortization ...................................... 130,924 141,121 122,199
Amortization of deferred policy
acquisition costs ............................................... 1,454,408 1,672,429 1,573,216
Realized investment (gains) losses ............................................. 221,025 (373,582) 259,987
Amortization of premiums and discounts on
investments ...................................................... 262,785 237,472 287,340
Deferred Federal income taxes ...................................... (286,000) (376,000) (352,000)
Other items not requiring cash - net ............................... 6,794 (112,268) (149)
(Increase) decrease in:
Premiums and other receivables, net ................................ 336,385 (433,106) (1,055,910)
Accrued investment income .......................................... (70,005) (239,790) (235,849)
Deferred policy acquisition costs, exclusive
of amortization .................................................. (1,275,323) (1,117,752) (1,138,988)
Other assets ....................................................... (18,574) 64,490 (30,882)
Increase (decrease) in:
Policyholder account balances ...................................... (78,699) (1,882,591) 2,719,458
Claims and other contract liabilities .............................. 901,173 551,392 503,025
Accounts payable and accrued liabilities ........................... (419,307) 686,615 664,479
----------- ----------- -----------
$ 6,668,493 $ 3,037,769 $ 5,874,988
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
Note 1 -- Basis of Financial Statements
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles (GAAP). Such basis of presentation
differs from statutory accounting practices permitted or prescribed by insurance
regulatory authorities primarily in that:
(a) policy reserves are computed according to the Company's estimates of
mortality, investment yields, withdrawals and other benefits and expenses,
rather than on the statutory valuation basis;
(b) certain expenditures, principally for furniture and equipment and agents'
debit balances, are recognized as assets rather than being non-admitted and
therefore charged to retained earnings;
(c) commissions and other costs of acquiring new business are recognized as
deferred acquisition costs and are amortized over the premium paying period
of policies and contracts, rather than charged to current operations when
incurred;
(d) income tax effects of temporary differences, relating primarily to policy
reserves and acquisition costs, are provided;
(e) the statutory asset valuation and interest maintenance reserves are
reported as retained earnings rather than as liabilities;
Note 2 -- Other Significant Accounting Practices
(a) Accounting Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosures of contingent assets and liabilities, at the date
of the financial statements and revenues and expenses during the reported
period. Actual results could differ from those estimates.
(b) Depreciation. Depreciation is computed on the useful service life of
the depreciable asset using the straight line method of depreciation.
(c) Investments. Investments in equity securities that have readily
determinable fair values and all investments in debt securities are classified
in three separate categories and accounted for as follows:
HELD-TO-MATURITY SECURITIES
Debt securities the Company has the positive intent and ability to
hold to maturity are recorded at amortized cost.
TRADING SECURITIES
Debt and equity securities that are held principally for the purpose
of selling such securities in the near term are recorded at fair value
with unrealized gains and losses included in earnings.
AVAILABLE-FOR-SALE SECURITIES
Debt and equity securities not classified in the other two categories
are recorded at fair value with unrealized gains and losses excluded
from earnings and reported as "unrealized holding gains or losses on
available-for-sale securities" in stockholder's equity.
Short term investments are reported at market value which approximates
cost.
