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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 April 30, 1998, 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.
THE SECURITIES AND EXCHANGE COMMISSION
HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS VALID ONLY WHEN ATTACHED TO THE CURRENT
PROSPECTUS OF FIRST INVESTORS LIFE SERIES FUND.
The date of this Prospectus is April 30, 1998
<PAGE>
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, Martin Luther King 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 1998.
CONTRACTOWNER TRANSACTION EXPENSES
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**
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%
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% 0.06% 0.81%
Cash Management Fund . . . . . . . . . 0.60+ 0.10+ 0.70+
Discovery Fund . . . . . . . . . . . . 0.75 0.07 0.82
Government Fund. . . . . . . . . . . . 0.60+ 0.10+ 0.70+
Growth Fund. . . . . . . . . . . . . . 0.75 0.07 0.82
High Yield Fund. . . . . . . . . . . . 0.75 0.08 0.83
International Securities Fund. . . . . 0.75 0.38 1.13
Investment Grade Fund. . . . . . . . . 0.60+ 0.10+ 0.70+
Target Maturity 2007 Fund. . . . . . . 0.60+ 0.10+ 0.70+
Target Maturity 2010 Fund. . . . . . . 0.60+ 0.10+ 0.70+
Utilities Income Fund. . . . . . . . . 0.60+ 0.10 0.70+
* The Maximum Contingent Deferred Sales Charge 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.
**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.
(1) For the fiscal year ended December 31, 1997, the Adviser reimbursed Cash
Management Fund, Government Fund, Investment Grade Fund, Target Maturity
2007 Fund, and Target Maturity 2010 Fund for certain Other Expenses. For
the fiscal year ended December 31,
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1997, 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, 1998.
(2) Other Expenses have been restated for Government Fund, Investment Grade
Fund, Target Maturity 2007 Fund and Target Maturity 2010 Fund. For the
fiscal year ended December 31, 1997, the Adviser reimbursed Cash
Management Fund, Government Fund, Investment Grade Fund, Target
Maturity 2007 Fund and Target Maturity 2010 Fund for certain Other
Expenses. Absent such reimbursement, Other Expenses would have been
0.31% for Cash Management Fund, 0.17% for Government Fund, 0.12% for
Investment Grade Fund, 0.07% for Target Maturity 2007 Fund and 0.12%
for Target Maturity 2010 Fund. The Adviser will reimburse Cash
Management Fund, Government Fund, Investment Grade Fund, Target
Maturity 2007 Fund and Target Maturity 2010 for Other Expenses in
excess of 0.10% for a minimum period ending December 31, 1998.
(3) If certain fees and expenses were not waived or reimbursed, Total Fund
Operating Expenses would have been 1.06% for Cash Management Fund, 0.92%
for Government Fund, 0.87% for Investment Grade Fund, 0.82% for Target
Maturity 2007 Fund, 0.87% for Target Maturity 2010 Fund and 0.85% for
Utilities Income Fund.
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 period shown, you would pay the
following expenses on a $1,000 investment, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Blue Chip Subaccount . . . . . . . . . . . . . . $122 $209
Cash Management Subaccount . . . . . . . . . . . 121 206
Discovery Subaccount . . . . . . . . . . . . . . 123 209
Government Subaccount. . . . . . . . . . . . . . 121 206
Growth Subaccount. . . . . . . . . . . . . . . . 123 209
High Yield Subaccount. . . . . . . . . . . . . . 123 210
International Securities Subaccount. . . . . . . 126 219
Investment Grade Subaccount. . . . . . . . . . . 121 206
Target Maturity 2007 Subaccount. . . . . . . . . 121 206
Target Maturity 2010 Subaccount. . . . . . . . . 121 206
Utilities Income Subaccount. . . . . . . . . . . 121 206
</TABLE>
4
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EXAMPLE
If you do not surrender your contract (or if you annuitize) at the end of the
period shown, you would pay the following expenses on a $1,000 investment,
assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Blue Chip Subaccount . . . . . . . . . . . $ 52 $159
Cash Management Subaccount . . . . . . . . 51 156
Discovery Subaccount . . . . . . . . . . . 53 159
Government Subaccount. . . . . . . . . . . 51 156
Growth Subaccount. . . . . . . . . . . . . 53 159
High Yield Subaccount. . . . . . . . . . . 53 160
International Securities Subaccount. . . . 56 169
Investment Grade Subaccount. . . . . . . . 51 156
Target Maturity 2007 Subaccount. . . . . . 51 156
Target Maturity 2010 Subaccount. . . . . . 51 156
Utilities Income Subaccount. . . . . . . . 51 156
</TABLE>
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.
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
The following shows the accumulation unit values and the number of
accumulation units outstanding for each Subaccount of Separate Account D, as of
December 31, 1997, from July 28, 1997, the date when the accumulation unit value
for each Subaccount was initially set at $10.00:
<TABLE>
<CAPTION>
NUMBER OF
ACCUMULATION ACCUMULATION
SUBACCOUNT UNIT VALUE($) UNITS
- ------------------ ------------- -----
<S> <C> <C>
Blue Chip Subaccount. . . . . . . . . . 10.18519950 426,185.6
Cash Management Subaccount. . . . . . . 10.15474840 28,344.4
Discovery Subaccount. . . . . . . . . . 10.23140687 205,814.9
Government Subaccount . . . . . . . . . 10.28895863 13,321.1
Growth Subaccount . . . . . . . . . . . 10.33626489 346,768.7
High Yield Subaccount . . . . . . . . . 10.42338850 60,209.4
International Securities Subaccount . . 9.30734342 196,448.9
Investment Grade Subaccount . . . . . . 10.33902780 22,448.4
Target Maturity 2007 Subaccount . . . . 10.62155299 62,839.0
Target Maturity 2010 Subaccount . . . . 10.79920122 43,680.6
Utilities Income Subaccount . . . . . . 11.67391319 33,306.9
</TABLE>
5
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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.
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:
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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:
- To operate Separate Account D in any form permitted under the
1940 Act or in any other form permitted by law.
- To add, delete, combine, or modify the Subaccounts in Separate
Account D.
- 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.
- 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.
7
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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
the 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 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 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 "Description of
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Certain Securities, Other Investment Policies and Risk Factors -- High Yield
Securities " 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
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 is 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 Contracts.
For more complete information about each of the Funds underlying
Separate Account D, including management fees and other expenses, see the
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 funding variable annuity contracts or variable life
insurance policies, the possibility arises that violation of the Federal tax
laws by another separate account investing in the Life Series Fund could
cause the Contracts funded through Separate Account D to
9
<PAGE>
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 the 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.
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 January 31, 1998, WMC held investment management
authority with respect to approximately $178 billion of assets. Of that
amount, WMC acted as investment adviser or subadviser to approximately 93
registered investment companies or series of such companies, with net assets
of approximately $117 billion as of December 31, 1997. 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.
YEAR 2000. Like other separate accounts, Separate Account D could be
adversely affected if the computer and other information processing systems
used by First Investors Life, the underlying Funds, the Adviser, Transfer
Agent and other service providers are not properly programmed to process
date-related information on and after January 1, 2000. Such systems
typically have been programmed to use a two-digit number to represent the
year for any date. As a result, computer systems could incorrectly
misidentify "00" as 1900, rather than 2000, and make mistakes when performing
operations. First Investors Life the Funds, the Adviser and Transfer Agent
are taking steps that they believe are reasonably designed to address the
Year 2000 problem for computer and other systems used by them and are
obtaining assurances that comparable steps are being taken by other service
providers. However, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on the Separate Account D. Nor can
the Separate Account D estimate the extent of any impact.
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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 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.
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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. The 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.
CONTINGENT DEFERRED SALES CHARGE TABLE
<TABLE>
<CAPTION>
Contingent Deferred Sales Charge
as a Percentage of Purchase Length of Time from Purchase
Payments Surrendered Payment in Years
<S> <C>
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
</TABLE>
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 may reduce the risk that the Annuitant
will outlive the funds that the Annuitant has accumulated for
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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 Accumulation Unit 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.
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. The total expenses of Separate Account D for the fiscal
year ended December 31, 1997 amounted to $41,042 or 0.59% of average net
assets. 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
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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 Contractowner. 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 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
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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 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
frequency and duration of annuity payments, (iv) the sex and adjusted age of
the Annuitant and any Joint Annuitant at the Annuity Commencement Date and,
(v) 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
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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.
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.
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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 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 Contract 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
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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 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."
ANNUITY COMMENCEMENT DATE EXCHANGE PRIVILEGE. If this Contract is
liquidated during the one-year period preceding its 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 Contractowner 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 to the
Beneficiary, beginning within one year of death, under an Annuity Option
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 sum of (1) the difference
between the purchase payment(s) made under the Contract and the amount
allocated to Separate Account D under the Contract and (2) 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
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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 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.
Under current interpretations of the Code, the Contractowner is not
subject to income tax on
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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, and all payments after the investment in the Contract has
been reduced to zero, are taxable as ordinary income as provided in Section
72 of the Code. The investment in the Contract is an amount equal to total
purchase payments less any previous distributions from the Contract that were
not included in gross income.
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 and 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 Treasury Department has indicated that the diversification
regulations do not provide guidance as to any circumstances in which a
Contractowner's control over allocation of account value among underlying
investments may cause an owner to be treated as the owner of the separate
account assets. Such treatment would result in current taxation of the owner
on increases in the account value. We reserve the right to amend the
Contracts in any way necessary to avoid such result. As of the date of this
prospectus, no regulation or ruling has been issued on the subject, although
the Treasury Department has informally indicated that a regulation or ruling
could limit the number of underlying funds or the frequency of transfers
among those funds. Such regulation or ruling may apply only prospectively,
although retroactive effect is possible if the regulation or ruling is
considered not to embody a new position.
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
20
<PAGE>
treated as one annuity contract. Contractowners should consult their tax
advisors before 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 not 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 decision or
by the Treasury Department.
21
<PAGE>
PERFORMANCE INFORMATION
From time to time, Separate Account D may advertise several types of
performance information for the Subaccounts. Each Subaccount (other than the
Cash Management Subaccount) may advertise "average annual total return" and
"total return". The High Yield Subaccount, Investment Grade Subaccount and
Government Subaccount may also advertise "yield." The Cash Management
Subaccount may advertise "yield" and "effective yield." Each of these
figures is based upon historical results and is not intended to indicate
future performance.
