INDIVIDUAL VARIABLE ANNUITY CONTRACTS
OFFERED BY
FIRST INVESTORS LIFE INSURANCE COMPANY
("FIRST INVESTORS LIFE")
THROUGH
FIRST INVESTORS LIFE VARIABLE ANNUITY FUND C (SEPARATE ACCOUNT C)
FIRST INVESTORS LIFE VARIABLE ANNUITY FUND D (SEPARATE ACCOUNT D)
95 Wall Street, New York, New York 10005/(212) 858-8200
This Prospectus describes deferred Variable Annuity Contracts (the
"Contracts") that First Investors Life Insurance Company is offering you the
opportunity to accumulate capital, on a tax-deferred basis, for retirement or
other long-term purposes and thereafter to annuitize your accumulated cash value
if you so elect. If you elect to annuitize, the Contracts offer several options
under which you can receive annuity payments for life.
The Contracts invest in the same underlying investment portfolios. Whether
you invest in a Separate Account C or Separate Account D Contract, you allocate
your purchase payments (less certain charges) to one of the eleven
"Subaccounts." Each of these Subaccounts invests in a corresponding "Fund" of
First Investors Life Series Fund. The amount you accumulate depends upon the
performance of the Subaccounts in which you invest. You bear all of the
investment risk, which means that you could lose money.
The Contracts differ in that they have (a) different sales charge
structures (b) different death benefits and (c) different expenses. The
Contracts also have different minimum investments. The Separate Account C
Contract may be purchased with as little as $2,000. The Separate Account D
Contracts require a minimum investment of $25,000.
THE INTERNAL REVENUE SERVICE MAY ASSESS A PENALTY ON EARLY WITHDRAWAL. THE
CONTRACTS PROVIDE YOU WITH A 10-DAY REVOCATION RIGHT.
Please read this Prospectus and keep it for future reference. It contains
important information that you should know before buying a Contract. We filed a
Statement of Additional Information ("SAI"), dated April 30, 1999, with the
Securities and Exchange Commission. We incorporate the SAI by reference into
this Prospectus. See page 26 of this Prospectus for the SAI Table of Contents.
You can get a free SAI by contacting us at the address or telephone number shown
above.
The Securities and Exchange Commission has not approved or disapproved
these securities or passed on the adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
This Prospectus is valid only if attached to the current prospectus for First
Investors Life Series Fund ("Life Series Fund").
The date of this Prospectus is April 30, 1999.
<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 that measures the value of a Contractowner's
interest in a Subaccount of Separate Account C or Separate Account D before the
Annuity Commencement Date.
ADDITIONAL PAYMENT - A purchase payment made to First Investors Life after
issuance of a Contract.
ANNUITANT - The person who is designated to receive annuity payments or who
is actually receiving annuity payments.
ANNUITY COMMENCEMENT DATE - The date on which we begin making annuity
payments.
ANNUITY UNIT - A unit that determines the amount of each annuity payment
after the first annuity payment.
BENEFICIARY - The person who is designated to receive any benefits under a
Contract upon the death of the Annuitant or the Contractowners.
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 that 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 C, Separate Account D and other segregated
investment accounts of First Investors Life.
JOINT ANNUITANT - The designated second person under a joint and survivor
life annuity.
PURCHASE PAYMENT - A payment made to First Investors Life to purchase a
Contract.
SEPARATE ACCOUNT C - The segregated investment account entitled "First
Investors Life Variable Annuity Fund C," established by First Investors Life
pursuant to applicable law and registered as a unit investment trust under the
Investment Company Act of 1940 ("1940 Act").
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
1940 Act.
SUBACCOUNT - A segregated investment subaccount under Separate Account C or
Separate Account D that corresponds to a fund of the Life Series Fund. The
assets of a Subaccount are invested in shares of the corresponding fund 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 at the end of any Valuation Date
and extending to the end of the next Valuation Date.
VARIABLE ANNUITY - An annuity with annuity payments that vary in dollar
amount, in accordance with the net investment experience of the Subaccounts,
throughout the payment period.
WE (AND OUR) - First Investors Life Insurance Company.
YOU (AND YOUR) - The prospective contractowner.
2
<PAGE>
FEE TABLES
The two tables below are provided to help you understand the various
charges and expenses you will directly or indirectly bear in purchasing a
contract. The tables show how the charges and expenses for the Contract funded
through Separate Account C ("Separate Account C Contracts") differ from those of
the Contract funded through Separate Account D ("Separate Account D Contracts").
The following table reflects the charges and expenses of the relevant Separate
Account. The table on the next page reflects the fees and expenses of the series
(each a "Fund" and collectively "Funds") of the Life Series Fund in which the
Separate Accounts invest. The Fee Tables reflect expenses expected to be
incurred in 1999.
SEPARATE ACCOUNT EXPENSES
SEPARATE ACCOUNT C (FRONT-LOADED SEPARATE ACCOUNT D (BACK-LOADED
CONTRACT) CONTRACT)
CONTRACTOWNER TRANSACTION EXPENSES CONTRACTOWNER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Maximum Sales Load Imposed on
Purchases (as a percentage of Purchases (as a percentage of
purchase payment)............7.00% purchase payments).............None
Maximum Contingent Deferred Sales Maximum Contingent Deferred Sales
Charge.........................None Charge.......................7.00%*
Annual Contract Maintenance Charge Annual Contract Maintenance
...............................None Charge.....................$30.00**
SEPARATE ACCOUNT C ANNUAL EXPENSES SEPARATE ACCOUNT D ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE ACCOUNT (AS A PERCENTAGE OF AVERAGE ACCOUNT
VALUE) VALUE)
Mortality and Expense Risk Mortality and Expense Risk
Charges.......................1.00% Charges.......................1.25%
Other Charges................0.00%+ Administrative Charge......... 15%
Total Separate Account Annual =====
Expenses......................1.00% Total Separate Account Annual
Expenses......................1.40%
* The maximum contingent deferred sales charge ("CDSC") is a percentage of the
value of the Accumulation Units surrendered (not to exceed the aggregate amount
of the purchase payments made for the Units). The charge decreases 1% each year
so that there is no charge after seven years. Each year you may withdraw
("surrender") up to 10% of total purchase payments without a CDSC. For purposes
of computing the CDSC, Units are considered to be redeemed in the order in which
they were purchased (i.e., first-in, first-out).
** We deduct the Contract Maintenance Charge of $30 from the Accumulated Value,
except that this charge will not exceed 2% of that value. For more information,
see "Contract Maintenance Charge."
+ We may deduct an administrative charge if the Accumulated Value of a Contract
is less than $1,500 (see "Administrative Charge").
For more complete descriptions of the various charges and expenses shown,
please refer to "THE CONTRACTS IN DETAIL -- Sales Charge, Mortality and Expense
Risk Charges, and Other Charges." In addition, Premium taxes may apply (see
"Other Charges").
3
<PAGE>
FUND ANNUAL EXPENSES
(AS A PERCENTAGE OF FUND AVERAGE NET ASSETS)
These expenses are the same whether you invest in a Separate Account C or
Separate Account D Contract.
<TABLE>
<CAPTION>
FEE WAIVERS
TOTAL FUND AND/OR
MANAGEMENT OTHER OPERATING EXPENSE NET
FEES(1) EXPENSES(2) EXPENSES(3) ASSUMPTIONS EXPENSES(3)
------- ---------- ----------- (1),(2) -----------
-------
<S> <C> <C> <C> <C> <C>
Blue Chip Fund 0.75% 0.07% 0.82% N/A N/A
Cash Management Fund 0.75 0.24 0.99 0.29% 0.70%
Discovery Fund 0.75 0.08 0.83 N/A N/A
Government Fund 0.75 0.12 0.87 0.15 0.72
Growth Fund 0.75 0.07 0.82 N/A N/A
High Yield Fund 0.75 0.08 0.83 N/A N/A
International Securities Fund 0.75 0.40 1.15 N/A N/A
Investment Grade Fund 0.75 0.10 0.85 0.15 0.70
Target Maturity 2007 Fund 0.75 0.09 0.84 0.15 0.69
Target Maturity 2010 Fund 0.75 0.09 0.84 0.15 0.69
Utilities Income Fund 0.75 0.13 0.88 0.15 0.73
</TABLE>
(1) For the fiscal year ended December 31, 1998, the Adviser waived Management
Fees in excess of 0.60% for Cash Management Fund, in excess of 0.60% for
Government Fund, in excess of 0.60% for Investment Grade Fund, in excess
of 0.60% for Target Maturity 2007 Fund, in excess of 0.60% for Target
Maturity 2010 Fund, and in excess of 0.60% for Utilities Income Fund. The
Adviser has contractually agreed with Life Series Fund to waive Management
Fees in excess of 0.60% for Cash Management Fund, in excess of 0.60% for
Government Fund, in excess of 0.60% for Investment Grade Fund, in excess
of 0.60% for Target Maturity 2007 Fund, in excess of 0.60% for Target
Maturity 2010 Fund, and in excess of 0.60% for Utilities Income Fund for a
period of twelve months commencing on May 1, 1999.
(2) For the fiscal year ended December 31, 1998, the Adviser assumed certain
Other Expenses in excess of 0.10% for Cash Management Fund, in excess of
0.10% for Government Fund, in excess of 0.10% for Investment Grade Fund,
in excess of 0.10% for Target Maturity 2007 Fund, and in excess of 0.10%
for Target Maturity 2010 Fund. The Adviser has contractually agreed with
Life Series Fund to assume Other Expenses in excess of 0.10% for Cash
Management Fund for a period of twelve months commencing on May 1, 1999.
(3) Each Fund, other than International Securities Fund, has an expense offset
arrangement that may reduce the Fund's custodian fee based on the amount
of cash maintained by the Fund with its custodian. Any such fee reductions
are not reflected under Total Fund Operating Expenses or Net Expenses.
4
<PAGE>
EXAMPLE (SEPARATE ACCOUNT C CONTRACT)
If you surrender your Contract (or if you annuitize) for the number of years
shown, you would pay the following expenses on a $1,000 investment, assuming 5%
annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Blue Chip Subaccount......................... $87 $123 $162 $269
Cash Management Subaccount................... 86 120 156 257
Discovery Subaccount......................... 87 124 162 270
Government Subaccount........................ 86 120 157 259
Growth Subaccount............................ 87 123 162 269
High Yield Subaccount........................ 87 124 162 270
International Securities Subaccount.......... 90 133 177 301
Investment Grade Subaccount.................. 86 120 156 257
Target Maturity 2007 Subaccount.............. 86 120 155 256
Target Maturity 2010 Subaccount.............. 86 120 155 256
Utilities Income Subaccount.................. 86 121 157 260
</TABLE>
EXAMPLE (SEPARATE ACCOUNT D CONTRACT)
The expenses you incur in purchasing a Separate Account D Contract would depend
upon whether or not you surrender your contract. 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 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Blue Chip Subaccount......................... $123 $209 $299 $555
Cash Management Subaccount................... 121 206 293 543
Discovery Subaccount......................... 123 210 299 556
Government Subaccount........................ 122 206 294 545
Growth Subaccount............................ 123 209 299 555
High Yield Subaccount........................ 123 210 299 556
International Securities Subaccount.......... 126 219 316 589
Investment Grade Subaccount.................. 121 206 293 543
Target Maturity 2007 Subaccount.............. 121 205 292 542
Target Maturity 2010 Subaccount.............. 121 205 292 542
Utilities Income Subaccount.................. 122 207 294 546
</TABLE>
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 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Blue Chip Subaccount......................... $53 $159 $269 $555
Cash Management Subaccount................... 51 156 263 543
Discovery Subaccount......................... 53 160 269 556
Government Subaccount........................ 52 156 264 545
Growth Subaccount............................ 53 159 269 555
High Yield Subaccount........................ 53 160 269 556
International Securities Subaccount.......... 56 169 286 589
Investment Grade Subaccount.................. 51 156 263 543
Target Maturity 2007 Subaccount.............. 51 155 262 542
Target Maturity 2010 Subaccount.............. 51 155 262 542
Utilities Income Subaccount.................. 52 157 264 546
</TABLE>
YOU SHOULD NOT CONSIDER THE EXPENSES IN THE EXAMPLES AS A REPRESENTATION OF
PAST OR FUTURE EXPENSES. ACTUAL EXPENSES IN FUTURE YEARS MAY BE MORE OR LESS
THAN THOSE SHOWN.
5
<PAGE>
CONDENSED FINANCIAL INFORMATION
TABLE 1: SEPARATE ACCOUNT C
This table shows the accumulation unit values and the number of accumulation
units outstanding for each Subaccount of Separate Account C, at the dates shown.
The accumulation unit value for each Subaccount was initially set at $10.00 on
October 16, 1990, except as follows: Investment Subaccount and Government
Subaccount, January 7, 1992; Utilities Income Subaccount, November 16, 1993;
Target Maturity 2007 Subaccount, April 24, 1995; and Target Maturity 2010
Subaccount, April 29, 1996.
<TABLE>
<CAPTION>
NUMBER OF
ACCUMULATION ACCUMULATION
SUBACCOUNT AT UNIT VALUE($) UNITS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Blue Chip Subaccount...................... December 31, 1990 10.74931759 144,049.8
December 31, 1991 13.42731580 561,758.4
December 31, 1992 14.18287684 1,085,254.0
December 31, 1993 15.23373431 1,529,348.1
December 31, 1994 14.86290782 1,959,841.2
December 31, 1995 19.71773603 2,413,509.3
December 31, 1996 23.72148089 3,116,839.9
December 31, 1997 29.75982140 3,812,804.5
December 31, 1998 34.96033275 4,012,212.4
Cash Management Subaccount................ December 31, 1990 10.07542807 571,856.9
December 31, 1991 10.52748985 571,891.0
December 31, 1992 10.73770189 437,185.0
December 31, 1993 10.91847727 253,743.1
December 31, 1994 11.21833852 235,919.5
December 31, 1995 11.71983145 252,407.7
December 31, 1996 12.18484038 246,553.2
December 31, 1997 12.67719681 256,188.6
December 31, 1998 13.18253046 364,729.9
Discovery Subaccount...................... December 31, 1990 10.91349031 8,362.1
December 31, 1991 16.53848277 130,585.7
December 31, 1992 18.93150000 307,107.8
December 31, 1993 22.89932001 563,070.0
December 31, 1994 22.07727850 867,303.8
December 31, 1995 27.37355380 1,203,507.8
December 31, 1996 30.48354883 1,523,777.2
December 31, 1997 35.26286749 1,838,056.5
December 31, 1998 35.97570267 1,911,584.8
Government Subaccount..................... December 31, 1992 10.87670909 437,095.3
December 31, 1993 11.44920392 674,512.1
December 31, 1994 10.85941183 672,797.1
December 31, 1995 12.43183229 705,348.4
December 31, 1996 12.74903390 643,378.3
December 31, 1997 13.70958126 588,697.3
December 31, 1998 14.59671768 601,159.8
6
<PAGE>
NUMBER OF
ACCUMULATION ACCUMULATION
SUBACCOUNT AT UNIT VALUE($) UNITS
- -------------------------------------------------------------------------------------------------------------------
Growth Subaccount......................... December 31, 1990 10.75804081 24,176.8
December 31, 1991 14.34498476 204,821.5
December 31, 1992 15.59155937 567,241.7
December 31, 1993 16.35977780 958,529.1
December 31, 1994 15.73131059 1,347,003.7
December 31, 1995 19.48689883 1,729,637
December 31, 1996 24.01011967 2,241,867.6
December 31, 1997 30.73197657 2,862,521.1
December 31, 1998 38.74794069 3,085,019.4
High Yield Subaccount..................... December 31, 1990 10.00101048 69,585.9
December 31, 1991 13.25243640 220,366.3
December 31, 1992 14.86894995 279,777.4
December 31, 1993 17.38280181 391,036.8
December 31, 1994 16.93482626 513,297.7
December 31, 1995 20.09026188 671,849.9
December 31, 1996 22.38760536 799,626.6
December 31, 1997 24.92887084 950,571.7
December 31, 1998 25.45748200 1,016,074.5
International Securities Subaccount....... December 31, 1990 10.26630533 118,091.2
December 31, 1991 11.73276972 269,273.6
December 31, 1992 11.46589494 463,523.6
December 31, 1993 13.86795475 792,294.1
December 31, 1994 13.55233761 1,383,676.5
December 31, 1995 15.92618862 1,502,998.2
December 31, 1996 18.16949900 1,956,014.4
December 31, 1997 19.62431480 2,329,410.5
December 31, 1998 22.96087882 2,307,046.6
Investment Grade Subaccount............... December 31, 1992 10.77845214 395,839.5
December 31, 1993 11.82065978 784,651.0
December 31, 1994 11.28602521 923,445.3
December 31, 1995 13.37384783 1,076,644.3
December 31, 1996 13.61638687 1,050,200.1
December 31, 1997 14.80366272 988,996.1
December 31, 1998 15.99733761 1,071,756.2
Target Maturity 2007 Subaccount........... December 31, 1995 11.90553994 775,738.1
December 31, 1996 11.53266965 1,252,102.1
December 31, 1997 12.94581989 1,515,226.0
December 31, 1998 14.73597183 1,547,831.2
Target Maturity 2010 Subaccount........... December 31, 1996 10.81913243 170,708.7
December 31, 1997 12.41073564 381,345.1
December 31, 1998 14.05135661 478,329.7
Utilities Income Subaccount............... December 31, 1993 9.92774964 45,091.7
December 31, 1994 9.11659215 473,447.1
December 31, 1995 11.75759954 1,129,455.9
December 31, 1996 12.75464824 1,689,626.3
December 31, 1997 15.79406311 1,878,396.6
December 31, 1998 17.60340941 2,219,597.9
</TABLE>
7
<PAGE>
TABLE 2: SEPARATE ACCOUNT D
This table shows the accumulation unit values and the number of accumulation
units outstanding for each Subaccount of Separate Account D, on the dates shown.
The accumulation unit value for each Subaccount was initially set at $10.00 on
July 28, 1997.