<PAGE>
Gains and losses on sales of investments are determined using the specific
identification method. Investment income for the years indicated consists of the
following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31,1996 DECEMBER 31, 1995 DECEMBER 31,1994
---------------- ----------------- ----------------
<S> <C> <C> <C>
Interest on fixed maturities...................... $ 8,559,429 $ 8,243,748 $ 8,091,627
Interest on short term investments................ 410,930 451,475 225,682
Interest on policy loans.......................... 1,151,681 973,242 886,465
Dividends on equity securities.................... 43,756 58,305 10,220
------------ ------------ ------------
Total investment income...................... 10,165,796 9,726,770 9,213,994
Investment expense........................... 394,407 363,558 378,638
------------ ------------ ------------
Net investment income............................. $ 9,771,389 $ 9,363,212 $ 8,835,356
============ ============ ============
</TABLE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The amortized cost and estimated market values of investments at December 31,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Available-For-Sale Securities
December 31, 1996
U.S. Treasury Securities and obligations
of U.S. Government Corporations
and Agencies .......................... $ 41,254,552 $ 569,803 $ 157,020 $ 41,667,335
Debt Securities issued by
States of the U.S. .................... 5,525,022 -- 172,264 5,352,758
Corporate Debt Securities .............. 56,013,590 1,217,747 297,752 56,933,585
Other Debt Securities .................. 9,952,727 133,266 27,780 10,058,213
------------ ---------- ------------ ------------
$112,745,891 $1,920,816 $ 654,816 $114,011,891
============ ========== ============ ============
December 31, 1995
U.S. Treasury Securities and obligations
of U.S. Government Corporations
and Agencies .......................... $ 40,056,913 $1,459,984 $ -- $ 41,516,897
Debt Securities issued by
States of the U.S. .................... 9,067,445 215,464 10,295 9,272,614
Corporate Debt Securities .............. 53,636,330 1,872,502 121,193 55,387,639
Equity Securities ...................... 500,000 55,000 -- 555,000
Other Debt Securities .................. 7,010,398 78,876 6,338 7,082,936
------------ ---------- ------------ ------------
$110,271,086 $3,681,826 $ 137,826 $113,815,086
============ ========== ============ ============
</TABLE>
<PAGE>
At December 31, 1996 and 1995, the Company recognized "Unrealized Holding
Gains (Losses) on Available-For-Sale Securities" of $644,000 and $1,878,000, net
of applicable deferred income taxes and amortization of deferred acquisition
costs. The change in the Unrealized Holding Gains (Losses) of ($1,234,000),
$4,364,000 and ($5,536,000) for 1996, 1995 and 1994, respectively is reported as
a separate component of stockholders' equity.
Held-To-Maturity Securities
December 31,1996
<TABLE>
U.S. Treasury Securities and obligations
of U.S. Government Corporations
<S> <C> <C> <C> <C>
and Agencies ............................ $3,439,214 $ 36,945 $ 10,944 $3,465,215
Corporate Debt Securities ................ 2,000,000 -- 66,200 1,933,800
Other Debt Securities .................... 110,000 -- -- 110,000
---------- ---------- ---------- ----------
$5,549,214 $ 36,945 $ 77,144 $5,509,015
========== ========== ========== ==========
December 31,1995
U.S. Treasury Securities and obligations
of U.S. Government Corporations
and Agencies ............................ $3,332,604 $ 120,983 $ -- $3,453,587
Corporate Debt Securities ................ 2,000,000 -- 40,412 1,959,588
Other Debt Securities .................... 610,000 -- -- 610,000
---------- ---------- ---------- ----------
$5,942,604 $ 120,983 $ 40,412 $6,023,175
========== ========== ========== ==========
</TABLE>
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The amortized cost and estimated market value of debt securities at
December 31, 1996, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
HELD TO MATURITY AVAILABLE FOR SALE
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST MARKET VALUE COST MARKET VALUE
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Due in one year or less....................... $ 100,000 $ 100,000 $ 2,359,443 $ 2,368,650
Due after one year through five years......... 267,660 265,400 36,423,615 36,855,145
Due after five years through ten years........ 3,181,554 3,209,815 48,199,575 49,009,561
Due after ten years........................... 2,000,000 1,933,800 25,763,258 25,778,535
---------- ---------- ------------ ------------
$5,549,214 $5,509,015 $112,745,891 $114,011,891
========== ========== ============ ============
</TABLE>
Proceeds from sales of investments in fixed maturities were $39,046,422,
$56,949,635 and $36,701,082 in 1996, 1995 and 1994, respectively. Gross gains of
$185,708 and gross losses of $406,733 were realized on those sales in 1996.
Gross gains of $578,810 and gross losses of $205,228 were realized on those
sales in 1995. Gross gains of $85,827 and gross losses of $345,814 were realized
on those sales in 1994.
(d) Recognition of Revenue, Policyholder Account Balances and Policy
Benefits
TRADITIONAL ORDINARY LIFE AND HEALTH
Revenues from the traditional life insurance policies represent premiums
which are recognized as earned when due. Health insurance premiums are
recognized as revenue over the time period to which the premiums relate.
Benefits and expenses are associated with earned premiums so as to result
in recognition of profits over the lives of the contracts. This association
is accomplished by means of the provision for liabilities for future policy
benefits and the deferral and amortization of policy acquisition costs.