The "total return" of a Subaccount is the total change in value of an
investment in the Subaccount over a period of time, expressed as a
percentage. "Average annual total return" is the rate of return that would
produce that change in value over the specified period, if compounded
annually. Average annual total return figures may reflect the effect of the
CDSC (pursuant to a standardized formula prescribed by the Commission), or
may not reflect the effect of the CDSC (non-standardized performance
information). Total return figures may also be advertised on the same basis
as average annual total return figures (with or without showing the effect of
the CDSC). Quotations of return not reflecting the CDSC will be greater than
those reflecting the CDSC.
The "yield" of a Subaccount refers to the income generated by an investment
in the Subaccount over a period of time excluding realized and unrealized
capital gains and losses in the corresponding Fund's investments. This
income is then "annualized" and shown as a percentage of the investment. The
"effective yield" of the Cash Management Subaccount is calculated similarly
but, when annualized, the income earned by an investment in the Subaccount is
assumed to be reinvested. The Cash Management Subaccount's effective yield
will be slightly higher than its yield due to the compounding effect of this
assumed reinvestment.
Neither the total return nor the yield figures reflect deductions for premium
taxes, since most states do not impose such taxes.
For further information on performance calculations, see "Performance
Information" in the Statement of Additional Information.
FINANCIAL STATEMENTS
The financial statements for First Investors Life and the accompanying
Report of Independent Certified Public Accountants are included in the
Statement of Additional Information, dated April 30, 1998. The financial
statements for the Separate Account D and the accompanying Report of
Independent Certified Public Accountants are also included in the Statement
of Additional Information, dated April 30, 1998. The Statement of Additional
Information is available at no charge upon request to First Investors Life at
the address or telephone number indicated on the coverpage of this Prospectus.
22
<PAGE>
TABLE OF CONTENTS
OF THE STATEMENT OF ADDITIONAL
INFORMATION
<TABLE>
<CAPTION>
Item Page Page
--------- ----
<S> <C>
General Description.................................................. 2
Services............................................................. 2
Annuity Payments..................................................... 3
Other Information.................................................... 4
Performance Information.............................................. 5
Relevance of Financial Statements.................................... 9
Appendices...........................................................10
Financial Statements.................................................15
</TABLE>
APPENDIX I
STATE AND LOCAL TAXES*
<TABLE>
<S> <C> <C> <C>
Alabama.......................-- Mississippi...................--
Alaska........................-- Missouri......................--
Arizona.......................-- Nebraska......................--
Arkansas......................-- New Jersey....................--
California....................2.35% New Mexico....................--
Colorado......................-- New York......................--
Connecticut...................-- North Carolina................--
Delaware......................-- Ohio..........................--
District of Columbia..........2.25% Oklahoma......................--
Florida.......................1.00% Oregon........................--
Georgia.......................-- Pennsylvania..................--
Illinois......................-- Rhode Island..................--
Indiana.......................-- South Carolina................--
Iowa..........................-- Tennessee.....................--
Kentucky......................2.00% Texas.........................--
Louisiana.....................-- Utah..........................--
Maryland......................-- Virginia......................--
Massachusetts.................-- Washington....................--
Michigan......................-- West Virginia.................1.00%
Minnesota.....................-- Wisconsin.....................--
Wyoming.......................1.00%
</TABLE>
Note: The foregoing rates are subject to amendment by legislation and the
applicability of the stated rates may be subject to administrative
interpretation.
* Includes local annuity Premium taxation.
23
<PAGE>
First Investors Life
Variable Annuity
Fund D
- ---------------------------
Individual Variable
Annuity Contracts
- ---------------------------
Prospectus
- ----------------------------
April 30, 1998
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
Condensed Financial Information.................... 5
General Description................................ 6
Purchases, Charges and Expenses.................... 11
Variable Annuity Contracts......................... 13
Federal Income Tax Status.......................... 19
Performance Information............................ 22
Financial Statements............................... 22
Table of Contents of the
Statement of Additional Information............... 23
Appendix I - State and Local Taxes................. 23
LIFE 078
<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 "DESCRIPTION OF CERTAIN SECURITIES, OTHER
INVESTMENT POLICIES AND RISK FACTORS-HIGH YIELD SECURITIES."
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, 1998, 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, 1998
<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. It is the Fund's policy to
remain relatively fully invested in equity securities under all market
conditions rather than to attempt to time the market by maintaining large cash
or fixed-income securities positions when market declines are anticipated. The
Fund is appropriate for investors who are comfortable with a fully invested
stock portfolio.
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."
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 to
2
<PAGE>
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. Additional 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. The table below has
been derived from financial statements which have been audited by Tait, Weller &
Baker, independent certified public accountants, whose report thereon appears in
the SAI. This information should be read in conjunction with the Financial
Statements and Notes thereto, which also appear in the SAI, available at no
charge upon request to the Funds.
4
<PAGE>
<TABLE>
<CAPTION>
PER SHARE DATA
--------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS FROM
NET ASSET -------------------------------------------- ------------------------
VALUE NET REALIZED
------------ NET AND UNREALIZED TOTAL FROM NET NET TOTAL
BEGINNING OF INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT REALIZED DISTRI-
PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAINS BUTIONS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BLUE CHIP
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
1997 . . . . . . . . . . . . 19.77 .19 4.88 5.07 .22 .91 1.13
CASH MANAGEMENT **
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
1997 . . . . . . . . . . . . 1.00 .050 -- .050 .050 -- .050
DISCOVERY
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
1997 . . . . . . . . . . . . 25.06 .08 3.93 4.01 .14 1.16 1.30
</TABLE>
(a) Annualized
* 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, 1997.
+++ 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 in 1996.
5
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
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 $ --
12.62 26.17 13,142 1.00 1.88 1.55 1.34 21 --
13.24 6.67 23,765 .79 1.66 .86 1.60 40 --
14.21 8.51 34,030 .88 1.27 N/A N/A 37 --
13.75 (1.45) 41,424 .88 1.49 N/A N/A 82 --
16.98 34.00 66,900 .86 1.91 N/A N/A 26 --
19.77 21.52 100,078 .84 1.39 N/A N/A 45 .0692
23.71 26.72 154,126 .81 .99 N/A N/A 63 .0649
1.00 7.79 $ 2,210 -- 7.84 1.35 6.49 N/A $ --
1.00 7.49 8,203 .39 6.90 1.15 6.15 N/A --
1.00 5.71 9,719 .57 5.39 .93 5.03 N/A --
1.00 3.02 8,341 .79 2.99 .98 2.81 N/A --
1.00 2.70 4,243 .60 2.67 1.05 2.22 N/A --
1.00 3.77 3,929 .60 3.69 1.04 3.25 N/A --
1.00 5.51 4,162 .60 5.36 1.10 4.87 N/A --
1.00 5.00 4,297 .60 4.89 1.11 4.38 N/A --
1.00 5.08 4,760 .70 4.97 1.06 4.61 N/A --
12.40 23.62 $ 283 -- 2.43 4.78 (2.35) 231 $ --
10.71 (5.47) 960 -- 2.97 2.68 .28 104 --
16.02 51.73 4,661 .70 .48 1.49 (.31) 93 --
18.35 15.74 10,527 .91 .02 1.05 (.12) 91 --
21.36 22.20 21,221 .87 (.03) N/A N/A 69 --
19.86 (2.53) 30,244 .88 .36 N/A N/A 53 --
23.27 25.23 50,900 .87 .63 N/A N/A 78 --
25.06 12.48 70,899 .85 .63 N/A N/A 98 .0689
27.77 16.84 99,530 .82 .34 N/A N/A 85 .0648
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
PER SHARE DATA
--------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS FROM
NET ASSET -------------------------------------------- ------------------------
VALUE NET REALIZED
------------ NET AND UNREALIZED TOTAL FROM NET NET TOTAL
BEGINNING OF INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT REALIZED DISTRI-
PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAINS BUTIONS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
GOVERNMENT
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
1997 . . . . . . . . . . . . 10.19 .72 .11 .83 .69 -- .69
GROWTH
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
1997 . . . . . . . . . . . . 24.56 .15 6.57 6.72 .18 1.86 2.04
HIGH YIELD
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
1997 . . . . . . . . . . . . 11.93 .98 .41 1.39 1.02 -- 1.02
</TABLE>
(a) Annualized
* Commencement of operations
+ Some or all expenses have been waived or assumed by the
investment adviser from commencement of operations through
December 31, 1997.
++ 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 in 1996.
7
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
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 $ --
10.42 6.35 8,234 .35 6.60 .84 6.11 525 --
9.70 (4.10) 7,878 .35 6.74 .90 6.19 457 --
10.52 15.63 9,500 .40 6.79 .93 6.26 198 --
10.19 3.59 9,024 .60 6.75 .94 6.41 199 --
10.33 8.61 9,120 .60 6.95 .92 6.63 134 --
13.02 24.00 $ 570 -- 2.91 5.21 (2.30) 24 $ --
12.57 (2.99) 2,366 -- 3.03 1.64 1.40 28 --
16.71 34.68 7,743 .69 1.21 1.34 .55 148 --
16.64 9.78 16,385 .76 .75 1.20 .30 45 --
17.45 6.00 25,658 .91 .43 N/A N/A 51 --
16.73 (2.87) 32,797 .90 .60 N/A N/A 40 --
20.47 25.12 51,171 .88 1.11 N/A N/A 64 --
24.56 24.45 78,806 .85 .92 N/A N/A 49 .0485
29.24 29.28 127,585 .82 .64 N/A N/A 27 .0506
10.71 (1.76) $ 14,354 -- 12.05 .88 11.17 22 $ --
9.71 (5.77) 18,331 -- 13.21 .91 12.30 35 --
10.81 33.96 23,634 .53 11.95 .89 11.60 40 --
10.44 13.15 24,540 .91 10.48 .96 10.43 84 --
11.16 18.16 30,593 .91 9.49 N/A N/A 96 --
10.58 (1.56) 32,285 .88 9.43 N/A N/A 50 --
11.57 19.82 41,894 .87 9.86 N/A N/A 57 --
11.93 12.56 49,474 .85 9.43 N/A N/A 34 --
12.30 12.47 59,619 .83 8.88 N/A N/A 40 --
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
PER SHARE DATA
--------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS FROM
NET ASSET -------------------------------------------- ------------------------
VALUE NET REALIZED
------------ NET AND UNREALIZED TOTAL FROM NET NET TOTAL
BEGINNING OF INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT REALIZED DISTRI-
PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAINS BUTIONS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INTERNATIONAL SECURITIES
------------------------
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
1997 . . . . . . . . . . . . 17.19 .18 1.26 1.44 .20 1.52 1.72
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
1997 . . . . . . . . . . . . 11.36 .74 .31 1.05 .74 -- .74
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
1997 . . . . . . . . . . . . 11.71 .59 .90 1.49 .57 -- .57
TARGET MATURITY 2010
--------------------
4/30/96* to 12/31/96 . . . . $10.00 $ .26 $ .90 $1.16 $ -- $ -- --
1997 . . . . . . . . . . . . 11.16 .45 1.29 1.74 .20 -- .20
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
1997 . . . . . . . . . . . . 12.57 .37 2.64 3.01 .36 .27 .63
</TABLE>
(a) Annualized
* Commencement of operations
+ Some or all expenses have been waived or assumed by the
investment adviser from commencement of operations through
++ December 31, 1997.