<TABLE>
<CAPTION>
NUMBER OF
ACCUMULATION ACCUMULATION
SUBACCOUNT AT UNIT VALUE($) UNITS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Blue Chip Subaccount........................... December 31, 1997 10.18519950 426,185.6
December 31, 1998 11.91730629 1,531,169.8
Cash Management Subaccount..................... December 31, 1997 10.15474840 28,344.4
December 31, 1998 10.51737952 82,526.4
Discovery Subaccount........................... December 31, 1997 10.23140687 205,814.9
December 31, 1998 10.39655938 701,595.6
Government Subaccount.......................... December 31, 1997 10.28895863 13,321.1
December 31, 1998 10.91102057 103,476.8
Growth Subaccount.............................. December 31, 1997 10.33626489 346,768.7
December 31, 1998 12.98031991 1,316,750.1
High Yield Subaccount.......................... December 31, 1997 10.42338850 60,209.4
December 31, 1998 10.60191952 325,195.4
International Securities Subaccount............ December 31, 1997 9.30734342 196,448.9
December 31, 1998 10.84633615 536,298.4
Investment Grade Subaccount.................... December 31, 1997 10.33902780 22,448.4
December 31, 1998 11.12810542 156,868.9
Target Maturity 2007 Subaccount................ December 31, 1997 10.62155299 62,839.0
December 31, 1998 12.04205143 302,580.8
Target Maturity 2010 Subaccount................ December 31, 1997 10.79920122 43,680.6
December 31, 1998 12.17798882 188,719.4
Utilities Income Subaccount.................... December 31, 1997 11.67391319 33,306.9
December 31, 1998 12.95932846 449,163.0
</TABLE>
8
<PAGE>
OVERVIEW
This overview highlights some basic information about the two Variable
Annuity Contracts offered by First Investors Life Insurance Company ("First
Investors Life", "We", "Us", or "Our") in this Prospectus. They invest in the
same underlying investment portfolios but have different sales charge and
expense structures and different death benefit features. Separate Account C
Contracts are contracts that are sold with a front-end sales charge. They invest
in Separate Account C. Separate Account D Contracts are contracts which are sold
with a contingent deferred sales charge. They invest in Separate Account D. We
will not accept a purchase of a Separate Account D Contract with the proceeds
from a surrender of a Separate Account C Contract. You will find more
information about the Contracts beginning on page 11 of this Prospectus.
HOW THE CONTRACTS WORK
Like all variable annuity contracts, the Contracts have two phases: an
accumulation period and an annuity income period. During the accumulation
period, earnings on your investment accumulate on a tax-deferred basis. The
annuity income period begins when you start to receive annuity income payments.
You can select one of several annuity income payment options. The amount of your
annuity payments will vary with the performance of the investment options you
have selected as well as the type of annuity option you choose.
During the accumulation period, you invest in investment options or
Subaccounts which, like mutual funds, have different investment objectives. You
can gain or lose money if you invest in these Subaccounts. The amount of money
you accumulate in your contract depends on the performance of the Subaccounts in
which you invest. The Contracts currently offer 11 Subaccounts. Each Subaccount
invests at net asset value in shares of a corresponding "Fund" of First
Investors Life Series Fund ("Life Series Fund"), as shown in the following
table.
SUBACCOUNTS 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 Contract provides a guaranteed death benefit that is payable to a
designated beneficiary when the Annuitant dies. The Separate Account C Contract
guarantees that the beneficiary will receive the greater of (i) the total
purchase payments less any withdrawals or (ii) the Accumulated Value of the
Contract on the date of receipt of written notification of death at our Home
Office or other designated office. The Separate Account D guarantees that the
beneficiary will receive the greater of (i) the total purchase payments less any
withdrawals, (ii) the Accumulated Value of the Contract on the date of receipt
of Due Proof of Death at our Home Office or other designated office, or (iii)
the Accumulated Value on the immediately preceding Specified Contract
Anniversary date (these Anniversary dates occur every 7 years after you purchase
your Contract) plus any additional purchase payments and less any withdrawals.
9
<PAGE>
WHO WE ARE
First Investors Life Insurance Company
--------------------------------------
First Investors Life, 95 Wall Street, New York, New York 10005 is a stock
life insurance company incorporated in New York in 1962. We write 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. 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 First Investors Management Company, Inc. and First Investors
Life.
Separate Accounts C & D
-----------------------
First Investors Life Variable Annuity Fund C is also called the "Tax Tamer"
("Separate Account C"). It was established on December 21, 1989 under New York
Insurance Law. First Investors Life Variable Annuity Fund D is also called the
"Tax Tamer II" ("Separate Account D"). It was established on April 8, 1997 under
New York Insurance Law.
Separate Account C and Separate Account D (each an "Account") are
registered unit investment trusts with the Securities and Exchange Commission
("SEC"). Such registration does not involve SEC supervision of the management or
investment practices or policies of either Account.
We segregate the assets of each Account from our other assets. We cannot
charge liabilities arising out of our other businesses against that portion of
each Account's assets that is approximately equal to the amount that is
necessary to support the Contracts. We credit to, or charge against, the
Subaccounts of each Account realized and unrealized income, gains and losses
without regard to our other income, gains and losses. The obligations under the
Contracts are our obligations.
Each Subaccount invests its assets in a corresponding Fund of the Life
Series Fund at net asset value. Each Subaccount reinvests all distributions
received from a Fund in additional shares of that Fund at net asset value. So,
none of the Subaccounts make cash distributions to Contractowners. Each
Subaccount may make deductions for charges and expenses by redeeming the number
of equivalent Fund shares at net asset value. We value shares of the Funds that
we hold in the Subaccounts at their net asset values.
The Life Series Fund
--------------------
First Investors Life Series Fund is a diversified open-end management
investment company (commonly known as a "mutual fund") registered with the SEC
under the 1940 Act. Registration of the Life Series Fund does not involve
supervision by the SEC of the management or investment practices or policies of
the Life Series Fund. The Life Series Fund offers its shares only through the
purchase of our variable annuity contracts or variable life insurance policies.
It does not offer its shares directly to the general public. The Life Series
Fund reserves the right to offer its shares to other separate accounts of ours
or directly to us.
First Investors Management Company, Inc. (the "Adviser") is the investment
adviser of each Fund. The Adviser is a New York Corporation located at 95 Wall
Street, New York, New York 10005. The Adviser and Life Series Fund have retained
Wellington Management Company, 75 State Street, Boston, Massachusetts 02109
("WMC" or "Subadviser"), to serve as the subadviser of the International
Securities Fund and Growth Fund. See the Life Series Fund Prospectus for more
information about the Adviser and Subadviser as well as the fees that each Fund
paid for the fiscal year ended December 31, 1998.
The Life Series Fund sells its shares to more than one separate account
funding variable annuity contracts or variable life insurance policies.
Consequently, 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 C or Separate Account D to lose their
tax-deferred status, unless remedial action were taken.
10
<PAGE>
WHO SHOULD CONSIDER PURCHASING A CONTRACT
The Contract allows you to accumulate money on a tax-deferred basis for
retirement or other long-term goals and thereafter to annuitize the accumulated
value of your Contract if you wish. Generally, the higher your tax bracket, the
more you will benefit from the tax-deferred feature of the Contract. You should
not purchase a Contract if you are looking for a short-term investment or if you
cannot take the risk of receiving less money than you paid for the Contract. You
may want to consult a tax advisor or other professional before you purchase a
Contract.
RISK AND REWARD CONSIDERATIONS
The Contracts offer you the opportunity to benefit on a tax-deferred basis
from the performance of the underlying investment options that you choose.
However, there are several important factors that you should consider before
making a decision to purchase a Contract:
1. You bear all of the investment risk of the underlying investment options
you choose. You should therefore carefully review the prospectus for the
underlying Life Series Fund before choosing your underlying investments. It
explains the Funds' investment objectives, primary investment strategies, and
primary risks.
2. The Contracts are generally not appropriate choices for the investment
of money that you will need in the short term. You should therefore only invest
money that you will not need in the short term.
3. Generally, it is not advisable to switch from one variable insurance
contract to another because each contract will have a sales charge. For this
reason, we do not allow switches from Separate Account C to Separate Account D.
4. If you are considering purchasing a Contract inside of an individual
retirement account or qualified retirement plan, you should know that the same
tax benefits are available whether you invest in mutual funds or variable
annuities and that variable annuities generally have higher cost structures than
those of mutual funds. The variable annuity's death benefit should be an
important factor if you select a variable annuity.
5. Like other financial services organizations, First Investors Life and
its affiliates could experience problems in processing policy-related requests
and rendering other services if the computers or other systems on which they
rely are not properly programmed to operate after January 1, 2000. (See "OTHER
INFORMATION--Year 2000" for more information.)
THE CONTRACTS IN DETAIL
The Contracts are variable annuity contracts which provide you with the
opportunity to accumulate capital on a tax deferred basis by investing in
underlying subaccounts and thereafter annuitizing your accumulated cash value if
you wish. We offer the Contracts in states where we have the authority to issue
the Contracts. We designed the Contracts to offer lifetime annuity payments to
Annuitants according to several annuity options. The amount of annuity payments
will vary with the investment performance of the Subaccounts as well as the type
of annuity you select. The Contracts obligate us to make payments for the
lifetime of the Annuitant in accordance with the annuity rates in the Contract,
regardless of actual mortality experience (see "Annuity Period"). On the death
of the Annuitant before the Annuity Commencement Date, we pay a death benefit to
the Beneficiary whom you designate. For a discussion of the amount and manner of
payment of this benefit, see "Death of Annuitant During the Accumulation
Period."
You may surrender all or a portion of the Accumulated Value during the
Accumulation Period. For a discussion on withdrawals during the Accumulation
Period, see "Full and Partial Surrenders During the Accumulation Period." For
Federal income tax consequences of a withdrawal, see "Tax Information." The
exercise of any Contract right, including the right to make a withdrawal during
the Accumulation Period, is 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.
11
<PAGE>
We reserve 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
us at our Home Office, 95 Wall Street, New York, New York 10005.
PURCHASE PAYMENTS
Your initial purchase payment must be at least (a) $2,000 for a Contract
under Separate Account C and (b) $25,000 for a Contract under Subaccount D. You
may make an Additional Payment under a Contract of at least $200 at any time
after Contract issuance under Separate Account C or Separate Account D. We will
not accept a purchase of a Separate Account D Contract with the proceeds from a
surrender of a Separate Account C Contract.
We credit an initial purchase payment (less any charges) to a
Contractowner's Account on the Valuation Date that we receive it, provided that
we have received a properly completed application. We credit an Additional
Payment to a Contractowner's Account on the Valuation Date that we receive it.
If we receive an incomplete application from you, you must provide us with all
required information not later than five business days following the receipt of
such application. Otherwise, we will return the purchase payment to you at the
end of the five-day period.
Your purchase payments buy Accumulation Units of the Subaccounts and not
shares of the Funds in which the Subaccounts invest. We allocate purchase
payments to the appropriate Subaccount or Subaccounts based on the next computed
value of an Accumulation Unit following receipt at our Home Office or other
designated office. For Separate Account C, we make these allocations after
deductions for sales expenses (SEE "Separate Account C-Sales Charge Deducted
from Purchase Payments"). We value Accumulation Units 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).
ALLOCATION OF NET PURCHASE PAYMENTS TO SUBACCOUNT(S)
When you purchase a Contract, you allocate (a) your net purchase payment
and (b) any additional purchase payments (less any charges) to at least one
Subaccount of an Account.
You may:
. choose up to five Subaccounts,
. allocate no less than 10% of a purchase payment (less any charges) to
any Subaccount (we reserve the right to adjust your allocation to
eliminate fractional percentages), and
. transfer part or all of your cash value in a Subaccount to one or
more other Subaccounts (subject to the two limitations immediately
above) twice during a Contract year in Separate Account C (six times
in certain states) and 12 times during a Contract year in Separate
Account D.
Each Subaccount invests its assets 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 Funds of the Life Series Fund have different investment objectives,
investment strategies, and investment risks. The Funds also have different
expenses. The Life Series Fund's Prospectus describes each Fund in detail. There
is no assurance that any Fund will realize its investment objective. The cash
value of your Contract may increase or decrease depending on the investment
performance of the Subaccounts that you choose.
SALES CHARGE
We impose a sales charge for both Separate Account C and Separate Account
D. For Separate Account C, the sales charge is an initial sales charge that we
deduct from your purchase payments. For Separate Account D, the sales charge is
12
<PAGE>
a contingent deferred sales charge ("CDSC") that may be deducted from the
proceeds that we pay you on a full or partial surrender.
SEPARATE ACCOUNT C - SALES CHARGE DEDUCTED FROM PURCHASE PAYMENTS. We
intend the sales charge to cover expenses relating to the sale of the Contracts,
including commissions paid to persons distributing the Contracts. Discounts are
available on larger purchases. Moreover, when you make Additional Payments after
the issuance of the Contract you are entitled to a credit for all prior payments
in computing the sales charge percentage. In other words, you pay the sales
charge percentage that reflects (a) the total amount of all purchase payments
previously made plus (b) the amount of the Additional Payment being made.
DEDUCTION TABLE
SALES CHARGE AS % OF AMOUNT TO
PURCHASE NET AMOUNT DEALERS AS % OF
AMOUNT OF PURCHASE PAYMENT(S) PAYMENTS* INVESTED PURCHASE PAYMENTS
Less than $25,000...................... 7.00% 7.53% 5.75%
$25,000 but under $50,000.............. 6.25 6.67 5.17
$50,000 but under $100,000............. 4.75 4.99 3.93
$100,000 but under $250,000............ 3.50 3.63 2.90
$250,000 but under $500,000............ 2.50 2.56 2.19
$500,000 but under $1,000,000.......... 2.00 2.04 1.67
$1,000,000 or over..................... 1.50 1.52 1.24
* Assumes that we have deducted no Premium taxes.
We do not impose a sales charge for Contracts sold to (a) officers and
full-time employees of First Investors Life or its affiliates who have been
employed for at least one year, (b) our agents who have been under contract for
at least one year, or (c) Contractowners of First Investors Life Variable
Annuity Fund A ("Separate Account A") who exchange their Separate Account A
Contracts for Separate Account C Contracts at the next computed values of their
Accumulation Units. We require Contractowners who exchange from Separate Account
A to Separate Account C to execute a change of contract form. This form states
that we deduct a daily charge equal to an annual rate of 1.00% of the daily
Accumulation Unit value of any Subaccount as a charge for mortality and expense
risks. We may modify or terminate this exchange privilege at any time.
SEPARATE ACCOUNT D - SALES CHARGE DEDUCTED FROM SURRENDER PROCEEDS. For
Separate Account D, we sell the Contracts without an initial sales charge.
However, we deduct a contingent deferred sales charge ("CDSC") from the proceeds
that we pay you on a full or partial surrender. The CDSC is a percentage of the
amount that you surrender (not to exceed the aggregate amount of your purchase
payments). The CDSC percentage declines, in accordance with the Table below,
from 7% to 0% over a seven-year period from the date purchase payments are
received to the date of their surrender. If you have made purchase payments at
different times, the CDSC on any one purchase payment will depend upon the
length of time from our receipt of the payment to the time of its surrender.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE TABLE
----------------------------------------------------------------------------------------------------------
Contingent Deferred Sales Charge
as a Percentage of Purchase Payments Length of Time from Purchase Payment in Years
Surrendered
<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>
13
<PAGE>
You will not be charged a CDSC on partial surrenders during any Contract
Year up to the annual Withdrawal Privilege Amount of 10% of Purchase Payments.
You will be subject to a CDSC on any excess over this Amount at the applicable
CDSC percentage in the Table. And, of course, this Withdrawal Privilege does not
apply to full surrenders. In calculating such a CDSC, we will assume that amount
on which you are paying the CDSC is coming first from surrenders of purchase
payments (i.e., your cost basis in your contract) and thereafter from any
Accumulated Value other than purchase payments (i.e., your gain). If you have
made purchase payments at different times, your purchase payments will be
treated as being surrendered in the order that we have received them (i.e.,
first-in, first-out).
We will also not assess a CDSC:
. in the event of the death of the Annuitant or the Contractowner,
. if you apply the Accumulated Value to an annuity option under the
contract, or
. for surrenders used to pay Premium taxes.
For information concerning the Annuity Options and the Withdrawal
Privilege, see "Annuity Options" and "Full and Partial Surrenders During the
Accumulation Period."
MORTALITY AND EXPENSE RISK CHARGES
We impose mortality and expense risk charges for both Separate Account C
and Separate Account D. The charges are different for each of these Separate
Accounts reflecting the difference in the death benefits offered by the two
Contracts.
The mortality risk that we assume arises from our obligation to continue to
make Fixed or Variable Annuity payments, determined in accordance with the
provisions of the Contracts, to each Annuitant regardless of (a) how long that
person lives and (b) 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. Moreover, these factors
may reduce the risk that the Annuitant will outlive the funds that the Annuitant
has accumulated for retirement. We also assume mortality risk as a result of our
guarantee of a minimum payment in the event of the death prior to the Annuity
Commencement Date of the Annuitant under Separate Account C and the Annuitant or
the Contractowner named in the original application for the Contract under
Separate Account D.
In addition, we assume the risk that the charges for administrative
expenses may not be adequate to cover such expenses. We will not increase the
amount we charge for administrative expenses. In consideration for our
assumption of these mortality and expense risks, we deduct an amount equal on an
annual basis to the following percentage of the daily Accumulation Unit value of
the Subaccounts:
. For Separate Account C, 1.00%, of which approximately 0.60% is for
assuming the mortality risk and 0.40% is for assuming the expense
risk.
. For Separate Account D, 1.25%, of which approximately 0.85% is for
assuming the mortality risk and 0.40% is for assuming the expense
risk.
We guarantee that we 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
us. Conversely, if the deductions prove more than sufficient, the excess will be
a profit to us. We can use any profits resulting to us from over-estimates of
the actual costs of the mortality and expense risks for any business purpose,
including the payment of expenses of distributing the Contracts. These profits
will not remain in Separate Account C or Separate Account D.
14
<PAGE>
Other Charges
Administrative Charge
---------------------
For Separate Account C, we may deduct an administrative charge of $7.50
annually from the Accumulated Value of Contracts that have an Accumulated Value
of less than $1,500 because of partial surrenders. These charges are to
compensate us for expenses involved in administering small accounts. If the
actual expenses exceed charges, we will bear the loss. For Separate Account D,
we deduct an amount equal annually to 0.15% of the daily net asset value of the
Subaccounts for the expense of administering the Contract. We guarantee that we
will not increase the administrative charges during the term of any Contract.
Contract Maintenance Charge
---------------------------
For Separate Account D, we deduct a $30.00 Contract Maintenance Charge from
the Accumulated Value, on (a) the last business day of each Contract Year or (b)
the date of surrender of the Contract, if earlier. This charge will not exceed
2% of the Accumulated Value. We make the charge against the Accumulated Value by
proportionately reducing the number of Accumulation Units held in each of your
Subaccounts of Separate Account D. We guarantee that we will not increase this
charge during the term of any Contract.
Premium Tax Charge
------------------
Some states assess Premium taxes at the time you:
. make purchase payments,
. surrender, or
. begin receiving annuity payments.
We currently advance any Premium taxes due at the time you make purchase
payments and then deduct Premium taxes from the Accumulated Value of the
Contract at the time of surrender, on death of the Annuitant or when annuity
payments begin. However, we reserve the right to deduct Premium taxes when
incurred. See "Appendix I" for Premium tax table.
Expenses
--------
Total Separate Account expenses for the fiscal year ended December 31, 1998
amounted to $4,598,846 or 1.00% of average net assets for Separate Account C and
$555,026 or 1.42% of average net assets for Separate Account D. The Funds have
expenses that they pay out of their assets.