UNIVERSAL LIFE AND VARIABLE LIFE
Revenues from universal life and variable life policies represent amounts
assessed against policyholders. Included in such assessments are mortality
charges, surrender charges and policy service fees. Policyholder account
balances on universal life consist of the premiums received plus credited
interest, less accumulated policyholder assessments. Amounts included in
expense represent benefits in excess of policyholder account balances. The
value of policyholder accounts on variable life are included in separate
account liabilities as discussed below. ANNUITIES Revenues from annuity
contracts represent amounts assessed against contractholders. Such
assessments are principally sales charges, administrative fees, and in the
case of variable annuities, mortality and expense risk charges. The
carrying value and fair value of fixed annuities are equal to the
policyholder account balances, which represent the net premiums received
plus accumulated interest.
(e) Separate Accounts. Separate account assets and the related liabilities,
both of which are valued at market, represent segregated variable annuity and
variable life contracts maintained in accounts with individual investment
objectives. All investment income (gains and losses of these accounts) accrues
directly to the contractholders and therefore does not affect net income of the
Company.
(f) Reclassifications. Certain reclassifications have been made to the 1994
and 1995 Financial Statements in order to conform to the 1996 presentation.
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 3 -- Fair Value of Financial Instruments
The carrying amounts for cash, short-term investments and policy loans as
reported in the accompanying balance sheet approximate their fair values. The
fair values for fixed maturities and equity-securities are based upon quoted
market prices, where available or are estimated using values from independent
pricing services.
The carrying amounts for the Company's liabilities under investment - type
contracts approximate their fair values because interest rates credited to
account balances approximate current rates paid on similar investments and are
generally not guaranteed beyond one year. Fair values for the Company's
insurance contracts other than investment - type contracts are not required to
be disclosed. However, the fair values of liabilities for all insurance
contracts are taken into consideration in the overall management of interest
rate risk, which minimizes exposure to changing interest rates.
Note 4 -- Retirement Plans
The Company participates in a non-contributory profit sharing plan for the
benefit of its employees and those of other wholly-owned subsidiaries of its
parent. The Plan provides for retirement benefits based upon earnings. Vesting
of benefits is based upon years of service. For the years ended December 31,
1996, 1995 and 1994, the Company charged operations approximately $100,000,
$40,000 and $ 0, respectively for its portion of the contribution.
The Company also has a non-contributory retirement plan for the benefit of
its sales agents. The plan provides for retirement benefits based upon
commission on first-year premiums and length of service. The plan is unfunded.
Vesting of benefits is based upon graduated percentages dependent upon the
number of allocations made in accordance with the plan by the Company for each
participant. The Company charged to operations pension expenses of approximately
$414,000 in 1996, $375,000 in 1995 and $312,000 in 1994. The accrued liability
of approximately $2,858,000 in 1996 and $2,621,000 in 1995 was sufficient to
cover the value of benefits provided by the plan.
In addition, the Company participates in a 401(k) savings plan covering all
of its eligible employees and those of other wholly-owned subsidiaries of its
parent whereby employees may voluntarily contribute a percentage of their
compensation with the Company matching a portion of the contributions of certain
employees. The amount contributed by the Company in 1996 and 1995 was not
material.
Note 5 -- Commitments and Contingent Liabilities
The Company has agreements with affiliates and non-affiliates as follows:
(a) The Company's maximum retention on any one life is $100,000. The Company
reinsures a portion of its risk with other insurance companies and reserves are
reduced by the amount of reserves for such reinsured risks. The Company is
liable for any obligations which any reinsurance company may be unable to meet.
The Company had reinsured approximately 10% of its net life insurance in force
at December 31, 1996, 1995 and 1994. The Company also had assumed reinsurance
amounting to approximately 21%, 20% and 21% of its net life insurance in force
at the respective year ends. None of these transactions had any material effect
on the Company's operating results.
(b) The Company and certain affiliates share office space, data processing
facilities and management personnel. Charges for these services are based upon
space occupied, usage of data processing facilities and time allocated to
management. During the years ended December 31, 1996, 1995 and 1994, the Company
paid approximately $1,222,000, $1,282,000 and $1,099,000, respectively, for
these services. In addition, the Company reimbursed an affiliate approximately
$9,709,000 in 1996, $8,739,000 in 1995,and $6,651,000 in 1994 for commissions
relating to the sale of its products.
The Company maintains a checking account with a financial institution,
which is also a wholly-owned subsidiary of its parent. The balance in this
account was approximately $ 326,000 at December 31, 1996 and $343,000 at
December 31, 1995.