+++ 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 in 1996.
9
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
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 $ --
11.87 15.24 8,653 1.70 .75 2.27 .18 70 --
11.37 (1.13) 12,246 1.03 1.55 1.38 1.20 36 --
13.74 22.17 21,009 1.14 .97 N/A N/A 37 --
13.51 (1.29) 31,308 1.03 1.22 N/A N/A 36 --
15.58 18.70 41,012 1.02 1.42 N/A N/A 45 --
17.19 15.23 57,955 1.12 1.25 N/A N/A 67 .0093
16.91 9.09 74,463 1.13 1.15 N/A N/A 71 .0042
10.53 8.91(a) $ 4,707 .23(a) 6.16(a) .93(a) 5.46(a) 72 $ --
10.95 10.93 10,210 .35 6.32 .85 5.82 64 --
10.31 (3.53) 11,602 .37 6.61 .92 6.06 15 --
11.73 19.69 16,262 .51 6.80 .91 6.40 26 --
11.36 2.84 16,390 .60 6.47 .88 6.19 19 --
11.67 9.81 17,220 .60 6.54 .87 6.27 41 --
12.26 22.60 $ 9,860 .04(a) 6.25(a) .87(a) 5.42(a) 28 $ --
11.71 (2.16) 14,647 .60 6.05 .82 5.83 13 --
12.63 13.38 20,300 .60 5.91 .82 5.69 1 --
11.16 11.60 $ 2,195 .60(a) 6.05(a) .98(a) 5.67(a) 0 $ --
12.70 15.86 5,209 .60 5.88 .87 5.61 13 --
9.94 (4.66)(a) $ 494 -- 1.46(a) 3.99(a) (2.52)(a) 0 $ --
9.19 (7.24) 4,720 .17 4.13 .95 3.35 31 --
11.74 30.26 14,698 .41 4.23 .91 3.73 17 --
12.57 9.57 24,108 .60 3.48 .86 3.22 45 .0707
14.95 25.07 33,977 .67 3.12 .85 2.94 64 .0681
</TABLE>
10
<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. It is the Fund's policy to remain relatively fully
invested in equity securities under all market conditions rather than to
attempt to time the market by maintaining large cash or fixed-income
securities positions when market declines are anticipated. The Fund is
appropriate for investors who are comfortable with a fully invested stock
portfolio.
The Fund defines Blue Chip companies as those companies that are
included in the S&P 500. Blue Chip companies are considered to be of
relatively high quality and generally exhibit superior fundamental
characteristics, which may include: potential for consistent earnings
growth, a history of profitability and payment of dividends, leadership
position in their industries and markets, proprietary products or services,
experienced management, high return on equity and a strong balance sheet.
Blue Chip companies usually exhibit less investment risk and share price
volatility than smaller, less established companies. Examples of Blue Chip
companies are Microsoft Corp., General Electric Co., Pepsico Inc. and
Bristol-Myers Squibb Co.
The fixed-income securities in which the Fund may invest include money
market instruments (including prime commercial paper, certificates of deposit
of domestic branches of U.S. banks and bankers' acceptances), obligations
issued or guaranteed as to principal and interest by the U.S. Government, its
agencies or instrumentalities ("U.S. Government Obligations") (including
mortgage-backed securities) and corporate debt securities. 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 total 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" 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 or are deemed to
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.
In
11
<PAGE>
managing the Fund's investment portfolio, the Adviser may employ various
professional money management techniques in order to respond to changing
economic and money market conditions and to shifts in fiscal and monetary
policy. These techniques include varying the composition and the
average-weighted maturity of the Fund's portfolio based upon the Adviser's
assessment of the relative values of various money market instruments and
future interest rate patterns. The Adviser also may seek to improve the
Fund's yield by purchasing or selling securities to take advantage of yield
disparities among money market instruments that regularly occur in the money
market.
The 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. 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. See "Description of Certain Securities, Other
Investment Policies and Risk Factors" for additional information on
repurchase agreements.
The 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). The Fund may
invest in floating and variable rate demand notes and bonds that 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. 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. See "Description of Certain Securities, Other Investment
Policies and Risk Factors" for additional information concerning these
securities.
The Fund may purchase only obligations that (1) the Adviser determines
present minimal credit risks based on procedures adopted by the Life Series
Board of Trustees, and (2) are either (a) rated in one of the top two rating
categories by any two nationally recognized statistical rating
12
<PAGE>
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 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).
In periods of declining interest rates, the Fund's yield will tend to be
somewhat higher than prevailing market rates, and in periods of rising
interest rates the opposite will be true. Also, when interest rates are
falling, net cash inflows from the continuous sale of the Fund's shares
likely will be invested in portfolio instruments producing lower yields than
the balance of the Fund's portfolio, thereby reducing the Fund's yield. In
periods of rising interest rates, the opposite may be true.
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, under normal market conditions, 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 the
Adviser believes are undervalued in the current market in relation to
fundamental economic values such as earnings, sales, cash flow and tangible
book value; that are early in their corporate development (I.E., before they
become widely recognized and well known and while their reputations and track
records are still emerging); or that offer the possibility of greater
earnings because of revitalized management, new products or structural
changes in the economy. Such companies primarily are those with small to
medium market capitalization, which the Fund considers to be market
capitalization of up to $1.5 billion. The Adviser believes that, over time,
these securities are more likely to appreciate in price than securities whose
market prices have already reached their perceived economic value. In
addition, the Fund intends to diversify its holdings among as many companies
and industries as the Adviser deems appropriate.
Companies that are early in their corporate development may be dependent
on relatively few products or services, may lack adequate capital reserves,
may be dependent on one or two management individuals and may have less of a
track record or historical pattern of performance. In addition, there may be
less information available as to the issuers and their securities may not be
well known to the general public and may not yet have wide institutional
ownership. Securities of these companies may have more potential for growth
but also greater risk than that normally associated with larger, older or
better-known companies.
Investments in securities of companies with small to medium market
capitalization are generally considered to offer greater opportunity for
appreciation and to involve greater risk of
13
<PAGE>
depreciation than securities of companies with larger market capitalization.
These include the equity securities of companies which represent new or
changing industries and those which, in the opinion of the Adviser, represent
special situations, the potential future value of which has not been fully
recognized. Growth securities of companies with small to medium market
capitalization which represent a special situation bear the risk that the
special situation will not develop as favorably as expected, or the situation
may deteriorate. For example, a merger with favorable implications may be
blocked, an industrial development may not enjoy anticipated market
acceptance or a bankruptcy may not be as profitably resolved as had been
expected. Because the securities of most companies with small 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.
The majority of the Fund's investments are expected to be securities
listed on the New York Stock Exchange ("NYSE") or other national securities
exchanges, or securities that have an established over-the-counter ("OTC")
market, although the depth and liquidity of the OTC market may vary from time
to time and from security to security.
The Fund may invest up to 15% of its total assets in common stocks
issued by foreign companies which are traded on a recognized domestic or
foreign securities exchange. In addition to the fundamental analysis of
companies and their industries which it performs for U.S. issuers, the
Adviser evaluates the economic and political climate of the country in which
the company is located and the principal securities markets in which such
securities are traded. Although the foreign stocks in which the Fund invests
are primarily denominated in foreign currencies, the Fund also may invest in
ADRs. The Adviser does not attempt to time actively either short-term market
trends or short-term currency trends in any market. See "Foreign Securities"
and "American Depository Receipts."
The Fund may 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 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 "Description of Certain Securities, Other Investment
Policies and Risk Factors" and 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
14
<PAGE>
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," 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 (which may not
borrow from the U.S. Treasury and the securities of which are not guaranteed
by the U.S. Government); the Federal Home Loan Bank (which may borrow from
the U.S. Treasury to meet its obligations but 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
it obligations); and 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 may invest in collateralized mortgage obligations
("CMOs") and stripped mortgage-backed securities issued or guaranteed by the
U.S. Government, its agencies, authorities or instrumentalities. See
"Mortgage-Backed Securities," below.
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 and may invest up to 35% of its net assets
in securities issued on when-issued or delayed delivery basis. See
"Description of Certain Securities, Other Investment Policies and Risk
Factors," below, and 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
15
<PAGE>
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
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 and may
invest up to 5% of its net assets in securities issued on a when-issued or
delayed delivery basis. 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 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" and "Deep Discount Securities," below.
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 up to 5% of its net assets in securities issued 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
16
<PAGE>
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.
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 period 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" and Appendix A for a description of corporate bond ratings.
The dollar weighted average of credit ratings of all bonds held by the
Fund during the 1997 fiscal year, computed on a monthly basis, is set forth
below. This information reflects the average composition of the Fund's assets
during the 1997 fiscal year and is not necessarily representative of the Fund
as of the end of its 1997 fiscal year, the current fiscal year or at any
other time in the future.
17
<PAGE>
<TABLE>
<CAPTION>
COMPARABLE QUALITY OF
UNRATED SECURITIES TO
RATED BY MOODY'S BONDS RATED BY MOODY'S
---------------- ----------------------
<S> <C> <C>
Baa 0.0% 0.50%
Ba 8.18 0.0
B 81.18 3.45
Caa 0.46 3.47
----- ----
Total 89.36% 7.42%
</TABLE>
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 Securities". 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, invest up to 5% of its net assets in securities issued
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
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<PAGE>
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 invest
up to 5% of its net assets in securities issued on a when-issued or delayed
delivery 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 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" 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.
19
<PAGE>
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
other 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 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.
20
<PAGE>
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 invest up to 5% of its net
assets in securities issued 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 regarding these types of
investments.