THE ACCUMULATION PERIOD
Crediting Accumulation Units
----------------------------
During the Accumulation Period, we credit purchase payments on the
Contracts to the Contractowner's Individual Account in the form of Accumulation
Units. We determine the number of Accumulation Units that we credit to a
Contractowner for the Subaccounts by dividing (a) the purchase payment (less any
charges) by (b) the value of an Accumulation Unit for the Subaccount. We make
this valuation after we receive the purchase payment at our Home 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 your Individual Account will equal
or exceed purchase payments. We determine your Individual Account for a
Valuation Period by multiplying (a) the total number of Accumulation Units we
credit to the Subaccount by (b) the value of an Accumulation Unit for the
Subaccount for the Valuation Period.
15
<PAGE>
Death of Annuitant During the Accumulation Period
-------------------------------------------------
If the Annuitant dies prior to the Annuity Commencement Date, we pay a
Death Benefit to the Beneficiary you have designated. We make this payment when
we receive (a) a death certificate or similar proof of the death of the
Annuitant ("Due Proof of Death") and (b) a First Investors Life Claimant's
Statement that includes notification of the Beneficiary's election to receive
payment in either a single sum settlement or an Annuity Option. We determine the
value of the Death Benefit as of the next computed value of the Accumulation
Units following our receipt at our Home Office or other designated office of
written notification of death, in the case of Separate Account C, or Due Proof
of Death in the case of Separate Account D.
If you do not elect payment of the Death Benefit under one of the Annuity
Options before the Annuitant's death, the Beneficiary may elect to have the
Death Benefit (a) paid in a single sum or (b) applied to provide an annuity
under one of the Annuity Options or (c) as we otherwise permit. If the
Beneficiary elects a single sum settlement, we pay the amount of the Death
Benefit within seven days of receipt of Due Proof of Death and a Claimant's
Statement.
If the Beneficiary wants an Annuity Option, the Beneficiary has up to 60
days commencing with the date of our receipt of Due Proof of Death to select an
Annuity Option. If the Beneficiary does not make a selection by the end of the
60-day period, we pay a single sum settlement to the Beneficiary. If the
Beneficiary selects any Annuity Option, the Annuity Commencement Date is the
date specified in the election. That date may be no later than 60 days after
receipt by us of Due Proof of Death.
The amount of the Death Benefit payable on the death of the Annuitant is as
follows:
. For Separate Account C, the greater of (a) the total purchase
payments less withdrawals or (b) the Accumulated Value on the date of
receipt of written notification of death at our Home Office, or other
designated office.
. For Separate Account D, the greatest of (a) the total purchase
payments less any withdrawals; (b) the Accumulated Value on the date
of receipt of Due Proof of Death at our Home Office or other
designated office; or (c) the Accumulated Value on the immediately
preceding Specified Contract Anniversary, increased by any additional
purchase payments and decreased by any partial surrenders since that
anniversary. The Specified Contract Anniversary is every seventh
contract anniversary (i.e., 7th, 14th, 21st, etc.).
The following example demonstrates how the amount of Death Benefit payable
would be determined for a Separate Account D Contract assuming (1) the Purchase
Payment is $50,000; (2) no additional Purchase Payments or Partial Surrenders
have been made; (3) the Annuitant's death occurs in Policy year 9 when the
Accumulated Value is $70,000; and (4) the Accumulated Value on the 7th Contract
Anniversary (the immediately preceding Specified Contract Anniversary) is
$80,000.
The amount of Death Benefit payable would therefore be $80,000, which is
the greater of (a) (b) or (c) as shown below.
(a) (b) (c)
Total Purchase Payments Accumulated Value of Accumulated Value on
less any withdrawals Contract on the date of 7th Contract
receipt Anniversary
of Due Proof of Death
$50,000 $70,000 $80,000
Death of Contractowner During the Accumulation Period
-----------------------------------------------------
If the Contractowner dies before we have distributed the entire interest in
the Contract, we must distribute the value of the Contract to the Beneficiary as
provided below. Otherwise, the Contract will not qualify as an annuity under
16
<PAGE>
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code"). Under
Separate Account C, the entire interest of the Contractowner who dies is the
Accumulated Value of the Contract. Under Separate Account D, 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 is 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 is the Accumulated Value of the Contract.
If the death of the Contractowner occurs prior to the Annuity Commencement
Date, we will distribute the entire interest in the Contract to the Beneficiary
(a) within five years, or (b) beginning within one year of death, under an
Annuity Option that provides that we will make annuity payments 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, we
need not make any distribution. The surviving spouse may continue the Contract
as the new Contractowner. If the Contractowner is also the Annuitant, the spouse
has 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 has the right to become the Contractowner and the Annuitant.
Full and Partial Surrenders During the Accumulation Period
----------------------------------------------------------
You may by written request make a full or partial surrender of your
Contract, at any time before the earlier of the Annuity Commencement Date or the
death of the Annuitant or Contractowner. You will be entitled to receive:
. For Separate Account C, the net Accumulated Value of the Contract or,
in the case of a partial surrender, the portion surrendered.
. For Separate Account D, the Accumulated Value of the Contract or, in
the case of a partial surrender, the portion surrendered less (a) any
applicable CDSC, (b) the Contract Maintenance Charge and (c) any
applicable Premium taxes not previously deducted.
A surrender request is effective on the date it is received in writing at
our Home Office or other designated office. Your Accumulated Value will be
determined based on the next computed value of Accumulation Units following our
receipt of your written request. We may defer payment of the amount of the
surrender for a period of not more than seven days. We may also postpone such
payment during any period when:
. trading on the NYSE is restricted as the SEC determines or the NYSE
is closed for other than weekends and holidays;
. the SEC has by order permitted such suspension; or
. any emergency, as defined by SEC rules, exists when the sale of
portfolio securities or calculation of securities is not reasonably
practicable.
In the case of a partial surrender, unless you direct us otherwise, the
amount you request will be deducted from your Subaccounts on a pro rata basis in
the proportions to which their values bear to the Accumulated Value of your
Contract. For Separate Account D, the amount remaining must be at least equal to
our minimum balance requirement (currently $5,000). For Separate Account C,
there is no minimum balance requirement. However, we may deduct an
administrative charge of $7.50 annually if the surrender causes the value of
your Contract to fall below $1,500. As noted previously, on a non-cumulative
basis, you may make partial surrenders of a Separate Account D Contract during
any Contract Year up to the annual Withdrawal Privilege Amount of 10% of
Purchase Payments without incurring a CDSC. Amounts surrendered under the
Withdrawal Privilege are treated as being from Accumulated Values other than
Purchase Payments.
For more information on fees, charges, and tax consequences on surrenders,
see "THE CONTRACTS IN DETAIL -- Sales Charge, Mortality and Expense Risk
Charges, and Other Charges"; "Tax Information"; and "Other Charges."
17
<PAGE>
Annuity Commencement Date Exchange Privilege (for Separate Account C only)
- --------------------------------------------------------------------------
If you fully surrender this Contract during the one-year period preceding
its Annuity Commencement Date, you can use the proceeds to purchase Class A
shares of First Investors mutual funds without incurring a sales charge.
THE ANNUITY PERIOD
Commencement Date
-----------------
Annuity payments begin on the Annuity Commencement Date you select when you
buy a Contract. You may elect in writing to advance or defer the Annuity
Commencement Date, not later than 30 days before the Annuity Commencement Date.
You may defer the Annuity Commencement Date until the first day of the calendar
month after -
. for Separate Account C, the Annuitant's 85th birthday or, if state
law permits, 90th birthday.
. for Separate Account D, the Annuitant's 90th birthday.
If you elect no other date, annuity payments will commence on the Contract
anniversary date after -
. for Separate Account C, the Annuitant's 85th birthday, or, if state
law permits, 90th birthday.
. for Separate Account D, the Annuitant's 90th birthday.
If the net Accumulated Value on the Annuity Commencement Date is less than
$2,000, we may pay such value in one sum in lieu of annuity payments. If the net
Accumulated Value is $2,000 or more, but the variable annuity payments are less
than $20, we may change the frequency of annuity payments to intervals that will
result in payments of at least $20.
Assumed Investment Rate
-----------------------
We build a 3.5% assumed investment rate into the Contract's Annuity Tables,
which are used to determine the amount of the monthly annuity payments. A higher
rate would mean a higher initial payment but more slowly rising and more rapidly
falling subsequent Variable Annuity payments. A lower rate would have the
opposite effect. If the actual net investment rate of the Subaccounts is at the
annual rate of 3.5%, the Variable Annuity payments will be level. A Fixed
Annuity features annuity payments that remain fixed as to dollar amount
throughout the payment period and an assumed interest rate of 3.5% per year
built into the Annuity Tables in the Contract.
Annuity Options
---------------
You may elect to receive payments under any one of the Annuity Options in
the Contract. You may make this election at any time at least 30 days before the
Annuity Commencement Date on written notice to us at our Home Office or other
designated office. If no election is in effect on the Annuity Commencement Date,
we will make annuity payments on a variable basis only under Annuity Option 3
below, Life Annuity with 120 Monthly Payments Guaranteed. This is the Basic
Annuity.
The material factors that determine the level of your annuity benefits are:
. the value of your Individual Account, as described in this
Prospectus, before the Annuity Commencement Date;
. the Annuity Option you select;
. the frequency and duration of annuity payments;
. the sex and adjusted age of the Annuitant and any Joint Annuitant at
the Annuity Commencement Date; and
18
<PAGE>
. in the case of a variable annuity, the investment performance of the
Subaccounts you select.
We apply the Accumulated Value on the Annuity Commencement Date, reduced by
any applicable Premium taxes not previously deducted, to provide (a) the Basic
Annuity or (b) if you have elected an Annuity Option, one of the Annuity Options
we describe 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 before the death of the
Annuitant. If you elect this Option, 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 before 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 before the death of the survivor.
Option 2c - JOINT AND ONE-HALF TO SURVIVOR LIFE ANNUITY. An annuity payable
monthly during the joint lifetime of the Annuitant and the Joint Annuitant and
continuing thereafter during the lifetime of the survivor at an amount equal to
one-half of the joint annuity payment, ceasing with the last payment due before
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, we will continue to pay to the Beneficiary any
guaranteed payments during the remainder of the selected period and, if the
Beneficiary dies after the Annuitant, we will pay the Beneficiary's estate the
present value of the remainder of the guaranteed payments. The present value of
the remaining payments is the discounted (or reduced) amount which would produce
the total of the remaining payments assuming that the discounted amount grew at
the effective annual interest rate assumed in the Annuity Tables of the
Contract. Pursuant to the 1940 Act, the Beneficiary may also, at any time he or
she is receiving guaranteed payments, elect to have us pay him or her the
present value of the remaining guaranteed payments in a lump sum.
Option 4 - UNIT REFUND LIFE ANNUITY. An annuity payable monthly during the
lifetime of the Annuitant, terminating with the last payment due before the
death of the Annuitant. We make an additional annuity payment to the Beneficiary
equal to the following. We take the Annuity Unit value of the Subaccount or
Subaccounts as of the date that we receive notice of death in writing at our
Home Office or other designated office. We multiply that value by the excess, if
any, of (a) over (b). For this purpose, (a) is (i) the net Accumulated Value we
allocate to each Subaccount and apply under the option at the Annuity
Commencement Date, divided by (ii) the corresponding Annuity Unit Value as of
the Annuity Commencement Date, and (b) is the product of (i) the number of
Annuity Units applicable under the Subaccount represented by each annuity
payment and (ii) the number of annuity payments made. (For an illustration of
this calculation, see Appendix II, Example A, in the Statement of Additional
Information.)
Annuity Election
----------------
You 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, we allow no transfers
or redemptions where we are making payments based upon life contingencies. You
19
<PAGE>
must make these elections in writing to us at our Home Office or other
designated office at least 30 days before the Annuity Commencement Date. In the
absence of an election, we make annuity payments on a variable basis only under
Annuity Option 3 above. Option 3 is the Basic Annuity, a Life Annuity with 120
Monthly Payments Guaranteed.
Death of Contractowner During Annuity Period
--------------------------------------------
If the death of the Contractowner occurs on or after the Annuity
Commencement Date, we will distribute the entire interest in the Contract at
least as rapidly as under the Annuity Option in effect on the date of death.
Death of Annuitant
------------------
On receipt of Due Proof of Death of the Annuitant after annuity payments
have begun under an Annuity Option, we make any remaining payments under the
Option 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.
TEN-DAY REVOCATION RIGHT
You may elect to cancel your Contract (a) within ten days from the date
your Contract is delivered to you or (b) longer as applicable state law
requires. We will cancel the Contract after we receive from you (a) the Contract
and (b) a written request for cancellation, at our Home Office or other
designated office. We will pay you an amount equal to the following:
. for Separate Account C, the sum of (a) the Accumulated Value of the
Contract on the date of surrender and (b) the amount of any sales
charges deducted from the initial purchase payment; and
. for Separate Account D, the sum of (a) the difference between the
purchase payments made under the Contract and the amount allocated to
Separate Account D under the Contract and (b) the Accumulated Value
of the Contract on the date of surrender.
Whether you are canceling a Separate Account C or D Contract, the amount we
refund to you may be more or less than your initial purchase payment depending
on the investment results of the Subaccount or Subaccounts to which you
allocated purchase payments. However, in states that require a full refund of
premiums, if you elect to exercise to cancel the Contract under the ten-day
revocation right, on cancellation, you receive a full refund of the Purchase
Payment.
TAX INFORMATION
GENERAL
We base this discussion on our understanding of the federal income tax law
and interpretations in effect on the date of this Prospectus. The discussion
assumes that the contractowner is a natural person who is a U.S. citizen and
U.S. resident. The tax effect on corporate taxpayers, non-U.S. citizens, and
non-U.S. residents may be different. That law and interpretations could change,
possibly retroactively. The discussion is general in nature. We do not intend it
as tax advice, for which you should consult a qualified tax adviser.
We discuss only federal income taxes and not state or other taxes.
Taxation of the Contracts will depend, in part, on whether the Contract is
purchased outside of a qualified retirement plan or an individual retirement
account ("Non-Qualified Contracts") or as part of an individual retirement
account or qualified plan ("Qualified Contracts").
20
<PAGE>
NON-QUALIFIED CONTRACTS
Purchase Payments
-----------------
Your purchase payments under a Non-Qualified Contract are not deductible
from your gross income for tax purposes.
Increases in Accumulated Value Before Distribution from Contract
----------------------------------------------------------------
Generally, there is no tax on increases in your Contract's Accumulated
Value until there is a distribution from a Non-Qualified Contract. A
distribution could include a surrender or an annuity payment. However, the
Contractowner is subject to tax on such increases, even before a distribution,
in the following two situations:
. The Contractowner is not a natural person, subject to exceptions.
. The investments of the Separate Accounts do not meet certain
diversification or "investor controls" tests, discussed below.
Annuity Payments
----------------
Once annuity payments begin, a portion of each payment is taxable as
ordinary income. The remaining portion is a nontaxable recovery of your
investment in the contract. Generally, your investment in the Contract equals
the purchase payments you made, less any amounts you previously withdrew that
were not taxable.
For fixed annuity payments, the tax-free portion of each payment is
determined by:
. dividing your investment in the Contract by the total amount you
expect to receive out of the Contract and
. multiplying the result by the amount of the payment.
For Variable Annuity payments, the tax-free portion of each payment is (a)
your investment in the Contract divided by (b) the number of expected payments.
The remaining portion of each payment, and all of the payments you receive
after you recover your investment in the Contract, are fully taxable. If
payments under a life annuity stop because the Annuitant dies, there is an
income tax deduction for any unrecovered investment in the contract.
Distributions Other than Annuity Payments
-----------------------------------------
Before annuity payments begin, the Code taxes distributions from
Non-Qualified Contracts as follows:
. a total or partial surrender is taxed in the year of receipt to the
extent that the Contract's Accumulated Value exceeds the investment
in the Contract;
. a loan under, or an assignment or pledge of, a Contract is taxed in
the same manner as a partial or total surrender;
. a penalty equal to 10% of the taxable distribution applies to
distributions before the taxpayer's age 59-1/2, subject to certain
exceptions; and
. the Code treats all Contracts that we issue to you in the same
calendar year as a single Contract. Consequently, you should consult
your tax advisor before buying more than one Contract in any calendar
year.
21
<PAGE>
Diversification and Control Tests
---------------------------------
The Subaccounts of Separate Account C and Separate Account D must meet the
Code's investment diversification test. Each Subaccount meets the test if:
. the investments of the Fund in which the Subaccount invests are
diversified according to certain limits;
. the Fund in which the Subaccount invests is a regulated investment
company under the Code;
. all shares of the Fund are owned only by (a) Separate Account C,
Separate Account D, or similar accounts of First Investors Life or
other insurance companies, (b) a life insurance company general
account, or (c) the Adviser, in starting or managing the Fund (in the
case of (b) and (c) of this paragraph, there must be no intention to
sell shares to the general public); (d) the trustee of a qualified
pension or retirement plan; and
. access to the Fund is available only through the purchase of
Contracts, or other Variable Annuity or life insurance products of
First Investors Life or other insurance companies.
If Separate Account C or Separate Account D failed the diversification
test, you would be taxed on increases in the value of any Contract you own that
is supported by the Separate Account that failed the test. The tax would apply
from the first quarter of the failure, until we corrected the failure in
conformity with a Treasury Department procedure.
The Contracts must also meet an "investor control" test, which the Treasury
Department has said it may address in guidelines through regulations or rulings.
This test could specify that your control over allocation of values among
different investments may cause you to be treated as the owner of Separate
Account C or Separate Account D assets, as applicable, for tax purposes. We
reserve the right to amend the Contracts in any way necessary to avoid this
result. As of the date of this prospectus, the Treasury Department has issued no
guidelines on the subject. However, the Department has informally indicated that
guidelines could limit the number of underlying funds or the frequency of
transfers among those funds. The guidelines may apply only prospectively,
although retroactive effect is possible if the guidelines do not embody a new
position. Failure of the "control test" would result in current taxation to you
of increases in your Contract value.
QUALIFIED PLAN CONTRACTS
Taxation of a Contract depends, in part, on the provisions of the
applicable plan where the Contract is issued to:
. a qualified individual retirement account;
. a qualified corporate employee pension and profit-sharing plan; or
. a retirement or deferred compensation plan that does not meet the
requirements applicable to a qualified plan.
Some of tax rules applicable to such Contracts are similar to tax rules
applicable to Non-Qualified Contracts, including: (a) deferral of the taxation
until you receive a distribution, (b) taxation of a part of each distribution or
annuity payment, and (c) the 10% penalty on early distributions.
WITHHOLDING
The Code generally requires us to withhold income tax from any Contract
distribution, including a total or partial surrender or an annuity payment. The
amount of withholding depends, in part, on whether the payment is "periodic" or
"non-periodic."
For periodic payments (E.G., annuity payments), we withhold from the
taxable portion of each payment based on a payroll withholding schedule that
assumes a married recipient claiming three withholding exemptions. If you want
us to withhold on a different basis, you must file an appropriate withholding
22
<PAGE>
certificate with us. For non-periodic payments (E.G., distributions such as
partial surrenders), we generally withhold 10% of the taxable portion of each
payment.