(c) The Company is subject to certain claims and lawsuits arising in the
ordinary course of business. In the opinion of management, all such claims
currently pending will not have a material adverse effect on the financial
position of the Company or its results of operations.
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 6 -- Adjustments Made to Statutory Accounting Practices
Note 1 describes some of the common differences between statutory practices
and generally accepted accounting principles. The effects of these differences
for the years ended December 31, 1996, 1995 and 1994 are shown in the following
table in which net income and capital shares and surplus reported therein on a
statutory basis are adjusted to a GAAP basis.
<TABLE>
<CAPTION>
NET INCOME CAPITAL SHARES AND SURPLUS
YEAR ENDED DECEMBER 31 AT DECEMBER 31
----------------------------------------- ------------------------------------------
1996 1995 1994 1996 1995 1994
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Reported on a statutory basis ............. $ 5,002,533 $ 3,705,334 $ 2,205,814 $ 26,580,877 $ 21,600,537 $ 18,020,531
------------ ------------ ------------ ------------ ------------ ------------
Adjustments:
Deferred policy acquisition costs (b) .. (179,085) (554,677) (434,228) 17,547,129 17,318,214 19,321,891
Future policy benefits (a) ............. 514,086 422,387 727,849 (2,398,397) (2,912,483) (3,334,870)
Deferred income taxes .................. 286,000 376,000 352,000 934,000 12,000 1,884,000
Premiums due and deferred (e) .......... 85,461 80,133 70,968 (1,359,107) (1,444,568) (1,524,702)
Cost of colletion and other statutory
liabilities .......................... (12,283) (16,318) (32,454) 36,984 49,267 65,585
Non-admitted assets .................... -- -- -- 298,731 395,758 385,500
Asset valuation reserve ................... -- -- -- 1,136,664 1,016,830 901,041
Interest maintenance reserve ........... (48,542) (40,804) 71,048) 6,271 200,690 (5,070)
Gross unrealized holding gains
(losses) on available-for-sale
securities ........................... -- -- -- 1,266,000 3,544,000 (4,517,000)
Net realized capital gains (losses) ... (221,025) 373,582 (259,987) -- -- --
Other .................................. 75,762 126,298) 148 -- -- --
------------ ------------ ------------ ------------ ------------ ------------
500,374 514,005 353,248 17,468,275 18,179,708 13,176,375
------------ ------------ ------------ ------------ ------------ ------------
In accordance with generally accepted
accounting principles .................. $ 5,502,907 $ 4,219,339 $ 2,559,062 $ 44,049,152 $ 39,780,245 $ 31,196,906
Per share, based on 534,350 shares
outstanding ............................ $ 10.30 $ 7.90 $ 4.79 $ 82.44 $ 74.45 $ 58.38
============ ============ ============ ============ ============ ============
</TABLE>
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following is a description of the significant policies used to adjust
the net income and capital shares and surplus from a statutory to a GAAP basis.
(a) Liabilities for future policy benefits have been computed primarily by
the net level premium method with assumptions as to anticipated mortality,
withdrawals and investment yields. The composition of the policy liabilities and
the more significant assumptions pertinent thereto are presented below:
<TABLE>
<CAPTION>
DISTRIBUTION OF LIABILITIES* BASIS OF ASSUMPTIONS
YEARS
1996 1995 OF ISSUE INTEREST MORTALITY TABLE WITHDRAWAL
----- ---- -------- -------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Non-par:
$ 1,655,040 $ 1,722,604 1962-1967 4 1/2% 1955-60 Basic Select plus Ultimate Linton B
5,814,885 5,668,858 1968-1988 5 1/2% 1955-60 Basic Select plus Ultimate Linton B
2,546,702 2,574,079 1984-1988 7 1/2% 85% of 1965-70 Basic Select Modified
plus Ultimate Linton B
86,508 74,055 1989-Present 7 1/2% 1975-80 Basic Select plus Ultimate Linton B
113,117 109,919 1989-Present 7 1/2% 1975-80 Basic Select plus Ultimate Actual
34,185 39,885 1989-Present 8% 1975-80 Basic Select plus Ultimate Actual
31,902,122 31,896,847 1985-Present 6% Accumulation of Funds --
Par:
223,500 224,307 1966-1967 4 1/2% 1955-60 Basic Select plus Ultimate Linton A
13,357,249 13,557,033 1968-1988 5 1/2% 1955-60 Basic Select plus Ultimate Linton A
975,132 988,555 1981-1984 7 1/4% 90% of 1965-70 Basic Select
plus Ultimate Linton B
4,772,595 4,713,069 1983-1988 9 1/2% 80% of 1965-70 Basic Select
plus Ultimate Linton B
14,031,404 12,459,045 1990-Present 8% 66% of 1975-80 Basic Select
plus Ultimate Linton B
Annuities:
21,779,771 25,202,605 1976-Present 5 1/2% Accumulation of Funds --
Miscellaneous:
16,939,829 15,161,153 1962-Present 2 1/2%-3 1/2% 1958-CSO None
</TABLE>
- ----------
* The above amounts are before deduction of deferred premiums of $936,565 in
1996 and $1,017,841 in 1995.