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 utilities 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
21
<PAGE>
noted that based on this definition, the Fund may invest in companies which
are also involved to a significant degree in non-public utilities activities.
Utilities stocks generally offer dividend yields that exceed those of
industrial companies and their prices tend to be less volatile than stocks of
industrial companies. However, utilities stocks can still be affected by the
risks of the stock of industrial companies. Because the Fund concentrates
its investments in public utilities companies, the value of its shares will
be especially affected by factors peculiar to the utilities industry, and may
fluctuate more widely than the value of shares of a fund that invests in a
broader range of industries. See "Utilities Industries."
The Fund may invest up to 35% of its total assets in the following
instruments: debt securities (rated at least A by Moody's or S&P) and common
and preferred stocks of non-utilities companies; U.S. Government Obligations
(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 make loans of portfolio
securities and invest up to 5% of its net assets in securities issued on a
when-issued or delayed delivery basis. The Fund may invest up to 10% of its
total assets in ADRs. The Fund may borrow money for temporary or emergency
purposes in amounts not exceeding 5% of its net assets. The Fund also may
invest in zero coupon and pay-in-kind securities. In addition, in any period
of market weakness or of uncertain market or economic conditions, the Fund
may establish a temporary defensive position to preserve capital by having
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. GDRs are considered to be foreign securities by
INTERNATIONAL SECURITIES FUND and GROWTH FUND. See the SAI for more
information on ADRs.
22
<PAGE>
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. 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 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. 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
23
<PAGE>
involve a higher risk of loss of principal and income than higher-rated debt
securities. See "High Yield Securities " 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
investing in 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," below. High Yield Securities are subject to certain risks that
may not be present with investments in higher grade debt securities.
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. 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 currently 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
24
<PAGE>
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. 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 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
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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 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.
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
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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.
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 market, prepayment and extension 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. Prepayment generally increases when interest rates
decline. 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.
As a result, mortgage-backed securities may have less potential for capital
appreciation during periods of declining interest rates as compared with
other U.S. Government securities with comparable stated maturities.
Conversely, rising interest rates may cause prepayment rates to occur at a
slower than expected rate. This may effectively lengthen the life of a
security, which is known as
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extension risk. Longer term securities generally fluctuate more widely in
response to changes in interest rates than shorter term securities. 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.
PREFERRED STOCK. A preferred stock is a blend of the characteristics of a
bond and common stock. It can offer the higher yield of a bond and has
priority over common stock in equity ownership, but does not have the
seniority of a bond and, unlike common stock, its participation in the
issuer's growth may be limited. Preferred stock has preference over common
stock in the receipt of dividends and in any residual assets after payment to
creditors should the issuer be dissolved. Although the dividend is set at a
fixed annual rate, in some circumstances it can be changed or omitted by the
issuer.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which a
Fund purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank or dealer at an
agreed-upon date and price reflecting a market rate of interest unrelated to
the coupon rate or maturity of the purchased securities. Each Fund's risk is
limited 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 SECURITIES AND ILLIQUID INVESTMENTS. 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 investments for purposes of this
limitation do not include restricted securities eligible for resale pursuant
to Rule 144A under the Securities Act of 1933, as amended ("Rule 144A
Securities"), which Life Series Fund's Board of Trustees or the Adviser or
the Subadviser, as applicable, has determined are liquid under Board-approved
guidelines. In addition, there is a risk of increasing illiquidity during
times when qualified institutional buyers are uninterested in purchasing Rule
144A Securities. See the SAI for more information regarding restricted 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
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stated interest rate. For the most part, time deposits that 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 Administration and the Maritime Administration and
certain securities issued by the Farmers Home Administration and the Small
Business Administration. The range of maturities of U.S. Government
Obligations is usually three months to thirty years.
UTILITIES INDUSTRIES. Many utilities companies, especially electric and
gas and other energy-related utilities companies, have historically been
subject to the risk of increases in fund 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 recent years, regulatory changes in the United States have increasingly
allowed utilities companies to provide services and products outside their
traditional geographical areas and line of business, creating new areas of
competition with the utilities industries. This trend towards deregulation
and the emergence of new entrants have caused non-regulated providers of
utilities services to become a significant part of the utilities industries.
The Adviser believes that the emergence of competition and deregulation will
result in certain utilities companies being able to earn more than their
traditional regulated rates of return, while others may be forced to defend
their core business from increased competition and may be less profitable.
Certain utilities, especially gas and telephone utilities, have in recent
years been affected by increased competition, which could adversely affect
the profitability of such utilities companies. In addition, expansion by
companies engaged in telephone communication services of their non-regulated
activities into other businesses (such as cellular telephone services, data
processing equipment retailing, computer services and financial services) has
provided the opportunity for increases in earnings and dividends at faster
rates than have been allowed in traditional regulated businesses. However,
technological innovations and other structural changes also could adversely
affect the profitability of such companies. Although the Adviser seeks to
take advantage of favorable investment opportunities that may arise from
these structural changes there can be no assurance that the Fund will benefit
from any such changes.
Foreign utilities companies may be more heavily regulated than U.S.
utilities companies which may result in increased costs or otherwise
adversely affect the operations of such companies. The securities of foreign
utilities companies also have lower dividend yields than U.S. utilities
companies. The Fund's investments in foreign issuers may include recently
privatized enterprises, in which the Fund's participation may be limited or
otherwise affected by local law.
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There can be no assurance that governments with privatization programs will
continue such programs or that privatization will succeed in such countries.
Because securities issued by utilities companies are particularly
sensitive to movement in interest rates, the equity securities of such
companies are more affected by movements in interest rates than are the
equity securities of other companies.
Each of these risks could adversely affect the ability and inclination of
public utilities companies to declare or pay dividends and the ability of
holders of common stock, such as UTILITIES INCOME FUND, to realize any value
from the assets of the company upon liquidation or bankruptcy.
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, that 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.
The interest rate on a floating rate obligation is based on a known
lending rate, such as a bank's prime rate, and is adjusted automatically each
time such rate is adjusted. The interest rate on a variable rate obligation
is adjusted automatically at specified intervals. Frequently, such
obligations are secured by letters of credit or other credit support
arrangements provided by banks. Because these obligations are direct lending
arrangements between the lender and borrower, it is not contemplated that
such instruments generally will be traded, and there is generally no
established secondary market for these obligations, although they are
redeemable at face value. Accordingly, where these obligations are not
secured by letters of credit or other credit support arrangements, the right
of the Fund to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Such obligations frequently are not rated
by credit rating agencies. The Fund will invest in obligations that are
unrated only if the Adviser determines that, at the time of investment, the
obligations are of comparable quality to the other obligations in which the
Fund may invest. The Adviser, on behalf of the Fund, will consider on an
ongoing basis the creditworthiness of the issuers of the floating and
variable rate obligations in the Fund's portfolio.
VARIABLE RATE DEMAND INSTRUMENTS. CASH MANAGEMENT FUND may invest in
variable rate demand instruments ("VRDIs"). VRDIs generally are revenue
bonds, issued primarily by or on behalf of public authorities, and are not
backed by the taxing power of the issuing authority. The interest on VRDIs
is adjusted periodically, and the holder of a VRDI can demand payment of all
unpaid principal plus accrued interest from the issuer on not more than seven
calendar days' notice. An unrated VRDI purchased by the Fund must be backed
by a standby letter of credit of a creditworthy financial institution or a
similar obligation of at least equal quality. The Fund periodically
reevaluates the credit risks of such unrated instruments. There is a
recognized after-market for VRDIs. VRDIs may include instruments where
adjustments to interest rates are
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limited either by state law or the instruments themselves. As a result,
these instruments may experience greater changes in value than would
otherwise be the case. The maturity of VRDIs is deemed to be the longer of
the (a) demand period or (b) time remaining until the next adjustment to the
interest rate thereon, regardless of the stated maturity on the instrument.
Benefits of investing in VRDIs may include reduced risk of capital
depreciation and increased yield when market interest rates rise. However,
owners of such instruments forego the opportunity for capital appreciation
when market interest rates fall. See the SAI for more information concerning
VRDIs.
WARRANTS. HIGH YIELD FUND, INTERNATIONAL SECURITIES FUND and UTILITIES
INCOME FUND may purchase warrants, which are instruments that permit the Fund
to acquire, by subscription, the capital stock of a corporation at a set
price, regardless of the market price for such stock. Warrants may be either
perpetual or of limited duration. There is a greater risk that warrants
might drop in value at a faster rate than the underlying stock. HIGH YIELD
FUND may invest up to 35% of its total assets in warrants. International
Securities Fund may invest up to 15% of its total assets in warrants.
UTILITIES INCOME FUND may invest up to 65% of its total assets in warrants.
WHEN-ISSUED SECURITIES. GROWTH FUND, HIGH YIELD FUND, INTERNATIONAL
SECURITIES FUND, INVESTMENT GRADE FUND, TARGET MATURITY 2007 FUND, TARGET
MATURITY 2010 FUND AND UTILITIES INCOME FUND each may invest up to 5%, and
Government Fund may invest up to 25%, of its net assets in securities issued
on a when-issued or delayed delivery basis at the time the purchase is made.
Under such an arrangement, delivery of, and payment for, a security occurs up
to 60 days after the agreement to purchase the security is made by a Fund.
The purchase price to be paid by a Fund and the interest rate on the
instruments to be purchased are both selected when a Fund agrees to purchase
the securities "when-issued." When a Fund purchases securities on a
when-issued basis, it assumes the risks of ownership, including the risk of
price fluctuation, at the time of purchase, not at the time of receipt.
Failure of the issuer to deliver a security purchased by a Fund on a
when-issued basis may result in a Fund incurring a loss or missing an
opportunity to make an alternative investment. Each Fund is permitted to sell
when-issued securities prior to issuance of such securities, but will not
purchase such securities with that purpose intended. Securities purchased on
a when-issued basis are subject to the risk that yields available in the
market, when delivery takes place, may be higher than the rate to be received
on the securities a Fund is committed to purchase. For a further discussion
of when-issued securities, see "When-Issued Securities" in the SAI.
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. Original issue discount earned each year on zero coupon
securities and the "interest" on pay-in-kind securities must be accounted for
by the Fund that holds the securities for purposes of determining the amount
it must distribute that year to continue to qualify for tax treatment as a
regulated investment company. Thus, a Fund may be required to distribute as a
dividend an amount that is greater than the total amount of cash it actually
receives. See "Taxes" in the SAI. These distributions must be made from a
Fund's cash assets or, if necessary, from the
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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.