You may elect not to have the withholding rules apply. For periodic
payments, that election is effective for the calendar year for which you file it
with us, and for each subsequent year until you amend or modify it. For
non-periodic payments, an election is effective when you file it with us, but
only for the payment to which it is applicable. We have to notify your
recipients of your right to elect not to have taxes withheld.
The Code generally requires us to report all payments to the Internal
Revenue Service.
OUR TAX STATUS
The Code taxes us as a life insurance company. The Code taxes Separate
Account C and Separate Account D as part of our overall operation. Currently, we
do not charge Separate Account C and Separate Account D for an allocable portion
of our federal income taxes. However, we do reserve the right to impose such a
charge if it becomes necessary in the future.
PERFORMANCE INFORMATION
From time to time, Separate Account C and 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 Cash Management Subaccount may advertise "yield"
and "effective yield." The High Yield Subaccount, Investment Grade Subaccount
and Government Subaccount may also advertise "yield." These figures are based on
historical results. They are not intended to indicate future performance. For
Separate Account C, the yield and effective yield figures include the payment of
the Mortality and Expense Risk Charge of 1.00%, but do not include the maximum
sales charge of 7.00%.
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. For Separate
Account C, average annual total return and total return figures include the
deduction of all expenses and fees, including the payment of the Mortality and
Expense Risk Charge of 1.00% and the maximum sales charge of 7.00%. We may also
advertise these figures without any sales charges, but assuming the payment of
all recurring Separate Account charges, including the Mortality and Expense Risk
Charge of 1.00% (non-standardized performance information).
For Separate Account D, average annual total return figures may reflect the
effect of the CDSC (pursuant to a standardized formula prescribed by the SEC),
or may not reflect the effect of the CDSC (non-standardized performance
information). For Separate Account D, we may also advertise total return figures
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 that an investment in the
Subaccount generates over a one-month or 30-day period (seven-day period for the
Cash Management Account), excluding realized and unrealized capital gains and
losses in the corresponding Fund's investments. We then "annualize" this income
and show it as a percentage of the value of the Subaccount's Accumulation Units.
We calculate the "effective yield" of the Cash Management Subaccount similarly,
but, when we annualize it, we assume the reinvestment in that Subaccount of any
income earned by that Subaccount. 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 those taxes.
For further information on performance calculations, see "Performance
Information" in the Statement of Additional Information.
23
<PAGE>
OTHER INFORMATION
VOTING RIGHTS
Because the Life Series Fund is not required to have annual shareholder
meetings, Contractowners generally will not have an occasion to vote on matters
that pertain to the Life Series Fund. In certain circumstances, the Fund may be
required to hold a shareholders meeting or may choose to hold one voluntarily.
For example, a Fund may not change fundamental investment objectives or
investment policies without the approval of a majority vote of that Fund's
shareholders in accordance with the 1940 Act. Thus, if the Fund sought to change
fundamental investment objectives or investment policies, contractowners would
have an opportunity to provide voting instructions for shares of a Fund held by
a Subaccount in which their Contract invests.
We would vote the shares of any Fund held in a corresponding Subaccount or
directly, at any Fund shareholders meeting as follows:
. shares attributable to Contractowners for which we received
instructions, would be voted in accordance with the instructions;
. shares attributable to Contractowners for which we did not receive
instructions, would be voted in the same proportion that we voted
shares held in the Subaccount for which we received instructions; and
. shares not attributable to Contractowners, would be voted in the same
proportion that we voted shares held in the Subaccount attributable
to Contractowners for which we received instructions.
We will vote Fund shares that we hold directly in the same proportion that
we vote shares held in any corresponding Subaccounts that are attributable to
Contractowners and for which we receive instructions. However, we will vote our
own shares as we deem appropriate where there are no shares held in any
Subaccount. We will present all the shares of any Fund that we held through a
Subaccount or directly at any Fund shareholders meeting for purposes of
determining a quorum.
We will determine the number of Fund shares held in a corresponding
Subaccount that is attributable to each Contractowner as follows:
. before the Annuity Commencement Date, we divide the Subaccount's
Accumulated Value by the net asset value of one Fund share, and
. after the Annuity Commencement Date, we divide the reserve held in
the Subaccount for the variable annuity payment under the Contracts
by the net asset value of one Fund share. As this reserve fluctuates,
the number of votes fluctuates.
We will determine the number of votes that a Contractowner has the right to
cast as of the record date that the Life Series Fund establishes.
We will solicit instructions by written communication before the date of
the meeting at which votes will be cast. We will send meeting and other
materials relating to the Fund to each Contractowner having a voting interest in
a Subaccount.
The voting rights that we describe in this Prospectus are created under
applicable laws. If the laws eliminate the necessity to submit such matters for
approval by persons having voting rights in separate accounts of insurance
companies or restrict such voting rights, we reserve the right to proceed in
accordance with any such changed laws or regulations. Specifically, we reserve
the right to vote shares of any Fund in our own right, to the extent the law
permits.
RESERVATION OF RIGHTS
We also reserve the right to make certain changes if we believe they would
(a) best serve the interests of the Contractowners and Annuitants or (b) be
appropriate in carrying out the purposes of the Contracts. We will make a change
24
<PAGE>
only as the law permits. We will (a) obtain, when required, the necessary
Contractowner or regulatory approval for any change and (b) provide, when
required, notification to Contractowners before making a change.
For example, we may:
. operate either Account in any form permitted under the 1940 Act or in
any other form permitted by law,
. add, delete, combine, or modify Subaccounts of either Account,
. 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, or
. amend the Contracts if required to comply with the Internal Revenue
Code or any other applicable federal or state law.
DISTRIBUTION OF CONTRACTS
Separate Account C and Separate Account D, along with First Investors Life,
have each entered into an Underwriting Agreement with their affiliate, FIC, 95
Wall Street, New York, New York 10005 to sell the Contracts. First Investors
Life has reserved the right in the Underwriting Agreement to sell the Contracts
directly. Insurance agents licensed to sell variable annuities sell the
Contracts. These agents are registered representatives of the Underwriter or
broker-dealers who have sales agreements with the Underwriter.
FINANCIAL STATEMENTS
The Statement of Additional Information, dated April 30, 1999, includes:
. the financial statements for First Investors Life and the
accompanying Report of Independent Certified Public Accountants; and
. the financial statements for Separate Account C and for Separate
Account D and the accompanying Report of Independent Certified Public
Accountants for each.
You can get the Statement of Additional Information at no charge on request
to First Investors Life at the address or telephone number on the cover page of
this Prospectus.
YEAR 2000
On and after January 1, 2000, computer date-related errors could adversely
affect Separate Account C and Separate Account D, as they could other separate
accounts. These errors could occur in the computer and other information
processing systems used by First Investors Life, the underlying Funds, the
Adviser, the Subadviser, Transfer Agent and other service providers. Typically
these systems use a two-digit number to represent the year for any date.
Consequently, computer systems could incorrectly misidentify "00" as 1900,
rather than 2000, and make related mistakes when performing operations. First
Investors Life, the Funds, the Adviser, the Subadviser 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. They are obtaining
assurances from other service providers that the service providers are taking
comparable steps. However, there can be no assurance that these steps will avoid
any adverse impact on Separate Account C or Separate Account D, nor can either
Account estimate the extent of any impact.
25
<PAGE>
TABLE OF CONTENTS
OF THE STATEMENTS OF ADDITIONAL
INFORMATION
Item Page
---- ----
General Description.............................................2
Services........................................................2
Annuity Payments................................................3
Other Information...............................................4
Performance Information.........................................5
Relevance of Financial Statements...............................9
Appendices.....................................................10
Financial Statements...........................................15
APPENDIX I
STATE AND LOCAL TAXES*
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........................2.00% Tennessee.....................--
Kentucky....................2.00% Texas.........................--
Louisiana...................-- Utah..........................--
Maryland....................-- Virginia......................--
Massachusetts...............-- Washington....................--
Michigan....................-- West Virginia.................1.00%
Minnesota...................-- Wisconsin.....................--
Wyoming.......................1.00%
Note: State legislation could change the rates above. State insurance
regulation could change the applicability of the rates above.
* Includes local annuity Premium taxation.
26
<PAGE>
[FIRST INVESTORS LOGO]
TAX TAMER I
AND
TAX TAMER II
This booklet contains two prospectuses. The first prospectus is for Individual
Variable Annuity Fund C (Separate Account C) and Fund D (Separate Account D)
Contracts, which we call Tax Tamer I and Tax Tamer II, respectively. The second
prospectus is for the Life Series Fund, which provides the underlying investment
options for the Individual Variable Annuity Contracts offered through Separate
Accounts C and D.
THE DATE OF THIS PROSPECTUS IS APRIL 30, 1999.
<PAGE>
CONTENTS*
VARIABLE ANNUITY FUND C AND FUND D PROSPECTUS
GLOSSARY OF SPECIAL TERMS.......................................2
FEE TABLES......................................................3
CONDENSED FINANCIAL INFORMATION.................................6
OVERVIEW........................................................9
How the Contracts Work.......................................9
Who We Are..................................................10
Who Should Consider Purchasing a Contract...................11
Risk and Reward Considerations..............................11
THE CONTRACTS IN DETAIL........................................11
Purchase Payments...........................................12
Allocation of Net Purchase Payments to Subaccount(s)........12
Sales Charge................................................12
Mortality and Expense Risk Charges..........................14
Other Charges...............................................14
The Accumulation Period.....................................15
The Annuity Period..........................................17
Ten-Day Revocation Right....................................20
TAX INFORMATION................................................20
General.....................................................20
Non-Qualified Contracts.....................................20
Qualified Plan Contracts....................................22
Withholding.................................................22
Our Tax Status..............................................22
PERFORMANCE INFORMATION........................................22
OTHER INFORMATION..............................................23
Voting Rights...............................................23
Reservation of Rights.......................................24
Distribution of Contracts...................................24
Financial Statements........................................25
Year 2000...................................................25
TABLE OF CONTENTS OF THE STATEMENTS OF ADDITIONAL INFORMATION..26
APPENDIX I.....................................................26
- -----------------------------
*A Table of Contents for the Life Series Fund prospectus can be found at page ii
of that prospectus.
<PAGE>
[FIRST INVESTORS LOGO]
95 Wall Street
New York, New York 10005
(212) 858-8200
<PAGE>
[FIRST INVESTORS LOGO]
LIFE SERIES FUND
BLUE CHIP
CASH MANAGEMENT
DISCOVERY
GOVERNMENT
GROWTH
HIGH YIELD
INTERNATIONAL SECURITIES
INVESTMENT GRADE
TARGET MATURITY 2007
TARGET MATURITY 2010
UTILITIES INCOME
The Securities and Exchange Commission has not approved or disapproved
these securities or 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, 1999
<PAGE>
CONTENTS
INTRODUCTION
FUND DESCRIPTIONS
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
FUND MANAGEMENT
BUYING AND SELLING SHARES
How and when do the Funds price their shares?
How do I buy and sell shares?
ACCOUNT POLICIES
What about dividends and capital gain distributions?
What about taxes?
FINANCIAL HIGHLIGHTS
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
2
<PAGE>
INTRODUCTION
This prospectus describes the First Investors Funds that are used solely as the
underlying investment options for variable annuity contracts or variable life
insurance policies offered by First Investors Life Insurance Company ("FIL").
This means that you cannot purchase shares of the Funds directly, but only
through such a contract or policy as offered by FIL. Each individual Fund
description in this prospectus has an "Overview" which provides a brief
explanation of the Fund's objectives, its primary strategies and primary risks,
how it has performed, and its fees and expenses. Each Fund description also
contains a "Fund in Detail" section with more information on the strategies and
risks of the Fund.
3
<PAGE>
BLUE CHIP FUND
OVERVIEW
OBJECTIVE: The Fund seeks high total investment return consistent with
the preservation of capital.
PRIMARY
INVESTMENT
STRATEGIES: The Fund primarily invests in the common stocks of large,
well-established companies that are included in the Standard
and Poor's 500 Composite Stock Price Index ("S&P 500 Index").
These are defined by the Fund as "Blue Chip" stocks. The Fund
selects stocks that it believes will have earnings growth in
excess of the average company in the S&P 500 Index. While the
Fund attempts to diversify its investments so that its
weightings in different industries are similar to those of the
S&P 500 Index, it is not an index fund and therefore will not
necessarily mirror the S&P 500 Index. The Fund generally stays
fully invested in stocks under all market conditions.
PRIMARY
RISKS: While Blue Chip stocks are regarded as among the most
conservative stocks, like all stocks they fluctuate in price
in response to movements in the overall securities markets,
general economic conditions, and changes in interest rates or
investor sentiment. Fluctuations in the prices of Blue Chip
stocks at times can be substantial. Accordingly, the value of
an investment in the Fund will go up and down, which means
that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
How has the Blue Chip Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Fund's shares from year to
year over the life of the Fund. The bar chart does not reflect fees and expenses
that may be deducted by the variable annuity contract or variable life insurance
policy through which you invest. If they were included, the returns would be
less than those shown.
4
<PAGE>
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 20.03% (for the
quarter ended September 30, 1998), and the lowest quarterly return was -13.16%
(for the quarter ended September 30, 1990). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for the Blue Chip
Fund's shares compare to those of the S&P 500 Index. The S&P 500 Index is an
unmanaged index generally representative of the market for the stocks of
large-sized U.S. companies. The S&P 500 Index does not take into account fees
and expenses that an investor would incur in holding the securities in the S&P
500 Index. If it did so, the returns would be lower than those shown.
Inception
1 Year* 5 Years* (3/8/90)
Blue Chip Fund 10.37% 17.54% 14.47%
S&P 500 Index 28.34 24.55 18.87
* The annual returns are based upon calendar years.
THE FUND IN DETAIL
What are the Blue Chip Fund's objective, principal investment strategies,
and risks?
OBJECTIVE: The Fund seeks high total investment return consistent with the
preservation of capital.
5
<PAGE>
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in common stocks of large, well-established companies that are included
in the S&P 500 Index. These are defined by the Fund as "Blue Chip" stocks. The
S&P 500 Index consists of both U.S. and foreign corporations.
The Fund uses fundamental research to select stocks of companies with strong
balance sheets, relatively consistent records of achievement, and potential
earnings growth that is greater than that of the average company included in the
S&P 500 Index. The Fund attempts to stay broadly diversified and sector neutral
relative to the S&P 500 Index, but it may emphasize certain industry sectors
based on economic and market conditions. The Fund intends to remain relatively
fully invested in stocks under all market conditions rather than attempt to time
the market by maintaining large cash or fixed income securities positions when
market declines are anticipated. The Fund usually will sell a stock when the
reason for holding it is no longer valid, it shows deteriorating fundamentals,
or it falls short of the Fund's expectations. Information on the Fund's recent
strategies and holdings can be found in the most recent annual report (see back
cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of investing in the Blue Chip Fund:
MARKET RISK: Because the Fund primarily invests in common stocks, it is subject
to market risk. Stock prices in general may decline over short or even extended
periods not only because of company-specific developments but also due to an
economic downturn, a change in interest rates or a change in investor sentiment,
regardless of the success or failure of an individual company's operations.
Stock markets tend to run in cycles with periods when prices generally go up,
known as "bull" markets, and periods when stock prices generally go down,
referred to as "bear" markets. While Blue Chip stocks have historically been the
least risky and most liquid stocks, like all stocks they fluctuate in value.
Fluctuations of Blue Chip stocks can be sudden and substantial. Accordingly, the
value of an investment in the Fund will go up and down, which means that you
could lose money.
OTHER RISKS: While the Fund generally attempts to remain sector neutral relative
to the S&P 500 Index, it is not an index fund. The Fund may hold securities
other than those in the S&P 500 Index, may hold fewer securities than the index,
and may have sector or industry allocations different from the index, each of
which could cause the Fund to underperform the index.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
6
<PAGE>
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses by
investing up to 100% of its assets in short-term money market instruments. If
the Fund does so, it may not achieve its investment objective.
7
<PAGE>
CASH MANAGEMENT FUND
OVERVIEW
OBJECTIVE: The Fund seeks to earn a high rate of current income
consistent with the preservation of capital and maintenance of
liquidity.
PRIMARY
INVESTMENT
STRATEGIES: The Fund invests in high-quality money market instruments that
the Fund determines present minimal credit risk. These
instruments include prime commercial paper, variable and
floating rate corporate notes, and short term U.S. agency
obligations. The Fund's portfolio is managed to meet
regulatory requirements that permit the Fund to maintain a
stable net asset value ("NAV") of $1.00 per share. These
regulatory requirements include stringent credit quality
standards on investments, limits on the maturity of individual
investments and the dollar weighted average maturity of the
entire portfolio, and diversification requirements.
PRIMARY
RISKS: While money market funds are designed to be relatively low
risk investments, they are not entirely free of risk. Like all
money market funds, these are the risks of investing in the
Fund:
. The Fund's NAV could decline (below $1.00 per share) if
there is a default by an issuer of one of the Fund's
investments, a credit downgrade of one of the Fund's
investments, or an unexpected change in interest rates.
. The Fund's yield will change daily based upon changes in
interest rates and other market conditions.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND
SEEKS TO PRESERVE THE VALUE OF AN INVESTMENT AT $1.00 PER
SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.
How has the Cash Management Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Fund's shares from year to
year over the last ten years. The bar chart does not reflect fees and expenses
that may be deducted by the variable annuity contract or variable life insurance
policy through which you invest. If they were included, the returns would be
less than those shown.
8
<PAGE>
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 2.00% (for the
quarter ended June 30, 1990), and the lowest quarterly return was 0.65% (for the
quarter ended June 30, 1993. THE FUND'S PAST PERFORMANCE DOES NOT NECESSARILY
INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows the average annual total returns for the Cash
Management Fund's shares.
1 Year* 5 Years* 10 Years*
Cash Management Fund 5.02% 4.88% 5.08%
* The annual returns are based upon calendar years.
THE FUND IN DETAIL
What are the Cash Management Fund's objective, principal investment
strategies, and risks?
OBJECTIVE: The Fund seeks to earn a high rate of current income consistent
with the preservation of capital and maintenance of liquidity.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests primarily in high-quality
money market instruments that are determined by the Fund's Adviser to present
minimal credit risk. Some common types of money market instruments are Treasury
bills and notes, which are securities issued by the U.S. government; commercial
9
<PAGE>
paper, which are promissory notes issued by large companies or financial firms;
banker's acceptances, which are credit instruments guaranteed by a bank;
negotiable certificates of deposit, which are issued by banks in large
denominations; and floating rate notes. The interest rate of a floating rate
instrument is generally based on a known lending rate, such as a bank's prime
rate, and is reset whenever the underlying rate is adjusted.
The Fund's portfolio is managed to meet regulatory requirements that permit the
Fund to maintain a stable NAV of $1.00 per share. These include requirements
relating to the credit quality, maturity, and diversification of the Fund's
investments. For example, to be an eligible investment for the Fund, a security
must have a remaining maturity of 397 calendar days or less. The security must
be rated in one of the two highest credit ratings categories for short-term
securities by at least two nationally recognized rating services organizations
(or by one, if only one rating service has rated the security), or if unrated,
be determined by the Fund's Adviser to be of quality equivalent to those in the
two highest credit ratings categories. The Fund must also maintain a
dollar-weighted average portfolio maturity of 90 days or less.