(b) The costs of acquiring new business, principally commissions and
related agency expenses, and certain costs of issuing policies, such as medical
examinations and inspection reports, all of which vary with and are primarily
related to the production of new business, have been deferred. Costs deferred on
universal life and variable life are amortized as a level percentage of the
present value of anticipated gross profits resulting from investment yields,
mortality and surrender charges. Costs deferred on traditional ordinary life and
health are amortized over the premium-paying period of the related policies in
proportion to the ratio of the annual premium revenue to the total anticipated
premium revenue. Anticipated premium revenue was estimated using the same
assumptions which were used for computing liabilities for future policy
benefits. Amortization of $1,454,408 in 1996, $1,672,429 in 1995 and $1,573,216
in 1994 was charged to operations.
(c) Participating business represented 9.8% and 11.1% of individual life
insurance in force at December 31, 1996 and 1995, respectively.
The Board of Directors annually approves a dividend formula for calculation
of dividends to be distributed to participating policyholders.
The portion of earnings of participating policies that can inure to the
benefit of shareholders is limited to the larger of 10% of such earnings or $.50
per thousand dollars of participating insurance in force. Earnings in excess of
that limit must be excluded from shareholders' equity by a charge against
operations. No such charge has been made, since participating business has
operated at a loss to date on a statutory basis. It is anticipated, however,
that the participating lines will be profitable over the lives of the policies.
(d) New York State insurance law prohibits the payment of dividends to
stockholders from any source other than the statutory unassigned surplus. The
amount of said surplus was $16,796,135, $11,815,645 and $8,235,339 at December
31, 1996, 1995 and 1994, respectively.
(e) Statutory due and deferred premiums are adjusted to conform to the
expected premium revenue used in computing future benefits and deferred policy
acquisition costs. In this regard, the GAAP due premium is recorded as an asset
and the GAAP deferred premium is applied against future policy benefits.
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 7 -- Federal Income Taxes
The Company joins with its parent company and other affiliated companies in
filing a consolidated Federal income tax return. The provision for Federal
income taxes is determined on a separate company basis.
Retained earnings at December 31, 1996 included approximately $146,000
which is defined as "policyholders' surplus" and may be subject to Federal
income tax at ordinary corporate rates under certain future conditions,
including distributions to stockholders.
Deferred tax liabilities (assets) are comprised of the following:
1996 1995
---- ----
Policyholder dividend provision ................. $ (332,719) $ (323,612)
Non-qualified agents' pension plan reserve ...... (1,127,384) (1,044,728)
Deferred policy acquisition costs ............... 2,507,526 2,968,214
Future policy benefits .......................... (2,346,908) (2,639,345)
Bond discount ................................... 28,677 27,842
Unrealized holding gains (losses) on
Available-For-Sale Securities .............. 331,000 967,000
Other ........................................... 5,808 32,629
----------- -----------
$ (934,000) $ (12,000)
=========== ===========
The currently payable Federal Income tax provision of $3,099,000 for 1996
is net of a $75,000 Federal tax benefit resulting from a capital loss carryback
of $221,025 and the $838,000 for 1994 is net of a $102,000 Federal tax benefit
resulting from a capital loss carry back of $259,987.
A reconciliation of the Federal statutory income tax rate to the Company's
effective tax rate is as follows:
1996 1995 1994
---- ---- ----
Application of statutory tax rate........................ 34% 34% 34%
Special tax deduction for life insurance companies....... -- -- (18)
--- --- ---
34% 34% 16%
=== === ===