OTHER INVESTMENT POLICIES -- PORTFOLIO TURNOVER
The GOVERNMENT FUND was substantially restructured during 1997 to improve
its total return. In particular, the Fund purchased seasoned, high coupon
mortgage-backed bonds with very low prepayments; and the Fund purchased U.S.
Treasury and Agency securities to extend its duration. In addition, the Fund
occasionally bought or sold Treasury and Agency securities to make
incremental changes in the Fund's duration. This resulted in a portfolio
turnover rate for the fiscal year ended December 31, 1997 of 134%. A high
rate of portfolio turnover (100% or more) generally leads to increased
transaction costs and may result in a greater number of taxable transactions.
See "Allocation of Portfolio Brokerage" in the SAI. 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
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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 New York Stock Exchange ("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 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
Administrative Data Management Corp. 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,
1997, 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, TARGET MATURITY 2010 FUND and UTILITIES
INCOME FUND.
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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 January 31, 1998, WMC held investment management
authority with respect to approximately $178 billion of assets. Of that
amount, WMC acted as investment adviser or subadviser to approximately 93
registered investment companies or series of such companies, with net assets
of approximately $117 billion as of December 31, 1997. WMC is not affiliated
with the Adviser or any of its affiliates.
For the fiscal year ended December 31, 1997, the Subadviser's fees
amounted to 0.30% of GROWTH FUND'S average daily net assets and 0.37% 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. Ms. Poitra also is responsible for the management of certain
other First Investors funds. Ms. Poitra joined FIMCO in 1985 as a Senior
Equity Analyst
Since January 1, 1998, THE BLUE CHIP FUND has been co-managed by Dennis T.
Fitzpatrick and Kimberly Speegle. Mr. Fitzpatrick and Ms. Speegle also
co-manage certain other First Investors funds. 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. Ms. Speegle joined FIMCO in August 1997 as an
Assistant Portfolio Manager. From March 1997 to August 1997, Ms. Speegle was
an Investment Analyst at Sale Asset Management and from 1992 to 1995, she was
a Portfolio Manager for the Clark Family.
George V. Ganter has been Portfolio Manager of the HIGH YIELD FUND since
1989. Mr. Ganter is also Portfolio Manager of certain other First Investors
funds. Mr. Ganter joined FIMCO in 1985 as a Senior Investment Analyst.
Since early January 1998, Jack B. Wolfman has been Portfolio Manager of
the UTILITIES INCOME FUND. Mr. Wolfman also is Portfolio Manager of the
Utilities Income Fund of First Investors Series Fund II, Inc. Prior to
joining FIMCO on January 7, 1998, Mr. Wolfman was an Analyst with the New
York City Housing Authority, Office of Administrative Methods and Analysis
from 1996 to 1998, a Senior Economist, North American Director with Wharton
Econometric Forecasting Associates, Inc. from 1992 to 1993, a Senior
Economist with Economic
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Consulting & Planning, Inc. from 1987 to 1992 and an Economist with Merrill
Lynch Economics, Inc. from 1980 to 1987.
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 had primarily responsibility for the day-to-day management of the
INVESTMENT GRADE FUND. Ms. Jones also is Portfolio Manager of certain other
First Investors funds. Ms. Jones joined FIMCO in 1983 as Director of
Research in the High Yield Department.
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.
Mr. Wagner is also Portfolio Manager of certain other First Investors funds.
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 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. Trond Skramstad, Senior
Vice President and Director of International Equity Investments, and Andrew
S. Offit, Vice President and Associate Portfolio Manger, have primary
responsibility for the day to day management of the INTERNATIONAL SECURITIES
FUND. Mr. Skramstad is chairman of WMC's Global Equity Strategy Group which
is a group of regional equity portfolio managers and senior investment
professionals responsible for providing investment research and
recommendations.
Prior to joining WMC in 1993, Mr. Skramstad was an international equity
portfolio manager and principal at Scudder, Steven & Clark since 1990. Prior
to joining WMC in 1997, Mr. Offit was a portfolio manager at Chestnut Hill
Management during 1997, and at Fidelity Investments since 1987.
BROKERAGE. Each Fund may allocate brokerage commissions, if any, to
broker-dealers in consideration of Fund share distribution, but only when
execution and price are comparable to that offered by other broker-dealers.
Brokerage may be directed to brokers who provide research. See the SAI for
more information on allocation of portfolio brokerage.
DETERMINATION OF NET ASSET VALUE
The net asset value of shares of each Fund is determined as of the close
of regular trading on the NYSE (generally 4:00 P.M., New York City time) on
each day the NYSE is open for trading, and at such other times as 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, Martin Luther
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King, Jr. 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, which generally
declares dividends from net investment income daily and pays them monthly.
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 for those purposes
consists of (i) accrued interest, plus or minus (ii) all realized short-term
gains and losses on the Fund's securities, less (iii) accrued expenses.
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. Each dividend and other distribution is 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 it distributes to its shareholders.
Shares of the Funds are offered only to the Separate Accounts, which are
insurance company separate accounts that fund the Policies and 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 contract.
Please refer to "Federal Income Tax Status" in the Prospectuses of the
Separate Accounts for information as to the tax status of those accounts and
the holders of the Contracts or Policies.
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 each Separate Account -- and of each Fund, because section 817(h)
and those regulations treat the assets of a Fund as assets of the related
Separate Account -- 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
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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 the Separate Accounts.
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.
SHAREHOLDER INQUIRIES. Shareholder inquiries can be made by calling First
Investors Life at 212-858-8200.
ANNUAL AND SEMI-ANNUAL REPORTS AND PROSPECTUSES TO SHAREHOLDERS. It is
each 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. In addition, if the SEC adopts a currently pending
proposed rule, it is the Life Series Fund's intention to mail only one copy
of its Prospectus to any address at which more than one shareholder with the
same last name has indicated that mail is to be delivered.
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Additional copies of the Prospectus will be mailed if requested in writing or
by telephone by any shareholder.
YEAR 2000. Like other mutual funds, the Funds could be adversely affected
if the computer and other information processing systems used by the Adviser,
Subadviser, Transfer Agent and other service providers are not properly
programmed to process date-related information on and after January 1, 2000.
Such systems typically have been programmed to use a two-digit number to
represent the year for any date. As a result, computer systems could
incorrectly misidentify "00" as 1900, rather than 2000, and make mistakes
when performing operations. The Adviser and Transfer Agent are taking steps
that they believe are reasonably designed to address the Year 2000 problem
for computer and other systems used by them and are obtaining assurances that
comparable steps are being taken by the Funds' other service providers.
However, there can be no assurance that these steps will be sufficient to
avoid any adverse impact on the Funds. Nor can the Funds estimate the extent
of any impact.
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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.
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
39
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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.
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.
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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 . . . . . . . . . . . . . . . . . . . 11
How to Buy Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
How to Redeem Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . 35
Dividends and Other Distributions. . . . . . . . . . . . . . . . . . . . 36
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
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
SUBADVISER Harriman & Co.
Wellington Management 40 Water Street
Company, LLP Boston, MA 02109
75 State Street
Boston, MA 02109 AUDITORS
Tait, Weller & Baker
TRANSFER AGENT 8 Penn Center Plaza
Administrative Data Philadelphia, PA 19103
Management Corp.
581 Main Street LEGAL COUNSEL
Woodbridge, NJ 07095-1198 Kirkpatrick & Lockhart LLP
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
Variable Annuity
Fund D
- -----------------------
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
Prospectuses
- ----------------------------
April 30, 1998
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
LIFE078
<PAGE>
FIRST INVESTORS LIFE VARIABLE ANNUITY FUND D
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
OFFERED BY
FIRST INVESTORS LIFE INSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION DATED APRIL 30, 1998
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 April 30, 1998, 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
<TABLE>
<CAPTION>
PAGE
<S> <C>
General Description. . . . . . . . . . . . . . . . . . . . . . . 2
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Annuity Payments . . . . . . . . . . . . . . . . . . . . . . . . 3
Other Information. . . . . . . . . . . . . . . . . . . . . . . . 4
Performance Information. . . . . . . . . . . . . . . . . . . . . 5
Relevance of Financial Statements. . . . . . . . . . . . . . . . 9
Appendices . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Financial Statements . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
1
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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.
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.
UNDERWRITER. First Investors Life and Separate Account D have entered
into an Underwriting Agreement with FIC. 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. For the fiscal year ended December
31, 1997, FIC received fees of $766,531 in connection with the distribution
of the Contracts in a continuous offering.
The Contracts are sold by insurance agents licensed to sell variable
annuities, who are registered representatives of the Underwriter.
2
<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
3
<PAGE>
Annuitant and any Joint Annuitant at the Annuity Commencement Date. The
Contract contains a 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 five 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 Unit 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 Fund are not reasonably practical or it is not
reasonably practical to determine the value of the Fund's 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.
No assignment of a Contract shall be binding on First Investors Life unless
such assignment is in writing and is filed with First Investors Life at its
Home Office
4
<PAGE>
PERFORMANCE INFORMATION
Separate Account D may advertise the performance of the Subaccounts in
various ways.
The yield for a Subaccount (other than the 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 Subaccount 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 net
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.
For a Subaccount, other than the Cash Management Subaccount, the
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, other than the Cash
Management Subaccount, will assume the payment of the applicable CDSC imposed
on a surrender of purchase payments for the applicable period, the payment of
applicable Mortality and Expense Risk and administrative charges of 1.40%
("P"), and the payment of the $30 annual contract maintenance charge. Each
Subaccount, other than the Cash Management 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.