In buying and selling securities, the Fund will consider ratings assigned by
ratings services as well as its own credit analysis. The Fund considers, among
other things, the issuer's earnings and cash flow generating capabilities, the
security's yield and relative value, and the outlook for interest rates and the
economy. In the case of instruments with demand features or credit enhancements,
the Fund considers the financial strength of the party providing the demand
feature or credit enhancement, including any ratings assigned to such party.
Information on the Fund's recent holdings can be found in the most recent annual
report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of investing in the Cash Management Fund:
INTEREST RATE RISK: Like the values of other debt instruments, the market values
of money market instruments are affected by changes in interest rates. When
interest rates rise, the market values of money market instruments decline; when
interest rates decline, the market values of money market instruments increase.
The price volatility of money market instruments also depends on their
maturities and durations. Generally, the shorter the maturity and duration of a
money market instrument, the lesser its sensitivity to interest rates.
Interest rate risk also includes the risk that in a declining interest rate
environment the Fund will have to invest the proceeds of maturing investments in
lower-yielding investments. The yields received by the Fund on some of its
investments will also decline as interest rates decline. For example, the Fund
invests in floating rate bonds and notes. When interest rates decline, the
yields paid on these securities may decline.
CREDIT RISK: A money market instrument's credit quality depends upon the
issuer's ability to pay interest on the security and, ultimately, to repay the
principal. The lower the rating by one of the independent bond-rating agencies
(for example, Moody's Investors Service, Inc. or Standard & Poor's Ratings
Group), the greater the chance (in the rating agency's opinion) the security's
issuer will default, or fail to meet its repayment obligations. Direct U.S.
Treasury obligations (securities backed by the U.S. government) carry the
highest credit ratings. All things being equal, money market instruments with
greater credit risk offer higher yields.
10
<PAGE>
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
11
<PAGE>
DISCOVERY FUND
OVERVIEW
OBJECTIVE: The Fund seeks long-term growth of capital, without regard to
dividend or interest income.
PRIMARY
INVESTMENT
STRATEGIES: The Fund primarily invests in common stocks of companies with
small market capitalizations ("small-cap stocks") which have the
potential for substantial long-term growth. The Fund looks for
companies that are in the early stages of their development, have
a new product or service, are in a position to benefit from some
change in the economy, have new management, or are experiencing
some other "special situation" which makes their stocks
undervalued. Because these companies tend to be smaller, their
growth potential is often greater.
PRIMARY
RISKS: While the potential long-term rewards of investing in small-cap
stocks are substantial, there are also substantial risks.
Small-cap stocks carry more risk because they are often in the
early stages of development, dependent on a small number of
products or services, lack substantial financial resources, and
have less predictable earnings. Small-cap stocks also tend to be
less liquid, and experience sharper price fluctuations than
stocks of companies with large capitalizations. These
fluctuations can be substantial. Accordingly, the value of an
investment in the Fund will go up and down, which means that you
could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
How has the Discovery Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Discovery Fund's shares
from year to year over the last ten years. The bar chart does not reflect fees
and expenses that may be deducted by the variable annuity contract or variable
life insurance policy through which you invest. If they were included, the
returns would be less than those shown.
12
<PAGE>
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 26.55% (for the
quarter ended December 31,1998), and lowest quarterly return was -22.34% (for
the quarter ended September 30,1998). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for Discovery
Fund's shares compare to those of the Russell 2000 Index. The Russell 2000 Index
is an unmanaged index generally representative of the U.S. market for small-cap
stocks. The Russell 2000 Index does not take into account fees and expenses that
an investor would incur in holding the securities in the Russell 2000 Index. If
it did so, the returns would be lower than those shown.
1 Year* 5 Years* 10 Years*
Discovery Fund (4.17)% 8.98% 14.44%
Russell 2000 Index (2.24) 12.31 11.65
*The annual returns are based upon calendar years.
THE FUND IN DETAIL
What are the Discovery Fund's objective, principal investment strategies, and
risks?
OBJECTIVE: The Fund seeks long-term growth of capital, without regard to
dividend or interest income.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in common stocks of companies with small market capitalizations, which
13
<PAGE>
have the potential for substantial long-term growth. The Fund defines small-cap
stocks as those with market capitalizations of less than 90% of the weighted
market capitalization of the Standard & Poor's 600 Smallcap Index ("S&P 600
Index") (currently $1.8 billion). The weighted market capitalization of the S&P
600 Index will change with market conditions. The Fund looks for companies that
are in the early stages of their development, have a new product or service, are
in a position to benefit from some change in the economy, have new management,
or are experiencing some other "special situation" which makes their stocks
undervalued. Because these companies tend to be smaller, their growth potential
is often greater.
In selecting stocks, the Fund relies on fundamental research. It considers,
among other things, earnings growth potential, revenue growth potential, cash
flow and tangible book value. The Fund attempts to stay broadly diversified but
it may emphasize certain industry sectors based on economic and market
conditions. The Fund usually will sell a stock when it shows deteriorating
fundamentals or falls short of the portfolio manager's expectations. Information
on the Fund's recent strategies and holdings can be found in the most recent
annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of investing in the Discovery Fund:
MARKET RISK. Because this Fund invests in stocks, an investment in the Fund is
subject to stock market risk. Stock prices in general may decline over short or
even extended periods not only because of company-specific developments but also
due to an economic downturn, a change in interest rates, or a change in investor
sentiment, regardless of the success or failure of an individual company's
operations. Stock markets tend to run in cycles with periods when prices
generally go up, known as "bull" markets and periods when stock prices generally
go down, referred to as "bear" markets. The market risk associated with
small-cap stocks is greater than that associated with larger-cap stocks because
small-cap stocks tend to experience sharper price fluctuations than larger-cap
stocks, particularly during bear markets.
Small-cap companies are generally dependent on a small number of products or
services, their earnings are less predictable, and their share prices more
volatile. These companies are also more likely to have limited markets or
financial resources, and may depend on a small, inexperienced management group.
LIQUIDITY: Stocks of small-cap companies often are not as broadly traded as
those of larger-cap companies and are often subject to wider price fluctuations.
As a result, at times it may be difficult for the Fund to sell these securities
at a reasonable price.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
14
<PAGE>
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then temporarily may use
alternative strategies that are mainly designed to limit the Fund's losses by
investing up to 100% of its assets in short-term money market instruments. If
the Fund does so, it may not achieve its investment objective.
15
<PAGE>
GOVERNMENT FUND
OVERVIEW
OBJECTIVE: The Fund seeks to achieve a significant level of current income
which is consistent with security and liquidity of principal.
PRIMARY
INVESTMENT
STRATEGIES: The Fund primarily invests in obligations issued or guaranteed as
to payment of principal and interest by the U.S. Government, its
agencies or instrumentalities. The majority of the Fund's
investments consist of mortgage-backed securities issued or
guaranteed by the Government National Mortgage Association,
Federal National Mortgage Association, and Federal Home Loan
Mortgage Corporation. Mortgage-backed securities represent
interests in "pools" of mortgage loans. Because the
mortgage-backed securities purchased by the Fund are generally
guaranteed as to the timely payment of principal and interest to
investors in the pools, the Fund's primary strategies revolve
around managing interest rate risk, prepayment risk, and
extension risk. The Fund attempts to manage these risks by
adjusting the duration of its portfolio and the average coupon
rate of its mortgage-backed securities holdings.
PRIMARY
RISKS: While mortgage-backed securities are guaranteed in varying
degrees as to payment of principal and interest, this guarantee
does not apply in any way to the market prices of these
securities or the Fund's share price, both of which will
fluctuate. There are three main risks of investing in the Fund:
interest rate risk, prepayment risk, and extension risk. When
interest rates rise, the mortgage-backed securities held by the
Fund tend to decline in price, and when interest rates fall, they
tend to increase in price. This is interest rate risk. When
interest rates fall, homeowners also tend to refinance their
mortgages. When this occurs, the Fund loses the benefit of higher
yielding mortgages and must reinvest in lower interest rate
mortgages. This is prepayment risk. Extension risk is the flip
side of prepayment risk. Rising interest rates can cause the
Fund's average maturity to lengthen unexpectedly due to a drop in
mortgage prepayments. This will increase both the Fund's
sensitivity to rising interest rates and its potential for price
declines. The Fund may, at times, engage in short-term trading,
which could produce higher brokerage costs and taxable
distributions and may result in a lower total return for the
Fund. Accordingly, the value of an investment in the Fund as well
as the dividends you receive will go up and down, which means
that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
16
<PAGE>
How has the Government Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Government Fund's shares
from year to year over the life of the Fund. The bar chart does not reflect fees
and expenses that may be deducted by the variable annuity contract or variable
life insurance policy through which you invest. If they were included, the
returns would be less than those shown.
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 6.05% (for the
quarter ended September 30,1992), and the lowest quarterly return was -3.21%
(for the quarter ended March 31,1994). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for Government
Fund's shares compare to those of the Salomon Brothers Mortgage Index ("Mortgage
Index") and the Salomon Brothers Government Index ("Government Index"). The
Mortgage Index is a market capitalization-weighted index that consists of all
agency pass-throughs and Federal Housing Administration ("FHA") and Government
National Mortgage Association project notes. The Government Index is a market
capitalization-weighted index that consists of debt issued by the U.S. Treasury
and U.S. Government sponsored agencies. The indices do not take into account
fees and expenses that an investor would incur in holding the securities in the
indices. If they did so, the returns would be lower than those shown.
17
<PAGE>
Inception
1 Year* 5 Years* (1/7/92)
Government Fund (0.01)% 4.53% 5.54%
Mortgage Index 6.98 7.27 7.39**
Government Index 9.84 7.24 7.98**
*The annual returns are based upon calendar years.
**The average annual total return shown is for the period 12/31/91 to 12/31/98.
THE FUND IN DETAIL
What are the Government Fund's objective, principal investment strategies,and
risks?
OBJECTIVE: The Fund seeks to achieve a significant level of current income which
is consistent with security and liquidity of principal.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in obligations issued or guaranteed as to payment of principal and
interest by the U.S. Government, its agencies or instrumentalities. The majority
of the Fund's investments consist of mortgage-backed securities. Mortgage-backed
securities represent interests in pools of mortgages. The principal and interest
from the underlying mortgages are passed through to investors in the pools. Some
pools are supported by the full faith and credit of the U.S. government, such as
Government National Mortgage Association pass-through mortgage certificates
(called "Ginnie Maes"). Some pools are supported by the right of the issuer to
borrow from the U.S. Treasury under certain circumstances, such as Federal
National Mortgage Association bonds (called "Fannie Maes"). Other pools are
supported only by the credit of the entity that issued them, such as Federal
Home Loan Mortgage Corporation obligations (called "Freddie Macs"). The Fund
also invests in U.S. Treasury securities and securities issued by U.S. agencies,
such as the Tennessee Valley Authority.
The Fund's primary investment strategies revolve around managing interest rate
risk, prepayment risk, and extension risk. Interest rate risk is managed by
adjusting the duration of the securities owned by the Fund. Duration is a
measurement of a bond's sensitivity to changes in interest rates that takes into
consideration not only the maturity of the bond but also the time value of money
that will be received from the bond over its life. The Fund will generally
adjust duration by buying or selling U.S. Treasury securities. For example, if
the Fund believes that interest rates are likely to rise, it will generally
attempt to reduce its duration by purchasing U.S. Treasury securities with
shorter maturities or selling U.S. Treasury securities with longer maturities.
Prepayment risk and extension risk are managed by adjusting the composition of
the Fund's holdings. For example, if interest rates appear likely to decline,
the Fund may attempt to reduce prepayment risk by buying new mortgage-backed
securities with lower coupons. Conversely, if interest rates appear likely to
increase, the Fund may reduce extension risk by purchasing mortgage-backed
securities with higher coupons.
The Fund uses a "top-down" approach in making investment decisions based on
interest rate, economic and market conditions. In selecting investments, the
Fund considers coupon and yield, relative value and weighted average maturity of
18
<PAGE>
the pool. The Fund will usually sell an investment when there are changes in the
interest rate environment that are adverse to the investment or if it fails to
meet the expectations of the portfolio manager. Information on the Fund's recent
strategies and holdings can be found in the most recent annual report (see back
cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of investing in the Government Fund:
INTEREST RATE RISK: All of the securities held by the Fund are subject to
interest rate risk. In general, the market prices of bonds rise when interest
rates fall, and fall when interest rates rise. Short-term interest rates and
long-term interest rates do not necessarily move in the same direction or in the
same amounts. Bonds with longer maturities tend to be more sensitive to interest
rate changes than those with shorter maturities.
PREPAYMENT RISK: Because the Fund invests primarily in mortgage-backed
securities, it is subject to prepayment risk. When interest rates decline,
homeowners tend to refinance their mortgages. When this occurs, investors in
pools suffer a higher rate of prepayment. As a result, investors in pools not
only lose the benefit of the higher yielding underlying mortgages that are being
prepaid but they must reinvest the proceeds at lower interest rates. This could
cause a decrease in the Fund's income and share price.
EXTENSION RISK: Extension risk is the flip side of prepayment risk. Rising
interest rates can cause the Fund's average maturity to lengthen unexpectedly
due to a drop in mortgage prepayments. This will increase both the Fund's
sensitivity to rising interest rates and its potential for price declines.
CREDIT RISK: This is the risk that an issuer of bonds will be unable to pay
interest or principal when due. There is some credit risk associated with the
Funds investments; however, it is perceived to be minimal. Most of the
securities owned by the Fund are backed by the full faith and credit of the U.S.
Government, the ability to borrow from the U.S. Treasury, or the perceived moral
obligation of the U.S. Government.
FREQUENT TRADING: The Fund may, at times, engage in short-term trading, which
could produce higher brokerage costs and taxable distributions and may result in
a lower total return for the Fund.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
19
<PAGE>
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
20
<PAGE>
GROWTH FUND
OVERVIEW
OBJECTIVE: The Fund seeks long-term capital appreciation.
PRIMARY
INVESTMENT
STRATEGIES: Under normal circumstances, the Fund will remain fully
invested in equity securities, with most of its holdings in
U.S. common stocks. The Fund seeks to invest in seasoned
companies with proven track records and above-average earnings
growth. The Fund invests predominantly in larger companies,
but will also attempt to enhance its return by investing in
mid-sized and smaller companies that the Fund's investment
subadviser believes have attractive growth potential.
PRIMARY
RISKS: Like all stocks, growth stocks fluctuate in price in response
to movements in the overall securities markets, general
economic conditions, changes in interest rates,
company-specific developments and other factors. Mid-cap
stocks tend to experience sharper price fluctuations than
stocks of large-cap companies. To the extent that the Fund
decides to invest in small-cap companies, the risk of price
fluctuations is even greater. Fluctuations in the prices of
the stocks held by the Fund at times can be substantial.
Accordingly, the value of an investment in the Fund will go up
and down, which means that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
How has the Growth Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Growth Fund's shares for
each of the last ten calendar years. The bar chart does not reflect fees and
expenses that may be deducted by the variable annuity contract or variable life
insurance policy through which you invest. If they were included, the returns
would be less than those shown.
21
<PAGE>
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 23.98% (for the
quarter ended December 31, 1998), and the lowest quarterly return was -15.45%
(for the quarter ended September 30, 1990). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for the Fund's
shares compare to those of the S&P 500 Index. The S&P 500 Index is an unmanaged
index generally representative of the market for the stocks of large-sized U.S.
companies. The S&P 500 Index does not take into account fees and expenses that
an investor would incur in holding the securities in the S&P 500 Index. If it
did so, the returns would be lower than those shown.
1 Year* 5 Years* 10 Years*
Growth Fund 18.44% 18.29% 15.88%
S&P 500 Index 28.34 24.55 18.95
*The annual returns are based upon calendar years.
THE FUND IN DETAIL
What are the Growth Fund's objectives, principal investment strategies,
and risks?
OBJECTIVE: The Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES: Under normal circumstances, the Fund will
remain fully invested in equity securities, with most of its holdings in U.S.
22
<PAGE>
common stocks. The Fund will also invest in foreign companies whose stocks are
denominated in U.S. dollars and listed and traded on a U.S. securities exchange,
either directly or through Depository Receipts. The Fund favors stocks of
seasoned companies with proven records and above-average earnings growth, and
stocks of companies with outstanding growth records and potential. The Fund
invests predominantly in larger companies, but will also attempt to enhance its
return by investing in mid-sized and smaller companies that the investment
subadviser believes have attractive growth potential. The Fund will typically
invest in most major sectors of the economy and therefore the Fund's investments
will be widely diversified by company and industry. The Fund may invest up to
25% of its assets in certain industry sectors based on economic and market
conditions.
The Fund uses fundamental research and analysis to identify prospective
investments. The Fund looks to identify industry leaders and those companies
which are leaders in industry niches. Research is focused on companies with a
proven record of sales and earnings growth, profitability, and cash flow
generation. Security selection is based on any one or more of the following
characteristics: (1) accelerating earnings growth and the possibility of
positive earnings surprises; (2) strong possibility of price to earnings
multiple expansion (or increases in other similar valuation measures); (3)
hidden or unappreciated value; or (4) improving company and/or industry outlook.
Every company in the portfolio is monitored to ensure its fundamental
attractiveness. A stock may be sold if (1) its downside risk equals or exceeds
its upside potential; (2) it suffers from a decreasing trend of earnings growth
or suffers an earnings disappointment; (3) it experiences excessive valuations;
or (4) there is a deteriorating company and/or industry outlook.
Information on the Fund's recent strategies and holdings can be found in the
most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of investing in the Growth Fund:
MARKET RISK: Because the Fund invests in stocks, an investment in the Fund is
subject to stock market risk. Stock prices in general may decline over short or
even extended periods not only because of company-specific developments but also
due to an economic downturn, a change in interest rates, or a change in investor
sentiment, regardless of the success or failure of an individual company's
operations. Stock markets tend to run in cycles with periods when prices
generally go up, known as "bull" markets and periods when stock prices generally
go down, referred to as "bear" markets.
The market risk associated with mid-cap and small-cap stocks is generally
greater than that associated with large-cap stocks because mid-cap and small-cap
stocks tend to experience sharper price fluctuations than large-cap stocks,
particularly during bear markets. Their earnings tend to be less predictable
than those of larger, more established companies. The prices of these stocks can
also be influenced by the anticipation of future products and services which, if
delayed, could cause the prices to drop. Fluctuation in prices of stocks can be
sudden and substantial. Accordingly, the value of your investment in the Fund
will go up and down, which means that you could lose money.
23
<PAGE>
LIQUIDITY RISK: The risk that certain securities may be difficult or impossible
to sell at the same time and the price that the seller would like. Stocks of
small-cap companies often are not as broadly traded as those of larger-cap
companies and are often subject to wider price fluctuations. As a result, at
times it may be difficult for the Fund to sell these securities at a reasonable
price.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund's investment subadviser may judge that
market, economic or political conditions make pursuing the Fund's investment
strategies inconsistent with the best interests of its shareholders. The Fund
then may temporarily use alternative strategies that are mainly designed to
limit the Fund's losses by investing up to 100% of its assets in short-term
money market instruments. If the Fund does so, it may not achieve its investment
objective.
24
<PAGE>
HIGH YIELD FUND
OVERVIEW
OBJECTIVES: The Fund primarily seeks high current income and secondarily
seeks capital appreciation.
PRIMARY
INVESTMENT
STRATEGIES: The Fund primarily invests in a diversified portfolio of
high-yield, below-investment grade corporate bonds (commonly
known as "junk bonds"). These bonds provide a higher level of
income than investment grade bonds because they have a higher
risk of default. The Fund seeks to reduce the risk of a
default by selecting bonds through careful credit research and
analysis. The Fund seeks to reduce the impact of a potential
default by diversifying its investments among bonds of many
different companies and industries. While the Fund invests
primarily in domestic companies, it also invests in securities
of issuers domiciled in foreign countries. These securities
will generally be dollar-denominated and traded in the U.S.
The Fund seeks to achieve capital appreciation by investing in
high-yield bonds with stable to improving credit conditions.
PRIMARY
RISKS: There are four primary risks of investing in the Fund. First,
the value of the Fund's shares could decline as a result of a
deterioration of the financial condition of an issuer of bonds
owned by the Fund or as a result of a default by the issuer.
This is known as credit risk. High-yield bonds carry higher
credit risks than investment grade bonds because the companies
that issue them are not as strong financially as companies
with investment grade credit ratings. High-yield bonds issued
by foreign companies are subject to additional risks including
political instability, government regulation, and differences
in financial reporting standards. Second, the value of the
Fund's shares could decline if the entire high-yield bond
market were to decline, even if none of the Fund's bond
holdings were at risk of a default. The high-yield market can
experience sharp declines at times as the result of a
deterioration in the overall economy, declines in the stock
market, a change of investor tolerance for risk, or other
factors. Third, high-yield bonds tend to be less liquid than
other bonds, which means that they are more difficult to sell.
Fourth, while high-yield bonds are generally less interest
rate sensitive than higher-quality bonds, their values
generally will decline when interest rates rise. Fluctuations
in the prices of high-yield bonds can be substantial.
Accordingly, the value of an investment in the Fund will go up
and down, which means that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
25
<PAGE>
How has the High Yield Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the High Yield Fund's shares
for each of the last ten calendar years. The bar chart does not reflect fees and
expenses that may be deducted by the variable annuity contract or variable life
insurance policy through which you invest. If they were included, the returns
would be less than those shown.
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 11.16% (for the
quarter ended March 31, 1991), and the lowest quarterly return was -8.11% (for
the quarter ended September 30, 1990). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for the High
Yield Fund's shares compare to those of the Credit Suisse First Boston High
Yield Index ("High Yield Index"). The High Yield Index is designed to measure
the performance of the high yield bond market. The High Yield Index does not
take into account fees and expenses that an investor would incur in holding the
securities in the Index. If it did so, the returns would be lower than those
shown.
1 Year* 5 Years* 10 Years*
High Yield Fund (4.10)% 7.45% 8.90%
High Yield Index 0.58 8.16 10.74
*The annual returns are based upon calendar years.
26
<PAGE>
THE FUND IN DETAIL
What are the High Yield Fund's objectives, principal investment strategies, and
risks?
OBJECTIVES: The Fund primarily seeks high current income and secondarily seeks
capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in a diversified portfolio of high-yield, below-investment grade
corporate bonds commonly known as "junk bonds" (those rated below Baa by Moody's
Investors Service, Inc. or below BBB by Standard & Poor's Ratings Group).
High-yield bonds generally provide higher income than investment grade bonds to
compensate investors for their higher risk of default (i.e., failure to make
required interest or principal payments). High-yield bond issuers include small
or relatively new companies lacking the history or capital to merit investment
grade status, former Blue Chip companies downgraded because of financial
problems, companies using debt rather than equity to fund capital investment or
spending programs, companies electing to borrow heavily to finance or avoid a
takeover or buyout, and firms with heavy debt loads. The Fund's portfolio may
include zero coupon bonds and pay in kind bonds. While the Fund invests
primarily in domestic companies, it also invests in securities of issuers
domiciled in foreign countries. These securities will generally be
dollar-denominated and traded in the U.S. The Fund seeks to reduce the risk of a
default by selecting bonds through careful credit research and analysis. The
Fund seeks to reduce the impact of a potential default by diversifying its
investments among bonds of many different companies and industries.
To achieve its secondary objective of capital appreciation, the Fund attempts to
invest in bonds that have stable to improving credit quality that could
appreciate in value because of a credit rating upgrade or an improvement in the
outlook for a particular company, industry or the economy as a whole.
Although the Fund will consider ratings assigned by ratings agencies in
selecting high-yield bonds, it relies principally on its own research and
investment analysis. The Fund considers a variety of factors, including the
issuer's managerial strength, anticipated cash flow, debt maturity schedules,
borrowing requirements, interest or dividend coverage, asset coverage and
earnings prospects. The Fund will usually sell a bond when it shows
deteriorating fundamentals or falls short of the portfolio manager's
expectations. Information on the Fund's recent strategies and holdings can be
found in the most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of the investment, the greater the risk. Here
are the principal risks of investing in the High Yield Fund:
CREDIT RISK: This is the risk that an issuer of bonds will be unable to pay
interest or principal when due. The prices of bonds are affected by the credit
quality of the issuer. High-yield bonds are subject to greater credit risk than
higher quality bonds because the companies that issue them are not as
financially strong as companies with investment grade ratings. Changes in the
financial condition of an issuer, changes in general economic conditions, and
changes in specific economic conditions that affect a particular type of issuer
27
<PAGE>
can impact the credit quality of an issuer. Such changes may weaken an issuer's
ability to make payments of principal or interest, or cause an issuer of bonds
to fail to make timely payments of interest or principal. Lower quality bonds
generally tend to be more sensitive to these changes than higher quality bonds.
While credit ratings may be available to assist in evaluating an issuer's credit
quality, they may not accurately predict an issuer's ability to make timely
payments of principal and interest.
MARKET RISK: The entire junk bond market can experience sharp price swings due
to a variety of factors, including changes in economic forecasts, stock market
volatility, large sustained sales of junk bonds by major investors, high-profile
defaults, or changes in the market's psychology. This degree of volatility in
the high-yield market is usually associated more with stocks than bonds. The
prices of high-yield bonds held by the Fund could therefore decline, regardless
of the financial condition of the issuers of such bonds. Markets tend to run in
cycles with periods when prices generally go up, known as "bull" markets, and
periods when prices generally go down, referred to as "bear" markets.
LIQUIDITY: High-yield bonds tend to be less liquid than higher quality bonds,
meaning that it may be difficult to sell high-yield bonds at a reasonable price,
particularly if there is a deterioration in the economy or in the financial
prospects of their issuers. As a result, the prices of high-yield bonds may be
subject to wide price fluctuations due to liquidity concerns.
INTEREST RATE RISK: The market value of a bond is affected by changes in
interest rates. When interest rates rise, the market value of a bond declines;
when interest rates decline, the market value of a bond increases. The price
volatility of a bond also depends on its maturity and duration. Generally, the
longer the maturity and duration of a bond, the greater its sensitivity to
interest rates. To compensate investors for this higher risk, bonds with longer
maturities and durations generally offer higher yields than bonds with shorter
maturities and durations.
FOREIGN ISSUERS: Foreign investments involve additional risks, including
political instability, government regulation, differences in financial reporting
standards, and less stringent regulation of foreign securities markets.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
28
<PAGE>
INTERNATIONAL SECURITIES FUND
OVERVIEW
OBJECTIVES: The Fund primarily seeks long-term capital growth and
secondarily a reasonable level of current income.
PRIMARY
INVESTMENT
STRATEGIES: The Fund invests in a diversified portfolio of common stocks
(and other equity securities) of companies which are located
throughout the world, including the United States. The Fund
primarily invests in large or medium capitalization stocks
which are traded in larger or more established markets
throughout the world. The Fund also invests opportunistically
in small capitalization stocks and stocks of smaller,
less-developed or emerging markets. The Fund generally does not
attempt to hedge its foreign securities investments against
currency rate fluctuations. To a limited extent, the Fund uses
stock index futures contracts and options thereon as temporary
substitutes for purchases of foreign stocks and to adjust
country weightings.
PRIMARY
RISKS: All stocks fluctuate in price in response to movements in the
overall securities markets, general economic conditions, and
changes in interest rates or investor sentiment. The risks of
investing in a stock fund that invests in foreign stocks are
accentuated because investments in foreign stocks, particularly
emerging markets, can decline in value because of declines in
the values of local currencies, irrespective of how well the
companies that issue such stocks are doing; there is less
supervision and regulation of foreign securities markets;
foreign securities markets are generally less liquid than U.S.
markets; there may be less financial information available on
certain foreign companies; and there may be political
instability in some countries in which the Fund may invest.
Fluctuations in the prices of foreign stocks can be especially
sudden and substantial. Stocks with smaller market
capitalizations tend to experience sharper price fluctuations.
Using stock index futures and options thereon as temporary
substitutes for foreign stocks carries the same risks as direct
ownership of all of the stocks in the index. Accordingly, the
value of an investment in the Fund will go up and down, which
means that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
How has the International Securities Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
29
<PAGE>
The bar chart shows changes in the performance of the International Securities
Fund's shares from year to year over the life of the Fund. The bar chart does
not reflect fees and expenses that may be deducted by the variable annuity
contract or variable life insurance policy through which you invest. If they
were included, the returns would be less than those shown.
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 18.22% (for the
quarter ended December 31, 1998), and the lowest quarterly return was -14.92%
(for the quarter ended September 30, 1998). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for the
International Securities Fund's shares compare to those of the Morgan Stanley
All Country World Free Index ("All Country Index"). The All Country Index is
designed to measure the performance of stock markets in the United States,
Europe, Canada, Australia, New Zealand and the developed and emerging markets of
Eastern Europe, Latin America, Asia and the Far East. The index consists of
approximately 60% of the aggregate market value of the covered stock exchanges
and is calculated to exclude companies and share classes which cannot be freely
purchased by foreigners. The All Country Index does not take into account fees
and expenses that an investor would incur in holding the securities in the
index. If it did so, the returns would be lower than those shown.
Inception
1 Year* 5 Years* (4/16/90)
International Securities
Fund 9.92% 10.12% 10.23%
All Country Index 21.96 7.13 12.62**
*The annual returns are based upon calendar years.
**The average annual total return shown is for the period 4/30/90 to 12/31/98.
30
<PAGE>
THE FUND IN DETAIL
What are the International Securities Fund's objectives, principal investment
strategies, and risks?
OBJECTIVES: The Fund primarily seeks long-term capital growth and secondarily a
reasonable level of current income.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests in a diversified portfolio of
common stocks of companies which are located throughout the world, including the
United States ("U.S.") Under normal market conditions, the Fund attempts to
maintain broad country diversification. The Fund has a fundamental policy (which
may only be changed by shareholder vote) to invest no more than 35% of its total
assets in securities of U.S. companies, obligations of the U.S. government, its
agencies and instrumentalities, and cash or cash equivalents denominated in U.S.
dollars. The foreign stocks that the Fund purchases are typically denominated in
foreign currencies. The Fund generally does not hedge against fluctuations in
the value of foreign currencies.
The Fund invests primarily in stocks of companies which are considered large to
medium in size (as measured by market capitalization). The Fund may also invest
in smaller companies when management views them as attractive alternatives to
the stocks of larger or more established companies. The Fund will make direct
investments in foreign issuers by purchasing securities traded in a foreign
market, as well as indirect investments through purchases of Depositary
Receipts, such as American Depository Receipts and Global Depository Receipts.
The Fund invests primarily in stocks which trade in larger or more established
markets, but also may invest (to a lesser degree) in smaller, less-developed or
emerging markets where management believes there is significant opportunity for
growth of capital. The status of markets as less-developed or emerging may
change over time as a result of developments in national or regional economies
and capital markets. Within emerging markets, the Fund seeks to participate in
the more established markets which management believes provide sufficient
liquidity.
The Fund also uses stock index futures contracts and options thereon as
temporary substitutes for purchases of foreign stocks. This practice can afford
a hedge against not participating in an advance in a country at a time when the
Fund is not fully invested in the country. Stock index futures contracts and
options thereon are also used to maintain desired country exposures. The Fund
will not invest more than 5% of its assets in stock index futures or options
thereon.
The Fund uses fundamental research and analysis to identify prospective
investments. Security selection is based on any one or more of the following
characteristics: (1) accelerating earnings growth or the possibility of positive
earnings surprises; (2) strong possibility of price-to-earnings multiple
expansion (or increases in other similar valuation measures); (3) hidden or
unappreciated value; or (4) improving local market and/or industry outlook.
31
<PAGE>
Once the best purchase candidates for the Fund are identified, the portfolio
construction process begins. In this phase, many factors are considered in
creating a total portfolio of securities for the Fund, including: (1) regional
and country weightings; (2) currency exposure; (3) industry and sector
allocation; and (4) exposure to a number of other factors, such as interest
rates or company size.
Every company in the portfolio is monitored to ensure its fundamental
attractiveness. A stock may be sold if: (1) its downside risk equals or exceeds
its upside potential; (2) it suffers from a decreasing trend of earnings growth
or suffers an earnings disappointment; (3) it experiences excessive valuations;
or (4) there is a deteriorating local market and/or industry outlook.
Information on the Fund's recent strategies and holdings can be found in the
most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of investing in the International Securities Fund:
MARKET RISK: Because the Fund primarily invests in common stocks, it is subject
to market risk. Stock prices in general may decline over short or even extended
periods not only because of company-specific developments but also due to an
economic downturn, a change in interest rates, or a change in investor
sentiment, regardless of the success or failure of an individual company's
operations. Stock markets tend to run in cycles, with periods when prices
generally go up, known as "bull" markets, and periods when stock prices
generally go down, referred to as "bear" markets.
While the Fund's strategy of being globally diversified may help to reduce the
volatility or variability of the Fund's returns relative to another global fund
which invests in fewer stocks or whose investments are focused in fewer
countries or industry sectors, this strategy may not prevent a loss if stock
markets worldwide were to decline at the same time. Fluctuations of stock prices
can be sudden and substantial. Accordingly, the value of an investment in the
Fund will go up and down, which means that you could lose money.
FOREIGN SECURITIES RISK: Investments in foreign markets involve special risks
and considerations. Some of these factors are also present when investing in the
United States but are heightened issues when investing in non-U.S. markets and
especially emerging markets. For example, such risks and considerations may
include political and economic instability, nationalization, confiscatory
taxation, differing accounting and financial reporting standards, the inability
to obtain reliable financial information regarding a company's balance sheet and
operations. Risks such as these are common to all investments but are
exacerbated when investing in international markets. In addition, international
investors may experience higher commission rates on foreign portfolio
transactions, potential adverse changes in tax and exchange control regulations,
and the potential for restrictions on the flow of international capital. Many
foreign countries impose withholding taxes on income from investments in such
countries, which a portfolio may not recover. Also, fluctuations in the exchange
rates between the US dollar and foreign currencies may have a negative impact on
investments denominated in foreign currencies, for example, by eroding or
reversing gains or widening losses from those investments. These risks are
common to all mutual funds investing in international securities. Using stock
32
<PAGE>
index futures and options thereon as temporary substitutes for foreign stocks
carries the same risks as direct ownership of all of the stocks in the index.
LIQUIDITY RISK: Liquidity risk is the risk that certain securities may be
difficult or impossible to sell at the time and the price that the seller would
like. In such a situation, the seller may have to lower the price, sell other
securities instead, or forego an investment opportunity, any of which could have
a negative effect on fund management or performance.
SMALL-CAP RISK: The market risk associated with small-to mid-cap stocks is
greater than that associated with larger-cap stocks because small-to mid-cap
stocks tend to experience sharper price fluctuations than larger-cap stocks,
particularly during bear markets. Small-to mid-cap companies are generally
dependent on a smaller number of products or services, their earnings are less
predictable, and their share prices more volatile. These companies are also more
likely to have limited markets or financial resources, or to depend on a small,
inexperienced management group.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
be particularly acute in the case of the Fund's holdings in foreign securities
since foreign issuers and foreign markets may be more likely to experience Year
2000 problems. These problems could have a negative effect on the Fund's
investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund's investment subadviser may judge that
market, economic or political conditions make pursuing the Fund's investment
strategies inconsistent with the best interests of its shareholders. The Fund
then may temporarily use alternative strategies that are mainly designed to
limit the Fund's losses by investing up to 100% of its assets in short-term
money market instruments. If the Fund does so, it may not achieve its investment
objective.
33
<PAGE>
INVESTMENT GRADE FUND
OVERVIEW
OBJECTIVE: The Fund seeks to generate a maximum level of income
consistent with investment in investment grade debt
securities.
PRIMARY
INVESTMENT
STRATEGIES: The Fund primarily invests in corporate bonds of U.S.
companies that are rated in one of the four highest ratings
categories by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Ratings Group ("S&P"). Such bonds are
generally called "investment grade bonds." Investment grade
bonds offer higher yields than Treasury securities of
comparable maturities to compensate investors for the risk of
default. The Fund selects bonds primarily on the basis of its
own research and investment analysis. The Fund also takes
economic and interest rate outlooks into consideration when
selecting investments.
PRIMARY
RISKS: There are two main risks of investing in the Fund: credit risk
and interest rate risk. The Fund's share price will decline if
one or more of its bond holdings is downgraded in rating, or
one or more issuers suffers a default, or there is a concern
about credit downgrades or defaults in general as a result of
a deterioration in the economy as a whole. Also the Fund's
share price will decline as interest rates rise. Like all
bonds, investment grade bonds tend to rise in price when
interest rates decline, and decline in price when interest
rates rise. Accordingly, the value of an investment in the
Fund will go up and down, which means that you could lose
money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
How has the Investment Grade Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Investment Grade Fund's
shares from year to year over the life of the Fund. The bar chart does not
reflect fees and expenses that may be deducted by the variable annuity contract
or variable life insurance policy through which you invest. If they were
included, the returns would be less than those shown.
34
<PAGE>
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 6.50% (for the
quarter ended June 30, 1995), and the lowest quarterly return was -3.57% (for
the quarter ended March 31, 1994). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for the
Investment Grade Fund's shares compare to those of the Lehman Brothers Corporate
Bond Index ("Corporate Bond Index"). The Corporate Bond Index includes all
publicly issued, fixed rate, nonconvertible investment grade dollar-denominated,
corporate debt which have at least one year to maturity and an outstanding par
value of at least $100 million. The Corporate Bond Index does not take into
account fees and expenses that an investor would incur in holding the securities
in the Corporate Bond Index. If it did so, the returns would be lower than those
shown.