Average annual total return and total return computed at the public
offering price (using the applicable CDSC) for the period ended December 31,
1997 for each Subaccount, other than the Cash Management Subaccount, are set
forth in the tables below:
5
<PAGE>
AVERAGE ANNUAL TOTAL RETURN (1)
<TABLE>
<CAPTION>
Life of
Subaccount (2)
-------------
<S> <C>
Blue Chip Subaccount (5.27%)
Discovery Subaccount (4.81%)
Government Subaccount (4.23%)
Growth Subaccount (3.76%)
High Yield Subaccount (2.89%)
International Securities Subaccount (13.55%)
Investment Grade Subaccount (3.73%)
Target Maturity 2007 Subaccount (.90%)
Target Maturity 2010 Subaccount .87%
Utilities Income Subaccount 9.62%
</TABLE>
TOTAL RETURN (1)
<TABLE>
<CAPTION>
Life of
Subaccount (2)
-------------
<S> <C>
Blue Chip Subaccount (5.27%)
Discovery Subaccount (4.81%)
Government Subaccount (4.23%)
Growth Subaccount (3.76%)
High Yield Subaccount (2.89%)
International Securities Subaccount (13.55%)
Investment Grade Subaccount (3.73%)
Target Maturity 2007 Subaccount (.90%)
Target Maturity 2010 Subaccount .87%
Utilities Income Subaccount 9.62%
</TABLE>
Nonstandardized average annual total return and total return may also be
advertised using net asset value per Accumulation Unit at the end of the
relevant base period --- i.e., without deducting any applicable CDSC. The
calculation will be made using the standardized formula except that ending
net asset value per Accumulation Unit will be substituted for ending
redeemable value. Any quotation of return not reflecting an applicable CDSC
will be greater than if the CDSC were reflected. Nonstandardized average
annual total return and total return computed at net asset value for the
period ended December 31, 1997 for each Subaccount, other than the Cash
Management Subaccount, are set forth in the tables below:
- ---------------------------
(1) Some of the expenses for the underlying Funds were waived or reimbursed
from commencement of operations through December 31, 1997. Accordingly,
return figures for the Subaccounts are higher than they would have been had
such expenses not been waived or reimbursed.
(2) The inception date for each of the Subaccounts is July 28, 1997.
6
<PAGE>
NONSTANDARDIZED AVERAGE ANNUAL TOTAL RETURN (1)
<TABLE>
<CAPTION>
Life of
Subaccount (2)
-------------
<S> <C>
Blue Chip Subaccount 1.73%
Discovery Subaccount 2.19%
Government Subaccount 2.77%
Growth Subaccount 3.24%
High Yield Subaccount 4.11%
International Securities Subaccount (7.05%)
Investment Grade Subaccount 3.27%
Target Maturity 2007 Subaccount 6.10%
Target Maturity 2010 Subaccount 7.87%
Utilities Income Subaccount 16.62%
</TABLE>
TOTAL RETURN (1)
<TABLE>
<CAPTION>
Life of
Subaccount (2)
-------------
<S> <C>
Blue Chip Subaccount 1.73%
Discovery Subaccount 2.19%
Government Subaccount 2.77%
Growth Subaccount 3.24%
High Yield Subaccount 4.11%
International Securities Subaccount (7.05%)
Investment Grade Subaccount 3.27%
Target Maturity 2007 Subaccount 6.10%
Target Maturity 2010 Subaccount 7.87%
Utilities Income Subaccount 16.62%
</TABLE>
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
a Fund in order to reduce such Fund's expenses. Any such waiver or
reimbursement would increase the corresponding Subacount'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. The 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.
- ---------------------------
(1) Some of the expenses for the underlying Funds were waived or reimbursed
from commencement of operations through December 31, 1997. Accordingly,
return figures for the Subaccounts are higher than they would have been had
such expenses not been waived or reimbursed.
(2) The inception date for each of the Subaccounts is July 28, 1997
<PAGE>
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.
8
<PAGE>
The following is an example, for purposes of illustration only, of the
current and effective yield calculation for the seven day period ended
December 31, 1997.
<TABLE>
<S> <C>
Dividends per accumulation unit from net investment income
(seven calendar days ended December 31, 1997)
(Base Period)....................................................$.00098011
Annualized (365 day basis)*......................................$.050758442
Average value per accumulation unit for the
seven calendar days ended December 31, 1997......................$1.00
Annualized historical yield per accumulation unit for the
seven calendar days ended December 31, 1997......................5.11%
Effective Yield**................................................5.23%
Weighted average life to maturity of the
portfolio on December 31, 1997 was 56 days
</TABLE>
*This represents the average of annualized net investment income per
accumulation unit for the seven calendar days ended December 31, 1997.
**Effective Yield=[ (Base Period Return + 1)365/7] -1
The figures in the above example do not include the CDSC. Accordingly,
all yield quotations are higher than they would have been had such CDSC been
included.
Separate Account D's Prospectus and Statement of Additional Information
may be in use for a full year and, accordingly, it can be expected that
yields will fluctuate substantially from the example shown above.
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.
9
<PAGE>
APPENDICES
10
<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
----- - D
C
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..................... = 1.01426438
-------------- - .00003836
8.39000000
</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>
11
<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:
A A
Annuity Units Payable = - - (CxD), if - is greater than CxD
B B
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
</TABLE>
Then the number of Annuity Units Payable:
<TABLE>
<S> <C>
$20,000.00
----------- - (116.61488844 x 30)
$1.08353012
= 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
12
<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 31/2% 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
A
First Monthly Variable Annuity Payment = ------ x B
$1,000
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
</TABLE>
$20,000
Then, the first Monthly Variable Payment = ------- x $6.40 = $128.00
$1,000
13
<PAGE>
EXAMPLE C
FORMULA AND ILLUSTRATION FOR DETERMINING
THE NUMBER OF ANNUITY UNITS FOR SEPARATE ACCOUNT D
REPRESENTED BY EACH MONTHLY VARIABLE ANNUITY PAYMENT
A
Number of Annuity Units = -
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
</TABLE>
$128.00
Then, the number of Annuity Units = ----------- = 116.61488844
$1.09763000
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
</TABLE>
Then, the second monthly Variable Annuity Payment = 116.61488844 x $1.11834234 =
$130.42
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
14
<PAGE>
Financial Statements as of
December 31, 1997
15
<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, 1997 and 1996, and the related statements
of income, stockholder's equity and cash flows for each of the three years in
the period ended December 31, 1997. 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, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 19, 1998
16
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Investments (note 2):
Available-for-sale securities. . . . . . . . . . . . . . . $125,380,627 $114,011,891
Held-to-maturity securities. . . . . . . . . . . . . . . . 5,529,687 5,549,214
Short term investments . . . . . . . . . . . . . . . . . . 3,083,769 7,667,491
Policy loans . . . . . . . . . . . . . . . . . . . . . . . 21,527,810 18,865,648
------------- ------------
Total investments . . . . . . . . . . . . . . . . . . . 155,521,893 146,094,244
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,145,215 901,980
Premiums and other receivables, net of allowances of
$30,000 in 1997 and 1996 . . . . . . . . . . . . . . . . . 4,749,099 3,998,210
Accrued investment income. . . . . . . . . . . . . . . . . . 3,180,924 2,903,566
Deferred policy acquisition costs (note 6) . . . . . . . . . 18,446,716 17,547,129
Deferred Federal income taxes (note 7) . . . . . . . . . 1,039,000 934,000
Furniture, fixtures and equipment, at cost, less accumulated
depreciation of $1,075,336 in 1997 and $925,736 in 1996. . 97,379 146,078
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 120,044 136,302
Separate account assets. . . . . . . . . . . . . . . . . . . 642,453,414 465,456,848
------------ ------------
Total assets. . . . . . . . . . . . . . . . . . . . . . $826,753,684 $638,118,357
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Policyholder account balances (note 6) . . . . . . . . . . . $115,281,318 $113,295,474
Claims and other contract liabilities. . . . . . . . . . . . 12,548,096 12,190,281
Accounts payable and accrued liabilities . . . . . . . . . . 4,426,355 3,730,943
Separate account liabilities . . . . . . . . . . . . . . . . 642,453,314 464,852,507
------------ ------------
Total liabilities . . . . . . . . . . . . . . . . . . . 774,709,083 594,069,205
------------ ------------
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). . . . . . . . . . . . . . . . . . . . 1,608,000 644,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . 41,402,258 34,370,809
------------ ------------
Total stockholder's equity. . . . . . . . . . . . . . . 52,044,601 44,049,152
------------ ------------
Total liabilities and stockholder's equity. . . . . . . $826,753,684 $638,118,357
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31,1996 DECEMBER 31,1995
----------------- ---------------- ----------------
<S> <C> <C> <C>
REVENUES
Policyholder fees. . . . . . . . . . . . . . . . . . . . . . $24,826,454 $22,955,165 $19,958,420
Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . 6,279,137 6,725,329 7,293,719
Investment income (note 2) . . . . . . . . . . . . . . . . . 10,259,601 9,771,389 9,363,212
Realized gain (loss) on investments. . . . . . . . . . . . . 158,874 (221,025) 373,582
Other income . . . . . . . . . . . . . . . . . . . . . . . . 702,644 704,678 835,703
------------ ------------ ------------
Total income. . . . . . . . . . . . . . . . . . . . . . . 42,226,710 39,935,536 37,824,636
------------ ------------ ------------
BENEFITS AND EXPENSES
Benefits and increases in contract liabilities . . . . . . . 14,370,510 12,912,810 13,027,516
Dividends to policyholders . . . . . . . . . . . . . . . . . 1,033,663 964,913 954,384
Amortization of deferred acquisition costs (note 6). . . . . 663,200 1,454,408 1,672,429
Commissions and general expenses . . . . . . . . . . . . . . 15,445,888 16,287,498 15,773,968
------------ ------------ ------------
Total benefits and expenses . . . . . . . . . . . . . . . 31,513,261 31,619,629 31,428,297
------------ ------------ ------------
Income before Federal income tax . . . . . . . . . . . . . . . 10,713,449 8,315,907 6,396,339
Federal income tax (note 7):
Current . . . . . . . . . . . . . . . . . . . . . . . . . . 4,285,000 3,099,000 2,553,000
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . (603,000) (286,000) (376,000)
------------ ------------ ------------
3,682,000 2,813,000 2,177,000
------------ ------------ ------------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,031,449 $ 5,502,907 $ 4,219,339
------------ ------------ ------------
------------ ------------ ------------
Income per share, based on 534,350 shares outstanding. . . . . $ 13.16 $ 10.30 $ 7.90
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31,1996 DECEMBER 31,1995
----------------- ---------------- ----------------
<S> <C> <C> <C>
Balance at beginning of year . . . . . . . . . . . . . . . . . $ 44,049,152 $ 39,780,245 $ 31,196,906
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . 7,031,449 5,502,907 4,219,339
Increase (decrease) in unrealized holding gains on
available-for-sale securities. . . . . . . . . . . . . . . . 964,000 (1,234,000) 4,364,000
------------ ------------ ------------
Balance at end of year . . . . . . . . . . . . . . . . . . . . $ 52,044,601 $ 44,049,152 $ 39,780,245
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31,1996 DECEMBER 31,1995
----------------- ---------------- ----------------
<S> <C> <C> <C>
Increase (decrease) in cash:
Cash flows from operating activities:
Policyholder fees received. . . . . . . . . . . . . . . . $ 24,587,113 $ 22,925,131 $ 19,374,522
Premiums received . . . . . . . . . . . . . . . . . . . . 6,088,582 6,413,009 6,895,096
Amounts received on policyholder accounts . . . . . . . . 125,818,334 105,489,481 87,156,662
Investment income received. . . . . . . . . . . . . . . . 10,263,095 9,964,169 9,360,894
Other receipts. . . . . . . . . . . . . . . . . . . . . . 57,287 55,779 69,621
Benefits and contract liabilities paid. . . . . . . . . . (138,420,373) (117,321,389) (101,642,156)
Commissions and general expenses paid . . . . . . . . . . (20,899,476) (20,857,687) (18,176,870)
------------ ------------ ------------
Net cash provided by (used for) operating activities. . . 7,494,562 6,668,493 3,037,769
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sale of investment securities . . . . . . . 38,900,851 39,062,702 58,755,827
Purchase of investment securities . . . . . . . . . . . . (44,021,791) (44,134,604) (58,622,646)
Purchase of furniture, equipment and other assets . . . . (62,170) (34,485) (128,442)
Net increase in policy loans. . . . . . . . . . . . . . . (2,662,162) (1,848,956) (2,330,591)
Investment in Separate Account . . . . . . . . . . . . . 593,945 (200) (500,000)
------------ ------------ ------------
Net cash provided by (used for) investing activities. . . (7,251,327) (6,955,543) (2,825,852)
Net increase (decrease) in cash . . . . . . . . . . . . . 243,235 (287,050) 211,917
Cash
Beginning of year . . . . . . . . . . . . . . . . . . . . . 901,980 1,189,030 977,113
------------ ------------ ------------
End of year . . . . . . . . . . . . . . . . . . . . . . . . $ 1,145,215 $ 901,980 $ 1,189,030
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The Company received a refund of Federal income tax of $79,000 in 1997 and
$102,000 in 1996 and paid Federal income tax of $4,283,000 in 1997, $3,243,000
in 1996 and $2,125,000 in 1995.