Inception
1 Year* 5 Years* (1/7/92)
Investment Grade Fund 1.50% 5.78% 6.92%
Corporate Bond Index 8.57 7.74 8.51**
*The annual returns are based upon calendar years.
**The average annual total return shown is for the period 12/31/91 to 12/31/98.
35
<PAGE>
THE FUND IN DETAIL
What are the Investment Grade Fund's objective, principal investment
strategies, and risks?
OBJECTIVE: The Fund seeks to generate a maximum level of income consistent with
investment in investment grade debt securities.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in corporate bonds of companies that are rated investment grade by
Moody's or S&P ("investment grade bonds"). These are bonds that are rated among
the four highest ratings categories by Moody's or S&P. Investment grade bonds
generally offer higher yields than Treasury securities of comparable maturities
to compensate investors for the risk of default.
Although the Fund may diversify among the four investment grade ratings, it may
emphasize bonds with higher ratings at times when the economy appears to be
weakening and bonds with lower ratings when the economy appears to be improving.
The Fund adjusts the average weighted maturity of the bonds in its portfolio
based on its interest rate outlook. If it believes that interest rates are
likely to fall, it will attempt to buy bonds with longer maturities or sell
bonds with shorter maturities. By contrast, if it believes interest rates are
likely to rise, it will attempt to buy bonds with shorter maturities or sell
bonds with longer maturities. The Fund also attempts to stay broadly
diversified, but it may emphasize certain industries within a sector based on
the outlook for interest rates, economic forecasts, and market conditions. The
Fund may buy or sell Treasury securities instead of investment grade corporate
bonds to adjust the Fund's average weighted maturity.
Although the Fund will consider ratings assigned by ratings services in
selecting investments, it relies principally on its own research and investment
analysis. The Fund considers, among other things, the issuer's earnings and cash
flow generating capabilities, asset quality, debt levels, and management
strength. The Fund will not necessarily sell an investment if its rating is
reduced. The Fund usually will sell a bond when it shows deteriorating
fundamentals or falls short of the portfolio manager's expectations. Information
on the Fund's recent strategies and holdings can be found in the most recent
annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of investing in the Investment Grade Fund:
CREDIT RISK: This is the risk that an issuer of bonds will be unable to pay
interest or principal when due. The prices of bonds are affected by the credit
quality of the issuer. Changes in the financial condition of an issuer, changes
in general economic conditions, and changes in specific economic conditions that
affect a particular type of issuer can impact the credit quality of an issuer.
Such changes may weaken an issuer's ability to make payments of principal or
interest, or cause an issuer of bonds to fail to make timely payments of
interest or principal. Lower quality bonds generally tend to be more sensitive
to these changes than higher quality bonds, but BBB-rated bonds may have
speculative characteristics as well. While credit ratings may be available to
assist in evaluating an issuer's credit quality, they may not accurately predict
an issuer's ability to make timely payment of principal and interest.
36
<PAGE>
INTEREST RATE RISK: The market value of a bond is affected by changes in
interest rates. When interest rates rise, the market value of a bond declines,
when interest rates decline, the market value of a bond increases. The price
volatility of a bond also depends on its maturity and duration. Generally, the
longer the maturity and duration of a bond, the greater its sensitivity to
interest rates. To compensate investors for this higher risk, bonds with longer
maturities and durations generally offer higher yields than bonds with shorter
maturities and durations.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
37
<PAGE>
TARGET MATURITY 2007 FUND
OVERVIEW
OBJECTIVE: The Fund seeks a predictable compounded investment return for
investments held until the Fund's maturity, consistent with
preservation of capital.
PRIMARY
INVESTMENT
STRATEGIES: The Fund primarily invests in non-callable zero coupon bonds
issued or guaranteed by the U.S. government, its agencies or
instrumentalities, that mature on or around the maturity date
of the Fund. The Fund will mature and terminate at the end of
the year 2007. The Fund generally follows a buy and hold
strategy, but may sell an investment when the Fund identifies
an opportunity to increase its yield or it needs cash to meet
redemptions.
PRIMARY
RISKS: If an investment in the Fund is sold prior to the Fund's
maturity, there is substantial interest rate risk. Like other
bonds, zero coupon bonds are sensitive to changes in interest
rates. When interest rates rise, they tend to decline in
price, and when interest rates fall, they tend to increase in
price. Zero coupon bonds are more interest rate sensitive than
other bonds because zero coupon bonds pay no interest to their
holders until their maturities. This means that the market
prices of zero coupon bonds will fluctuate far more than those
of bonds that pay interest periodically. Accordingly, the
value of an investment in the Fund will go up and down, which
means that you could lose money if you liquidate your
investment in the Fund prior to the Fund's maturity.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
How has the Target Maturity 2007 Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Fund's shares from year to
year over the life of the Fund. The bar chart does not reflect fees and expenses
that may be deducted by the variable annuity contract or variable life insurance
policy through which you invest. If they were included, the returns would be
less than those shown.
38
<PAGE>
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 9.99% (for the
quarter ended September 30, 1998), and the lowest quarterly return was -7.84%
(for the quarter ended March 31, 1996). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for the Target
Maturity 2007 Fund's shares compare to those of the Salomon Brothers Government
Index ("SB Government Index"). The SB Government Index is a market
capitalization-weighted index that consists of debt issued by the U.S. Treasury
and U.S. Government sponsored agencies. The SB Government Index does not take
into account fees and expenses that an investor would incur in holding the
securities in the SB Government Index. If it did so, the returns would be lower
than those shown.
Inception
1 Year* (4/26/95)
Target Maturity 2007 Fund 6.93% 10.70%
SB Government Index 9.84 9.22**
* The annual returns are based upon calendar years.
** The average annual total return shown is for the period 4/30/95 to 12/31/98.
THE FUND IN DETAIL
What are the Target Maturity 2007 Fund's objective, principal investment
strategies, and risks?
OBJECTIVE: The Fund seeks a predictable compounded investment return for
investments held until the Fund's maturity, consistent with
preservation of capital.
39
<PAGE>
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in zero coupon securities. The vast majority of the Fund's investments
consists of non-callable, zero coupon bonds issued or guaranteed by the U.S.
government, its agencies or instrumentalities that mature on or around the
maturity date of the Fund (December 31, 2007). Zero coupon securities are debt
obligations that do not entitle holders to any periodic payments of interest
prior to maturity and therefore are issued and traded at discounts from their
face values. Zero coupon securities may be created by separating the interest
and principal components of securities issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities, or issued by private
corporate issuers. The discounts from face values at which zero coupon
securities are purchased varies depending on the time remaining until maturity,
prevailing interest rates, and the liquidity of the security. Because the
discounts from face values are known at the time of investment, investors
intending to hold zero coupon securities until maturity know the value of their
investment return at the time of investment, assuming full payment is made by
the issuer upon maturity.
The Fund seeks zero coupon bonds that will mature on or about the Fund's
maturity date. As the Fund's zero coupon bonds mature, the proceeds will be
invested in short-term U.S. government securities. The Fund generally follows a
buy and hold strategy consistent with attempting to provide a predictable
compounded investment return for investors who hold their Fund shares until the
Fund's maturity.
Although the Fund generally follows a buy and hold strategy, the Fund may sell
an investment when the Fund identifies an opportunity to increase its yield or
it needs cash to meet redemptions. Information on the Fund's recent strategies
and holdings can be found in the most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of investing in the Target Maturity 2007 Fund:
INTEREST RATE RISK: The market value of a bond is affected by changes in
interest rates. When interest rates rise, the market value of a bond declines;
when interest rates decline, the market value of a bond increases. The price
volatility of a bond also depends on its maturity and duration. Generally, the
longer the maturity and duration of a bond, the greater its sensitivity to
interest rates.
The market prices of zero coupon securities are generally more volatile than the
market prices of securities paying interest periodically and, accordingly, will
fluctuate far more in response to changes in interest rates than those of
non-zero coupon securities having similar maturities and yields. As a result,
the net asset value of shares of the Fund may fluctuate over a greater range
than shares of other funds that invest in securities that have similar
maturities and yields but that make current distributions of interest.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
40
<PAGE>
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
41
<PAGE>
TARGET MATURITY 2010 FUND
OVERVIEW
OBJECTIVE: The Fund seeks a predictable compounded investment return for
investors who hold their Fund shares until the Fund's
maturity, consistent with preservation of capital.
PRIMARY
INVESTMENT
STRATEGIES: The Fund primarily invests in non-callable zero coupon bonds
that mature on or around the maturity date of the Fund and are
issued or guaranteed by the U.S. government, its agencies and
instrumentalities. The Fund will mature and terminate at the
end of the year 2010. The Fund generally follows a buy and
hold strategy, but may sell an investment when the Fund
identifies an opportunity to increase its yield or to meet
redemptions.
PRIMARY
RISKS: If an investment in the Fund is sold prior to the Fund's
maturity, there is substantial interest rate risk. Like other
bonds, zero coupon bonds are sensitive to changes in interest
rates. When interest rates rise, they tend to decline in
price, and when interest rates fall, they tend to increase in
price. Zero coupon bonds are more interest rate sensitive than
other bonds because zero coupon bonds pay no interest to their
holders until their maturities. This means that the market
prices of zero coupon bonds will fluctuate far more than those
of bonds that pay interest periodically. Accordingly, the
value of an investment in the Fund will go up and down, which
means that you could lose money if you liquidate your
investment in the Fund prior to the Fund's maturity.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
How has the Target Maturity 2010 Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Fund's shares from year to
year over the life of the Fund. The bar chart does not reflect fees and expenses
that may be deducted by the variable annuity contract or variable life insurance
policy through which you invest. If they were included, the returns would be
less than those shown.
42
<PAGE>
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 10.25% (for the
quarter ended September 30, 1998), and the lowest quarterly return was -7.84%
(for the quarter ended March 31, 1996). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for the Target
Maturity 2010 Fund's shares compare to those of the Salomon Brothers Government
Index ("SB Government Index"). The SB Government Index is a market
capitalization-weighted index that consists of debt issued by the U.S. Treasury
and U.S. Government sponsored agencies. The SB Government Index does not take
into account fees and expenses that an investor would incur in holding the
securities in the SB Government Index. If it did so, the returns would be lower
than those shown.
Inception
1 Year* (4/30/96)
Target Maturity 2010 Fund 6.32% 12.68%
SB Government Index 9.84 9.56**
* The annual returns are based upon calendar years.
** The average annual total return shown is for the period 4/30/96 to 12/31/98.
43
<PAGE>
THE FUND IN DETAIL
What are the Target Maturity 2010 Fund's objective, principal investment
strategies, and risks?
OBJECTIVE: The Fund seeks a predictable compounded investment return for
investors who hold their Fund shares until the Fund's maturity,
consistent with preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in zero coupon securities. The vast majority of the Fund's investments
consists of non-callable, zero coupon bonds that mature on or around the
maturity date of the Fund and are direct obligations of the U.S. Treasury. Zero
coupon securities are debt obligations that do not entitle holders to any
periodic payments of interest prior to maturity and therefore are issued and
traded at discounts from their face values. Zero coupon securities may be
created by separating the interest and principal components of securities issued
or guaranteed by the U.S. government or one of its agencies or
instrumentalities, or issued by private corporate issuers. The discounts from
face values at which zero coupon securities are purchased varies depending on
the time remaining until maturity, prevailing interest rates, and the liquidity
of the security. Because the discounts from face values are known at the time of
investment, investors intending to hold zero coupon securities until maturity
know the value of their investment return at the time of investment, assuming
full payment is made by the issuer upon maturity.
The Fund seeks zero coupon bonds that will mature on or about the Fund's
maturity date. As the Fund's zero coupon bonds mature, the proceeds will be
invested in short term U.S. government securities. The Fund generally follows a
buy and hold strategy consistent with attempting to provide a predictable
compounded investment return for investors who hold their Fund shares until the
Fund's maturity.
Although the Fund generally follows a buy and hold strategy, the Fund may sell
an investment when the Fund identifies an opportunity to increase its yield or
it needs cash to meet redemptions. Information on the Fund's recent strategies
and holdings can be found in the most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of investing in the Target Maturity 2010 Fund:
INTEREST RATE RISK: The market value of a bond is affected by changes in
interest rates. When interest rates rise, the market value of a bond declines;
when interest rates decline, the market value of a bond increases. The price
volatility of a bond also depends on its maturity and duration. Generally, the
longer the maturity and duration of a bond, the greater its sensitivity to
interest rates.
The market prices of zero coupon securities are generally more volatile than the
market prices of securities paying interest periodically and, accordingly, will
fluctuate far more in response to changes in interest rates than those of
non-zero coupon securities having similar maturities and yields. As a result,
44
<PAGE>
the net asset value of shares of the Fund may fluctuate over a greater range
than shares of other funds that invest in securities that have similar
maturities and yields but that make current distributions of interest.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
45
<PAGE>
UTILITIES INCOME FUND
OVERVIEW
OBJECTIVES: The Fund primarily seeks high current income and secondarily
long-term capital appreciation.
PRIMARY
INVESTMENT
STRATEGIES: The Fund concentrates its investments in stocks of public
utilities companies ("utilities stocks"). The Fund attempts to
diversify across all sectors of the utilities industry (i.e.,
electric, gas, telecommunications and water), but from time to
time it will emphasize one or more sectors based on the
outlook for the various sectors. While the Fund emphasizes
investments in U.S. companies, it may invest in stocks of
foreign utilities companies.
PRIMARY
RISKS: While utilities stocks tend to be regarded as less volatile
than other stocks, like all stocks they fluctuate in value in
response to movements in the overall securities markets,
general economic conditions, and changes in interest rates or
investor sentiment. Because the Fund concentrates its
investments in public utilities stocks, the value of its
shares will be particularly affected by events that impact on
the utilities industry, such as changes in public utilities
regulation, changes in weather, and changes in interest rates.
Stocks of foreign utilities companies carry additional risks
including political instability, government regulation and
differences in financial reporting standards. An investment in
the Fund could decline in value even if the market as a whole
does well. Accordingly, the value of an investment in the Fund
will go up and down, which means that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
How has the Utilities Income Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Utilities Income Fund's
shares from year to year over the life of the Fund. The bar chart does not
reflect fees and expenses that may be deducted by the variable annuity contract
or variable life insurance policy through which you invest. If they were
included, the returns would be less than those shown.
46
<PAGE>
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 11.73% (for the
quarter ended December 31, 1997), and the lowest quarterly return was -6.74%
(for the quarter ended March 31, 1994). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for the Utilities
Income Fund's shares compare to those of the Standard & Poor's 500 Composite
Stock Price Index ("S&P 500 Index") and the Standard and Poor's Utilities Index
("S&P Utilities Index"). The S&P 500 Index is an unmanaged index generally
representative of the market for the stocks of large-sized U.S. companies. The
S&P Utilities Index is a capitalization-weighted index of 37 stocks designed to
measure the performance of the utilities sector of the S&P 500 Index. The
indices do not take into account fees and expenses that an investor would incur
in holding the securities in the indices. If they did so, the returns would be
lower than those shown.
Inception
1 Year* 5 Years* (11/15/93)
Utilities Income
Fund 4.66% 11.63% 11.20%
S&P 500 Index 28.34 24.55 20.45
S&P Utilities Index** 14.36 13.50 11.37
*The annual returns are based upon calendar years.
**This Index is used to show how the Fund's performance compares with the
returns of an index of stocks in market sectors in which the Fund may invest.
47
<PAGE>
THE FUND IN DETAIL
What are the Utilities Income Fund's objectives, principal investment
strategies, and risks?
OBJECTIVES: The Fund primarily seeks high current income and secondarily
long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in stocks (including not only common stocks, but also preferred stocks
and securities convertible into common or preferred stocks) of companies in the
utilities industry. These are securities of companies which are primarily
engaged in owning or operating facilities used to provide electricity, gas,
water or telecommunications (including telephone, telegraph and satellite, but
not public broadcasting or cable television). While the Fund emphasizes
investments in U.S. companies, it may invest in stocks of foreign utilities
companies. The Fund's investments in foreign utilities companies are generally
limited to stocks that are dollar-denominated and traded in the U.S.
While the Fund attempts to diversify across all utilities sectors, it may
emphasize a particular sector based on that sector's yield, price to earnings
ratio, economic trends, and the regulatory environment. The Fund uses a
"top-down" approach to selecting investments. This means that it first decides
on how much of its assets to allocate to each sector of the utilities market and
then identifies potential investments for each sector through fundamental
research and analysis.
In selecting securities, the Fund will consider a stock's dividend potential,
its price to earnings ratio, the company's management, the company's ratio of
international to domestic earnings, the company's future strategies, and
external factors such as demographics and mergers and acquisitions prospects.
The Fund typically sells a security when its issuer shows deteriorating
fundamentals, it falls short of the manager's expectations or there is a change
in economic trends. Information on the Fund's recent strategies and holdings can
be found in the most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of the investment, the greater the risk. Here
are the principal risks of investing in the Utilities Income Fund:
MARKET RISK: Because this Fund invests in stocks, it is subject to stock market
risk. Stock prices in general may decline over short or even extended periods
not only because of company-specific developments, but also due to an economic
downturn, a change in interest rates, or a change in investor sentiment,
regardless of the success or failure of an individual company's operations.
Stock markets tend to run in cycles with periods when prices generally go up,
known as "bull" markets, and periods when stock prices generally go down,
referred to as "bear" markets. While utilities stocks have long been thought of
as being less volatile than other stocks, like all stocks they fluctuate in
value. As the utilities industry has begun to deregulate and earnings have
become less predictable, utilities stocks have begun to have price fluctuations
which are more like other stocks. Stocks of foreign utilities companies carry
additional risks including political instability, government regulation and
differences in financial reporting standards.
48
<PAGE>
INDUSTRY CONCENTRATION RISK: Because the Fund concentrates its investments in
public utilities companies, the value of its shares will be especially affected
by events that are peculiar to or have a greater impact on the utilities
industry. Utilities companies, especially electric and gas and other
energy-related utilities companies, have historically been subject to the risk
of increases in fuel and other operating costs, changes in weather patterns,
changes in interest rates, changes in applicable laws and regulations, and costs
and operating constraints associated with compliance with environmental
regulations. Utilities stocks therefore may decline in value even if the overall
market is doing well.
SECTOR CONCENTRATION RISK: Because the Fund may concentrate its portfolio in one
sector of the utilities industry, its share value could decline if one sector of
the utilities industry does poorly even if the industry does well as a whole.
DEREGULATION/COMPETITION: Regulatory changes in the United States have
increasingly allowed utilities companies to provide services and products
outside their traditional geographical areas and lines of business, creating
competitors and new areas of competition. As a result, certain utilities
companies earn more than their traditional, regulated rates of return, while
others are forced to defend their core business from competition and are less
profitable. Some utilities companies may not be able to recover the costs of
facilities built or acquired prior to the date of deregulation. This is known as
the "stranded assets" problem.
INTEREST RATE RISK: Utilities stocks tend to be more interest rate sensitive
than other stocks. As interest rates increase, utilities stocks tend to decline
in value.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
OTHER RISKS: Changes in weather patterns or regional weather circumstances may
affect the ability of the utilities industry, a sector of the industry, or
certain utilities companies to meet supply and demand.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses by
investing up to 100% of its assets in short-term money market instruments. If
the Fund does so, it may not achieve its investment objective.
49
<PAGE>
FUND MANAGEMENT
First Investors Management Company, Inc. ("FIMCO") is the investment adviser to
each of the Funds in the Life Series Fund. Its address is 95 Wall Street, New
York, NY 10005. It currently is investment adviser to 51 mutual funds or series
of funds with total net assets of approximately $5 billion. Except as noted
below, FIMCO supervises all aspects of each Fund's operations and determines
each Fund's portfolio transactions. For the fiscal year ended December 31, 1998,
FIMCO received advisory fees as follows: 0.75% of average daily net assets for
Blue Chip Fund; 0.60% of average daily net assets, net of waiver, for Cash
Management Fund; 0.75% of average daily net assets for Discovery Fund; 0.60% of
average daily net assets, net of waiver, for Government Fund; 0.75% of average
daily net assets for Growth Fund; 0.75% of average daily net assets for High
Yield Fund; 0.75% of average daily net assets for International Securities Fund;
0.60% of average daily net assets, net of waiver, for Investment Grade Fund;
0.60% of average daily net assets, net of waiver, for Target Maturity 2007 Fund;
0.60% of average daily net assets, net of waiver, for Target Maturity 2010 Fund;
and 0.60% of average daily net assets, net of waiver, for Utilities Income Fund.
The gross advisory fees (fees before any applicable waivers) are set forth in
the Separate Account prospectus which is attached to this prospectus.
Dennis T. Fitzpatrick serves as Portfolio Manager of the Blue Chip Fund. Mr.
Fitzpatrick also serves as Portfolio Manager to certain other First Investors
Funds. Mr. Fitzpatrick has been a member of FIMCO's investment management team
since 1995. During 1995, Mr. Fitzpatrick was a Regional Surety Manager at United
States Fidelity & Guaranty Co. From 1988 to 1995, he was Northeast Surety
Manager at American International Group.
Clark D. Wagner serves as Portfolio Manager of Government Fund, Target Maturity
2007 Fund, and Target Maturity 2010 Fund, and Co-Portfolio Manager of Investment
Grade Fund. Mr. Wagner also serves as Portfolio Manager of certain other First
Investors Funds. Mr. Wagner has been Chief Investment Officer of FIMCO since
1992.
Patricia D. Poitra, Director of Equities, and David A. Hanover serve as
Co-Portfolio Managers of the Discovery Fund. Ms. Poitra and Mr. Hanover also
serve as Portfolio Managers of certain other First Investors Funds. Ms. Poitra
joined FIMCO in 1985 as a Senior Equity Analyst. From 1997 to August 1998, Mr.
Hanover was a Portfolio Manager and Analyst at Heritage Investors Management
Corporation. From 1994 to 1996, Mr. Hanover was Co-Portfolio Manager and Analyst
at Psagot Mutual Funds and in 1993 he was an International Equity Investments
Summer Associate at Howard Hughes Medical Institute.
George V. Ganter serves as Portfolio Manager of the High Yield Fund. Mr. Ganter
also serves as Portfolio Manager of certain other First Investors Funds. Mr.
Ganter joined FIMCO in 1985 as a Senior Investment Analyst.
Nancy W. Jones serves as Co-Portfolio Manager of the Investment Grade Fund. Ms.
Jones also serves as Portfolio Manager of certain other First Investors Funds.
Ms. Jones joined FIMCO in 1983 as Director of Research in the High Yield
Department.
Matthew S. Wright serves as Portfolio Manager of the Utilities Income Fund. Mr.
Wright also serves as Portfolio Manager of certain other First Investors Funds.
Mr. Wright joined FIMCO in February 1996 as an Equity Analyst. From May 1995 to
50
<PAGE>
January 1996, Mr. Wright was an Analyst at Fuji Bank. From June 1994 to April
1995, he was Market Editor of BLOOMBERG MAGAZINE and from September 1991 to June
1994, he was Editor/Reporter for BLOOMBERG BUSINESS NEWS.
FIMCO and Life Series Fund have retained Wellington Management Company, LLP
("WMC") as investment subadviser to the Growth Fund and the International
Securities Fund. Subject to continuing oversight and supervision by FIMCO and
the Board of Directors, WMC has discretionary trading authority over all of the
assets of the Growth Fund and the International Securities Fund. WMC is located
at 75 State Street, Boston, MA 02109. WMC is a professional investment
counseling firm which provides investment services to investment companies,
employee benefit plans, endowment funds, foundations and other institutions and
individuals. As of December 31, 1998, WMC held investment management authority
with respect to $211 billion of assets. Of that amount, WMC acted as investment
adviser or subadviser to approximately 146 investment companies or series of
such companies, with net assets of approximately $147 billion as of December 31,
1998. The Growth Fund is managed by WMC's Growth Investment Team, a group of
equity portfolio managers and senior investment professionals. The International
Securities Fund is managed by Trond Skramstad, Senior Vice President of WMC and
Chairman of the firm's Global Equity Strategy Group. Mr. Skramstad joined WMC in
1993.
In addition to the investment risks of the Year 2000 which are disclosed above,
the ability of FIMCO, WMC and their affiliates to price the Funds' shares,
process purchase and redemption orders, and render other services could be
adversely affected if the computers or other systems on which they rely are not
properly programmed to operate after January 1, 2000. Additionally, because the
services provided by FIMCO, WMC and their affiliates depend on the interaction
of their computer systems with the computer systems of brokers, information
services and other parties, any failure on the part of such third party computer
systems to deal with the Year 2000 may have a negative effect on the services
provided to the Funds. FIMCO, WMC and their affiliates are taking steps that
they believe are reasonably designed to address the Year 2000 problem for
computer and other systems used by them and are obtaining assurances that
comparable steps are being taken by the 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.
BUYING AND SELLING SHARES
How and when do the Funds price their shares?
The share price (which is called "net asset value" or "NAV" per share) for each
Fund is calculated once each day as of 4 p.m., Eastern Time ("ET"), on each day
the New York Stock Exchange ("NYSE") is open for regular trading. In the event
that the NYSE closes early, the share price will be determined as of the time of
the closing.
To calculate the NAV, each Fund's assets are valued and totaled, liabilities are
subtracted, and the balance, called net assets, is divided by the number of
shares outstanding.
In valuing its assets, each Fund other than Cash Management Fund uses the market
value of securities for which market quotations or last sale prices are readily
available. If there are no readily available quotations or last sale prices for
51
<PAGE>
an investment or the available quotations are considered to be unreliable, the
securities will be valued at their fair value as determined in good faith
pursuant to procedures adopted by the Board of Directors of the Funds. The Cash
Management Fund values its assets using the amortized cost method which is
intended to permit the Fund to maintain a stable $1.00 per share. Because the
International Securities Fund invests in securities that are primarily listed on
foreign exchanges that trade on days when the Fund is not open, the NAV of the
Fund's shares may change on days on which you are not able to purchase or redeem
the Fund's shares.
How do I buy and sell shares?
Investments in each of the Funds may only be made through purchases of variable
annuity contracts or variable life insurance policies offered by FIL. Purchase
payments for variable annuity contracts, less applicable charges or expenses,
are paid into specified unit investment trusts, Separate Account C or Separate
Account D. Variable life insurance policy premiums, less certain expenses, are
paid into a unit investment trust, Separate Account B. The Separate Accounts
pool these proceeds to purchase shares of a Fund designated by purchases of the
variable annuity contracts or variable life insurance policies.
For information about how to buy or sell the variable annuity contracts and
variable life insurance policies, see the Separate Account prospectus which is
attached to this prospectus. It will describe not only the process for buying
and selling contracts and policies but also the fees and charges involved. This
prospectus is not valid unless a Separate Account prospectus is attached hereto.
ACCOUNT POLICIES
What about dividends and capital gain distributions?
The Separate Accounts which own the shares of the Funds' will receive all
dividends and distributions. As described in the attached Separate Account
prospectus, all dividends and distributions are then reinvested by the
appropriate Separate Account in additional shares of the Fund.
Except for Cash Management Fund, to the extent that they have net investment
income, each Fund will declare and pay, on an annual basis, dividends from net
investment income. To the extent that the Cash Management Fund has net
investment income, the Fund will declare daily and pay monthly dividends from
net investment income. Each Fund will declare and distribute any net realized
capital gains, on an annual basis, usually after the end of each Fund's fiscal
year. Each Fund may make an additional distribution in any year if necessary to
avoid a Federal excise tax on certain undistributed income and capital gain.
What about taxes?
You will not be subject to taxes as the result of purchases or sales of Fund
shares by the Separate Account, or Fund dividends, or distributions to the
Separate Accounts. There are tax consequences associated with investing in the
variable annuity contracts and variable life insurance policies. These are
discussed on the attached Separate Account prospectus.
52
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance of each Fund for the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the tables
represent the rate that an investor would have earned (or lost) on an investment
in each Fund (assuming reinvestment of all dividends and distributions). The
information has been audited by Tait, Weller & Baker, whose report, along with
the Funds' financial statements, are included in the SAI, which is available
upon request.
53
<PAGE>
<TABLE>
<CAPTION>
- -------------------- ------------------------------------------------------------------------------------------------
PER SHARE DATA
------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS FROM
--------------------------------- -----------------------
NET
NET ASSET REALIZED AND
VALUE NET UNREALIZED TOTAL FROM NET NET
YEAR ENDED BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENTS REALIZED TOTAL
DECEMBER 31 OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAINS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------------------------------
BLUE CHIP
- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1994.............. $14.21 $.18 $(.39) $(.39) $.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
1998.............. 23.71 .17 4.05 4.22 .19 1.49 1.68
CASH MANAGEMENT
- ---------------
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
1998.............. 1.00 .049 -- .049 .049 -- .049
DISCOVERY
- ---------
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
1998.............. 27.77 .09 .79 .88 .08 1.83 1.91
(a) Annualized.
* Commencement of operations.
** Based on average shares outstanding during the year.
+ Some or all expenses have been waived or assumed by the investment adviser from commencement of operations
through December 31, 1998.
++ The effect of fees and charges incurred at the separate account level are not reflected in these performance
figures.
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET
RATIO TO AVERAGE ASSETS BEFORE EXPENSES
NET ASSETS + WAIVED OR ASSUMED
---------------- ----------------------
NET ASSET NET ASSETS
VALUE TOTAL END OF NET NET PORTFOLIO
END OF RETURN ++ PERIOD INVESTMENT INVESTMENT TURNOVER
PERIOD (%) (IN MILLIONS) EXPENSES(%) INCOME (%) EXPENSES(%) INCOME (%) RATE (%)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$13.75 (1.45) $41 .88 1.49 N/A N/A 82
16.98 34.00 67 .86 1.91 N/A N/A 26
19.77 21.52 100 .84 1.39 N/A N/A 45
23.71 26.72 154 .81 .99 N/A N/A 63
26.25 18.66 205 .82 .79 N/A N/A 91
$1.00 3.77 $4 .60 3.69 1.04 3.25 N/A
1.00 5.51 4 .60 5.36 1.10 4.87 N/A
1.00 5.00 4 .60 4.89 1.11 4.38 N/A
1.00 5.08 5 .70 4.97 1.06 4.61 N/A
1.00 5.02 7 .70 4.89 .99 4.60 N/A
$19.86 (2.53) $30 .88 .36 N/A N/A 53
23.27 25.23 51 .87 .63 N/A N/A 78
25.06 12.48 71 .85 .63 N/A N/A 98
27.77 16.84 100 .82 .34 N/A N/A 85
26.74 3.05 114 .83 .36 N/A N/A 121
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
- -------------------- ------------------------------------------------------------------------------------------------
PER SHARE DATA
------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS FROM
--------------------------------- -----------------------
NET
NET ASSET REALIZED AND
VALUE NET UNREALIZED TOTAL FROM NET NET
YEAR ENDED BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENTS REALIZED TOTAL
DECEMBER 31 OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAINS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------------------------------
GOVERNMENT
<S> <C> <C> <C> <C> <C> <C> <C>
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
1998............. 10.33 .66** .08** .74** .66 -- .66
GROWTH
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
1998............. .24 .10 7.69 7.79 .15 1.10 1.25
HIGH YIELD
1994............. $11.16 $.87 $(1.14) $(.27) $.31 $-- $.31
1995............. 10.58 1.00 .95 1.95 .96 -- .96
1996............. 11.57 1.02 .35 1.37 1.01 -- 1.01
1997............. 11.93 .98 .41 1.39 1.02 -- 1.02
1998............. 12.30 1.00 (.62) .38 .98 -- .98
(a) Annualized.
* Commencement of operations.
** Based on average shares outstanding during the year.
+ Some or all expenses have been waived or assumed by the investment adviser from commencement of
operations through December 31, 1998.
++ The effect of fees and charges incurred at the separate account level are not reflected in these
performance figures.
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET
RATIO TO AVERAGE ASSETS BEFORE EXPENSES
NET ASSETS + WAIVED OR ASSUMED
---------------- ----------------------
NET ASSET NET ASSETS
VALUE TOTAL END OF NET NET PORTFOLIO
END OF RETURN ++ PERIOD INVESTMENT INVESTMENT TURNOVER
PERIOD (%) (IN MILLIONS) EXPENSES(%) INCOME (%) EXPENSES(%) INCOME (%) RATE (%)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$9.70 (4.10) $8 .35 6.74 .90 6.19 457
10.52 15.63 10 .40 6.79 .93 6.26 198
10.19 3.59 9 .60 6.75 .94 6.41 199
10.33 8.61 9 .60 6.95 .92 6.63 134
10.41 7.54 11 .70 6.59 .87 6.42 107
$16.73 (2.87) $33 .90 .60 N/A N/A 40
20.47 25.12 51 .88 1.11 N/A N/A 64
24.56 24.45 79 .85 .92 N/A N/A 49
29.24 29.28 128 .82 .64 N/A N/A 27
35.78 27.35 187 .82 .34 N/A N/A 26
$10.58 (1.56) $32 .88 9.43 N/A N/A 50
11.57 19.82 42 .87 9.86 N/A N/A 57
11.93 12.56 49 .85 9.43 N/A N/A 34
12.30 12.47 60 .83 8.88 N/A N/A 40
11.70 3.15 65 .83 8.93 N/A N/A 42
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
- -------------------- ------------------------------------------------------------------------------------------------
PER SHARE DATA
------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS FROM
--------------------------------- -----------------------
NET
NET ASSET REALIZED AND
VALUE NET UNREALIZED TOTAL FROM NET NET
YEAR ENDED BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENTS REALIZED TOTAL
DECEMBER 31 OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAINS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------------------------------
INTERNATIONAL SECURITIES
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
1998................ 16.91 .12 2.87 2.99 .16 .86 1.02
INVESTMENT GRADE
- ----------------
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
1998................ 11.67 .68** .33** 1.01** .71 -- .71
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
1998................ 12.63 .61 1.20 1.81 .61 -- .61
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
1998................ 12.70 .51 1.25 1.76 .48 .01 .49
UTILITIES INCOME
- ----------------
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
1998................ 14.95 .32 1.46 1.78 .35 .55 .90
(a) Annualized.
* Commencement of operations.
** Based on average shares outstanding during the year.
+ Some or all expenses have been waived or assumed by the investment adviser from commencement of operations
through December 31, 1998.
++ The effect of fees and charges incurred at the separate account level are not reflected in these performance
figures.
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET
RATIO TO AVERAGE ASSETS BEFORE EXPENSES
NET ASSETS + WAIVED OR ASSUMED
---------------- ----------------------
NET ASSET NET ASSETS
VALUE TOTAL END OF NET NET PORTFOLIO
END OF RETURN ++ PERIOD INVESTMENT INVESTMENT TURNOVER
PERIOD (%) (IN MILLIONS) EXPENSES(%) INCOME (%) EXPENSES(%) INCOME (%) RATE (%)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$13.51 (1.29) $31 1.03 1.22 N/A N/A 36
15.58 18.70 41 1.02 1.42 N/A N/A 45
17.19 15.23 58 1.12 1.25 N/A N/A 67
16.91 9.09 74 1.13 1.15 N/A N/A 71
18.88 18.18 92 1.15 .75 N/A N/A 109
$10.31 (3.53) $12 .37 6.61 .92 6.06 15
11.73 19.69 16 .51 6.80 .91 6.40 26
11.36 2.84 16 .60 6.47 .88 6.19 19
11.67 9.81 17 .60 6.54 .87 6.27 41
11.97 9.15 22 .68 5.97 .84 5.81 60
$12.26 22.60 $10 .04(a) 6.25(a) .87(a) 5.42(a) 28
11.71 (2.16) 15 .60 6.05 .82 5.83 13
12.63 13.38 20 .60 5.91 .82 5.69 1
13.83 14.97 26 .67 5.18 .83 5.02 1
$11.16 11.60 $2 .60(a) 6.05(a) .98(a) 5.67(a) 0
12.70 15.86 5 .60 5.88 .87 5.61 13
13.97 14.36 9 .67 4.90 .82 4.75 0
$9.19 (7.24) $5 .17 4.13 .95 3.35 31
11.74 30.26 15 .41 4.23 .91 3.73 17
12.57 9.57 24 .60 3.48 .86 3.22 45
14.95 25.07 34 .67 3.12 .85 2.94 64
15.83 12.58 50 .73 2.61 .85 2.49 105
</TABLE>
59
<PAGE>
[FIRST INVESTORS LOGO]
LIFE SERIES FUND
BLUE CHIP
CASH MANAGEMENT
DISCOVERY
GOVERNMENT
GROWTH
HIGH YIELD
INTERNATIONAL SECURITIES
INVESTMENT GRADE
TARGET MATURITY 2007
TARGET MATURITY 2010
UTILITIES INCOME
For investors who want more information about the Funds, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS: Additional information about each Fund's investments
is available in the Funds' annual and semi-annual reports to shareholders. In
the Funds' annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected each Fund's performance
during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Funds and is incorporated by reference into this
prospectus.
You can get free copies of reports and the SAI, request other information and
discuss your questions about the Funds by contacting the Funds at:
Administrative Data Management Corp.
581 Main Street
Woodbridge, NJ 07095-1198
Telephone: 1-800-423-4026
You can review and copy information about the Funds (including the Funds'
reports and SAI) at the Public Reference Room of the Securities and Exchange
Commission ("SEC") in Washington, D.C. You can also send your request for copies
and a duplicating fee to the Public Reference Room of the SEC, Washington, DC
20549-6009. You can obtain information on the operation of the Public Reference
Room by calling 1-800-SEC-0330. Text-only versions of Fund documents can be
viewed online or downloaded from the SEC's Internet website at
http://www.sec.gov.
(Investment Company Act File No. 811-4325 First
First Investors Life Series Fund)