See accompanying notes to financial statements.
19
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Reconciliation of net income to net cash
provided by (used for) operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 7,031,449 $ 5,502,907 $ 4,219,339
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization. . . . . . . . . . . 117,804 130,924 141,121
Amortization of deferred policy acquisition costs. 663,200 1,454,408 1,672,429
Realized investment (gains) losses . . . . . . . . . . . . (158,874) 221,025 (373,582)
Amortization of premiums and discounts on
investments. . . . . . . . . . . . . . . . . . . . 280,852 262,785 237,472
Deferred Federal income taxes. . . . . . . . . . . (603,000) (286,000) (376,000)
Other items not requiring cash - net . . . . . . . 9,771 6,794 (112,268)
(Increase) decrease in:
Premiums and other receivables, net. . . . . . . . (750,889) 336,385 (433,106)
Accrued investment income. . . . . . . . . . . . . (277,358) (70,005) (239,790)
Deferred policy acquisition costs, exclusive
of amortization. . . . . . . . . . . . . . . . . . (1,866,787) (1,275,323) (1,117,752)
Other assets . . . . . . . . . . . . . . . . . . . 9,323 (18,574) 64,490
Increase (decrease) in:
Policyholder account balances. . . . . . . . . . . 1,985,844 (78,699) (1,882,591)
Claims and other contract liabilities. . . . . . . 357,815 901,173 551,392
Accounts payable and accrued liabilities . . . . . 695,412 (419,307) 686,615
------------ ----------- ------------
$ 7,494,562 $ 6,668,493 $ 3,037,769
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
See accompanying notes to financial statements.
20
<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 over
three to seven years.
(c) INVESTMENTS. Investments in equity securities that have readily
determinable fair values and all investments in debt securities are classified
in 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.
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.
21
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Short term investments are reported at market value which approximates
cost.
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 31,1997 DECEMBER 31, 1996 DECEMBER 31,1995
---------------- ----------------- ----------------
<S> <C> <C> <C>
Interest on fixed maturities . . . . . . . . . . . . . . . . $ 9,029,979 $ 8,559,429 $ 8,243,748
Interest on short term investments . . . . . . . . . . . . . 307,656 410,930 451,475
Interest on policy loans . . . . . . . . . . . . . . . . . . 1,268,834 1,151,681 973,242
Dividends on equity securities . . . . . . . . . . . . . . . -- 43,756 58,305
------------ ----------- ------------
Total investment income . . . . . . . . . . . . . . . . 10,606,469 10,165,796 9,726,770
Investment expense. . . . . . . . . . . . . . . . . . . 346,868 394,407 363,558
------------ ----------- ------------
Net investment income. . . . . . . . . . . . . . . . . . . . $10,259,601 $ 9,771,389 $ 9,363,212
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
The amortized cost and estimated market values of investments at December 31,
1997 and 1996 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, 1997
U.S. Treasury Securities and obligations
of U.S. Government Corporations
and Agencies. . . . . . . . . . . . . . . . . $ 39,532,729 $ 975,819 $ -- $ 40,508,548
Debt Securities issued by
States of the U.S.. . . . . . . . . . . . . . 7,309,135 92,015 -- 7,401,150
Corporate Debt Securities. . . . . . . . . . . . 67,900,325 1,739,318 75,913 69,563,730
Other Debt Securities . . . . . . . . . . . . . 7,606,438 300,761 -- 7,907,199
------------ ----------- ------- ------------
$122,348,627 $ 3,107,913 $75,913 $125,380,627
------------ ----------- ------- ------------
------------ ----------- ------- ------------
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
------------ ------------ --------- -------------
------------ ------------ --------- -------------
</TABLE>
22
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1997 and 1996, the Company recognized "Unrealized Holding
Gains on Available-For-Sale Securities" of $1,608,000 and $644,000, net of
applicable deferred income taxes and amortization of deferred acquisition costs.
The change in the Unrealized Holding Gains (Losses) of $964,000, ($1,234,000)
and $4,364,000 for 1997, 1996 and 1995, respectively is reported as a separate
component of stockholders' equity.
<TABLE>
<CAPTION>
HELD-TO-MATURITY SECURITIES
DECEMBER 31,1997
<S> <C> <C> <C> <C>
U.S. Treasury Securities and obligations
of U.S. Government Corporations
and Agencies*. . . . . . . . . . . . . . . . . . $ 3,419,687 $ 90,126 $ 700 $ 3,509,113
Corporate Debt Securities. . . . . . . . . . . . . 2,000,000 109,000 -- 2,109,400
Other Debt Securities. . . . . . . . . . . . . . . 110,000 -- -- 110,000
------------ ---------- ------------- -----------
$ 5,529,687 $ 199,126 $ 700 $ 5,728,513
------------ ---------- ------------- -----------
------------ ---------- ------------- -----------
DECEMBER 31,1996
U.S. Treasury Securities and obligations
of U.S. Government Corporations
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
------------ ---------- ------------- -----------
------------ ---------- ------------- -----------
</TABLE>
*These securities are on deposit for various state insurance departments and are
therefore restricted as to sale.
The amortized cost and estimated market value of debt securities at December
31, 1997, 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. . . . . . . . . . $ 363,473 $ 362,773 $ 6,608,708 $ 6,633,659
Due after one year through five years. . . 2,634,603 2,715,715 37,905,751 38,828,513
Due after five years through ten years . . 531,611 540,625 50,889,338 52,290,280
Due after ten years. . . . . . . . . . . . 2,000,000 2,109,400 26,944,831 27,628,175
---------- ----------- ------------- ------------
$5,529,687 $5,728,513 $122,348,628 $125,380,627
---------- ---------- ------------- ------------
---------- ---------- ------------- ------------
</TABLE>
Proceeds from sales of investments in fixed maturities were $34,316,604,
$39,046,422 and $56,949,635 in 1997, 1996 and 1995, respectively. Gross gains
of $374,583 and gross losses of $215,709 were realized on those sales in 1997.
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.
23
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(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.
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.
24
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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,
1997, 1996 and 1995, the Company charged operations approximately $70,000,
$100,000 and $40,000 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 $419,000 in 1997, $414,000 in 1996 and $375,000 in 1995. The
accrued liability of approximately $2,913,000 in 1997 and $2,858,000 in 1996 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 1997 and 1996 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, 1997, 1996 and 1995. The Company also had
assumed reinsurance amounting to approximately 20%, 21% and 20% 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.
25
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(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, 1997, 1996 and 1995, the
Company paid approximately $1,114,000, $1,222,000 and $1,282,000, respectively,
for these services. In addition, the Company reimbursed an affiliate
approximately $9,814,000 in 1997, $9,709,000 in 1996,and $8,739,000 in 1995 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 $332,000 at December 31, 1997 and $326,000 at December
31, 1996.
(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.
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, 1997, 1996 and 1995 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
---------------------- --------------------------
1997 1996 1995 1997 1996 1995
----------- ---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Reported on a statutory basis. . . . . . $5,809,629 $5,002,533 $3,705,334 $32,159,721 $26,580,877 $21,600,537
----------- ---------- ---------- ----------- ----------- -----------
Adjustments:
Deferred policy acquisition costs (b). . 351,239 (179,085) (554,677) 18,446,716 17,547,129 17,318,214
Future policy benefits (a) . . . . . . 133,848 514,086 422,387 (3,000,589) (2,398,397) (2,912,483)
Deferred income taxes. . . . . . . . . 603,000 286,000 376,000 1,039,000 934,000 12,000
Premiums due and deferred (e). . . . . 84,291 85,461 80,133 (1,274,816) (1,359,107) (1,444,568)
Cost of colletion and other statutory
liabilities . . . . . . . . . . . . (924) (12,283) (16,318) 36,060 36,984 49,267
Non-admitted assets. . . . . . . . . . -- -- -- 224,411 298,731 395,758
Asset valuation reserve. . . . . . . . -- -- -- 1,325,986 1,136,664 1,016,830
Interest maintenance reserve . . . . . (55,019) (48,542) (40,804) 56,112 6,271 200,690
Gross unrealized holding gains on
available-for-sale securities . . -- -- -- 3,032,000 1,266,000 3,544,000
Net realized capital gains (losses). . 158,874 (221,025) 373,582 -- -- --
Other . . . . . . . . . . . . . . . (53,489) 75,762 (126,298) -- -- --
----------- ---------- ---------- ----------- ----------- -----------
1,221,820 500,374 514,005 19,884,880 17,468,275 18,179,708
----------- ---------- ---------- ----------- ----------- -----------
In accordance with generally accepted
accounting principles. . . . . . . . . $7,031,449 $5,502,907 $4,219,339 $52,044,601 $44,049,152 $39,780,245
----------- ---------- ---------- ----------- ----------- -----------
----------- ---------- ---------- ----------- ----------- -----------
Per share, based on 534,350 shares
outstanding. . . . . . . . . . . . . . $13.16 $10.30 $7.90 $97.40 $82.44 $74.45
----------- ---------- ---------- ----------- ----------- -----------
----------- ---------- ---------- ----------- ----------- -----------
</TABLE>
26
<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
- ------------------------------------------------------------------------------------------
1996 1995 YEARS OF ISSUE INTEREST MORTALITY TABLE WITHDRAWAL
- ---- ---- -------------- -------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Non-par:
$1,505,551 $ 1,655,040 1962-1967 4 1/2% 1955-60 Basic Select plus Ultimate Linton B
5,310,394 5,814,885 1968-1988 5 1/2% 1955-60 Basic Select plus Ultimate Linton B
2,433,724 2,546,702 1984-1988 7 1/2% 85% of 1965-70 Basic Select Modified
plus Ultimate Linton B
101,775 86,508 1989-Present 7 1/2% 1975-80 Basic Select plus Ultimate Linton B
108,985 113,117 1989-Present 7 1/2% 1975-80 Basic Select plus Ultimate Actual
28,971 34,185 1989-Present 8% 1975-80 Basic Select plus Ultimate Actual
32,412,007 31,902,122 1985-Present 6% Accumulation of Funds --
Par:
224,913 223,500 1966-1967 4 1/2% 1955-60 Basic Select plus Ultimate Linton A
13,273,949 13,357,249 1968-1988 5 1/2% 1955-60 Basic Select plus Ultimate Linton A
899,407 975,132 1981-1984 7 1/4% 90% of 1965-70 Basic Select
plus Ultimate Linton B
4,699,324 4,772,595 1983-1988 9 1/2% 80% of 1965-70 Basic Select
plus Ultimate Linton B
15,977,808 14,031,404 1990-Present 8% 66% of 1975-80 Basic Select
plus Ultimate Linton B
Annuities:
19,581,382 21,779,771 1976-Present 5 1/2% Accumulation of Funds --
Miscellaneous:
19,604,218 16,939,829 1962-Present 2 1/2%-3 1/2% 1958-CSO None
</TABLE>
* The above amounts are before deduction of deferred premiums of $881,090 in
1997 and $936,565 in 1996.
(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 $663,200 in 1997 and $1,454,408 in 1996, $1,672,429
in 1995 was charged to operations.
(c) Participating business represented 9.5% and 9.8% of individual life
insurance in force at December 31, 1997 and 1996, respectively.
The Board of Directors annually approves a dividend formula for calculation
of dividends to be distributed to participating policyholders.
27
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 $22,374,879, $16,796,135 and $11,815,645 at December
31, 1997, 1996 and 1995, 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.
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, 1997 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:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Policyholder dividend provision. . . . . . . . . . . . . . . $ (357,219) $ (332,719)
Non-qualified agents' pension plan reserve . . . . . . . . . (1,161,304) 1,127,384)
Deferred policy acquisition costs. . . . . . . . . . . . . . 2,215,873 2,507,526
Future policy benefits . . . . . . . . . . . . . . . . . . . (2,575,365) 2,346,908)
Bond discount. . . . . . . . . . . . . . . . . . . . . . . . 39,184 28,677
Unrealized holding gains on Available-For-Sale Securities . 829,000 331,000
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . (29,169) 5,808
------------ -----------
$(1,039,000) $ (934,000)
------------ -----------
------------ -----------
</TABLE>
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.
28
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
First Investors Life Insurance Company
New York, New York
We have audited the statement of assets and liabilities of First
Investors Life Variable Annuity Fund D (a separate account of First Investors
Life Insurance Company, registered as a unit investment trust under the
Investment Company Act of 1940), as of December 31, 1997, and the related
statements of operations and changes in net assets for the period from July
28, 1997 (the date of commencement of operations) to December 31, 1997.
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 Variable Annuity Fund D as of December 31, 1997, and the results of its
operations and the changes in its net assets for the period from July 28,
1997 (the date of commencement of operations) to December 31, 1997, in
conformity with generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 19, 1998
29
<PAGE>
FIRST INVESTORS LIFE
VARIABLE ANNUITY FUND D
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments at net asset value (Note 3):
First Investors Life Series Fund . . . . . . . . . . . . . . . $14,689,116
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -0-
-----------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . $14,689,116
-----------
LIABILITIES
Payable to First Investors Life Insurance Company. . . . . . . . 14,837
Other Liabilities. . . . . . . . . . . . . . . . . . . . . . . . 852,348
-----------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . 867,185
-----------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,821,931
-----------
Net assets represented by Contracts in accumulation period . . . . $13,821,931
-----------
</TABLE>
See notes to financial statements.
30
<PAGE>
FIRST INVESTORS LIFE
VARIABLE ANNUITY FUND D
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JULY 28, 1997 (THE DATE OF COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME
Income:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . $2,945
--------
Total income . . . . . . . . . . . . . . . . . . . . . . . . $2,945
--------
Expenses:
Mortality and expense risks (Note 4) . . . . . . . . . . . . . $41,042
--------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . $41,042
--------
NET INVESTMENT LOSS. . . . . . . . . . . . . . . . . . . . . . . . $(38,097)
--------
UNREALIZED APPRECIATION ON INVESTMENTS
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . -0-
End of period. . . . . . . . . . . . . . . . . . . . . . . . . . $104,694
--------
Change in unrealized appreciation on investments . . . . . . . . . $104,694
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . . $66,597
--------
</TABLE>
See notes to financial statements.
31
<PAGE>
FIRST INVESTORS LIFE
VARIABLE ANNUITY FUND D
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM JULY 28, 1997 (THE DATE OF COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Increase in Net Assets
From Operations
Net investment loss . . . . . . . . . . . . . . . . . . . . . $(38,097)
Change in unrealized appreciation on investments . . . . . . . 104,694
-----------
Net increase in net assets resulting from operations . . . . . 66,597
-----------
From Unit Transactions
Net insurance premiums . . . . . . . . . . . . . . . . . . . . 13,775,489
Contract payments. . . . . . . . . . . . . . . . . . . . . . . (20,155)
-----------
Increase in net assets derived from unit transactions. . . . . 13,755,334
-----------
Net increase in net assets. . . . . . . . . . . . . . . . . 13,821,931
Net Assets
Beginning of year. . . . . . . . . . . . . . . . . . . . . . . -0-
-----------
End of year. . . . . . . . . . . . . . . . . . . . . . . . . . $13,821,931
-----------
-----------
</TABLE>
See notes to financial statements.
32
<PAGE>
FIRST INVESTORS LIFE
VARIABLE ANNUITY FUND D
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 -- ORGANIZATION
First Investors Life Variable Annuity Fund D (Separate Account D), a unit
investment trust registered under the Investment Company Act of 1940 (the
1940 Act), is a segregated investment account established by First Investors
Life Insurance Company (FIL). Assets of Separate Account D have been used to
purchase shares of First Investors Life Series Fund (the Fund), an open-end
diversified management investment company registered under the 1940 Act.
NOTE 2 -- SIGNIFICANT ACCOUNTING PRACTICES
INVESTMENTS
Shares of the Fund held by Separate Account D are valued at net
asset value per share. All distributions received from the Fund are
reinvested to purchase additional shares of the Fund at net asset value.
FEDERAL INCOME TAXES
Separate Account D is not taxed separately because its operations are
part of the total operations of FIL, which is taxed as a life insurance
company under the Internal Revenue Code. Separate Account D will not be
taxed as a regulated investment company under Subchapter M of the Code.
Under existing Federal income tax law, no taxes are payable on the
investment income or on the capital gains of Separate Account D.
NOTE 3 -- INVESTMENTS
Investments consist of the following:
<TABLE>
<CAPTION>
NET ASSET MARKET
SHARES VALUE VALUE COST
------- --------- ----------- -----------
<S> <C> <C> <C> <C>
First Investors Life Series Fund
Cash Management. . . . . . . . . . 288,036 $ 1.00 $ 288,036 $ 288,036
High Yield . . . . . . . . . . . . 51,085 12.30 628,552 612,544
Growth . . . . . . . . . . . . . . 122,727 29.24 3,588,551 3,529,939
Discovery. . . . . . . . . . . . . 75,913 27.77 2,107,723 2,170,516
Blue Chip. . . . . . . . . . . . . 183,294 23.71 4,345,840 4,277,887
International Securities . . . . . 108,258 16.91 1,831,074 1,897,746
Government . . . . . . . . . . . . 13,283 10.33 137,212 135,453
Investment Grade . . . . . . . . . 19,913 11.67 232,362 226,006
Utilities Income . . . . . . . . . 26,041 14.95 389,430 358,955
Target Maturity 2007 . . . . . . . 52,902 12.63 668,283 641,872
Target Maturity 2010 . . . . . . 37,177 12.70 472,053 445,468
----------- -----------
$14,689,116 $14,584,422
----------- -----------
----------- -----------
</TABLE>
The High Yield Series' investments in high yield securities, whether
rated or unrated, may be considered speculative and subject to greater market
fluctuations and risks of loss of income and principal than lower yielding,
higher rated, fixed income securities.
NOTE 4 -- MORTALITY AND EXPENSE RISKS AND DEDUCTIONS
In consideration for its assumption of the mortality and expense risks
connected with the Variable Annuity Contracts, FIL deducts an amount equal on
an annual basis to 1.25% of the daily net asset value of Separate Account D.
An additional administrative charge equal on an annual basis to 0.15% of
the daily net asset value is deducted. The total of these deductions in 1997
was $41,042.
An annual contract maintenance charge of $30 is deducted from the
accumulated value of the contract on the last business day of the contract
year or on the date of surrender of the contract, if earlier. There was no
deduction under this provision in 1997.
33
<PAGE>
FIRST INVESTORS LIFE
VARIABLE ANNUITY FUND D
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The Variable Annuity Contracts are sold without an initial sales charge,
but at the time of a full or partial surrender of the Contract, they may be
subject to a contingent deferred sales charge ("CDSC") of 0% to 7% of the
value of the Accumulation Units surrendered.
34
