[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 28, 2000.
<PAGE>
CONTENTS*
VARIABLE ANNUITY FUND C AND FUND D PROSPECTUS
GLOSSARY OF SPECIAL TERMS.................................................2
FEE TABLES................................................................3
CONDENSED FINANCIAL INFORMATION...........................................6
OVERVIEW.................................................................10
How the Contracts Work................................................10
Who We Are............................................................11
Who Should Consider Purchasing a Contract.............................12
Risk and Reward Considerations........................................12
THE CONTRACTS IN DETAIL..................................................12
Purchase Payments.....................................................13
Allocation of Net Purchase Payments to Subaccount(s)..................13
Sales Charge..........................................................13
Mortality and Expense Risk Charges....................................15
Other Charges.........................................................15
The Accumulation Period...............................................16
The Annuity Period....................................................18
Ten-Day Revocation Right..............................................21
TAX INFORMATION..........................................................21
General...............................................................21
Non-Qualified Contracts...............................................21
Qualified Plan Contracts..............................................23
Withholding...........................................................23
Our Tax Status........................................................23
PERFORMANCE INFORMATION..................................................23
OTHER INFORMATION........................................................24
Voting Rights.........................................................24
Reservation of Rights.................................................25
Distribution of Contracts.............................................25
Financial Statements..................................................26
TABLE OF CONTENTS OF THE STATEMENTS OF ADDITIONAL INFORMATION............27
APPENDIX I...............................................................27
- -----------------------------
*A Table of Contents for the Life Series Fund prospectus can be found at page ii
of that prospectus.
<PAGE>
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") offered by First Investors Life Insurance Company which provide you
with 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 thirteen
"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 28, 2000, with
the Securities and Exchange Commission. We incorporate the SAI by reference into
this Prospectus. See page 27 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 28, 2000.
<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 2000.
SEPARATE ACCOUNT EXPENSES
<TABLE>
<CAPTION>
<S> <C>
SEPARATE ACCOUNT C (FRONT-LOADED CONTRACT) SEPARATE ACCOUNT D (BACK-LOADED CONTRACT)
CONTRACTOWNER TRANSACTION EXPENSES CONTRACTOWNER TRANSACTION EXPENSES
- ---------------------------------- ----------------------------------
Maximum Sales Load Imposed on Purchases (as a Maximum Sales Load Imposed on Purchases (as a
percentage of purchase payment)................7.00% percentage of purchase payments)..........None
Maximum Contingent Deferred Sales Charge.......None Maximum Contingent Deferred Sales Charge.7.00%*
Annual Contract Maintenance Charge.............None Annual Contract Maintenance Charge.......$30.00**
SEPARATE ACCOUNT C ANNUAL EXPENSES (AS A SEPARATE ACCOUNT D ANNUAL EXPENSES (AS A
PERCENTAGE OF AVERAGE ACCOUNT VALUE) PERCENTAGE OF AVERAGE ACCOUNT VALUE)
- ------------------------------------ ------------------------------------
Mortality and Expense Risk Charges.............1.00% Mortality and Expense Risk Charges.......1.25%
Other Charges..................................0.00%+ Administrative Charge.................... .15%
Total Separate Account Annual Expenses.........1.00% =======
Total Separate Account Annual Expenses...1.40%
</TABLE>
* 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 Waiver
Total Fund and/or Expense
Management Other Operating Assumption Net
Fee(1) Expenses(2) Expenses(3) (1)(2) Expenses(3)
------ ----------- ----------- ------ -----------
<S> <C> <C> <C> <C> <C>
Blue Chip Fund 0.75% 0.06% 0.81% N/A N/A
Cash Management Fund 0.75% 0.16% 0.91% 0.21% 0.70%
Discovery Fund 0.75% 0.08% 0.83% N/A N/A
Focused Equity Fund 0.75% 0.08% 0.83% N/A N/A
Government Fund 0.75% 0.16% 0.91% 0.15% 0.76%
Growth Fund 0.75% 0.06% 0.81% N/A N/A
High Yield Fund 0.75% 0.07% 0.82% N/A N/A
International Securities Fund 0.75% 0.23% 0.98% N/A N/A
Investment Grade Fund 0.75% 0.08% 0.83% 0.15% 0.68%
Target Maturity 2007 Fund 0.75% 0.09% 0.84% 0.15% 0.69%
Target Maturity 2010 Fund 0.75% 0.11% 0.86% 0.15% 0.71%
Target Maturity 2015 Fund 0.75% 0.11% 0.86% 0.15% 0.71%
Utilities Income Fund 0.75% 0.05% 0.80% N/A N/A
</TABLE>
(1) For the fiscal year ended December 31, 1999, 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 Target Maturity 2015 Fund for the fiscal year ending
December 31, 2000.
(2) For the fiscal year ended December 31, 1999, the Adviser assumed certain
Other Expenses in excess of 0.10% for Cash Management Fund. The Adviser
has contractually agreed with Life Series Fund to assume Other Expenses
in excess of 0.10% for Cash Management Fund for the fiscal year ending
December 31, 2000.
(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 $161 $268
Cash Management Subaccount................... 86 124 164 276
Discovery Subaccount......................... 87 124 162 270
Focused Equity Subaccount.................... 87 124 162 270
Government Subaccount........................ 87 124 165 277
Growth Subaccount............................ 87 123 161 268
High Yield Subaccount........................ 87 123 162 269
International Securities Subaccount.......... 89 128 169 284
Investment Grade Subaccount.................. 86 122 161 269
Target Maturity 2007 Subaccount.............. 86 122 161 270
Target Maturity 2010 Subaccount.............. 86 123 162 272
Target Maturity 2015 Subaccount.............. 86 123 162 272
Utilities Income Subaccount.................. 87 123 161 267
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:
1 year 3 years 5 years 10 years
------ ------- ------- --------
Blue Chip Subaccount......................... $122 $209 $298 $554
Cash Management Subaccount................... 121 210 302 563
Discovery Subaccount......................... 123 210 299 556
Focused Equity Subaccount.................... 123 210 299 556
Government Subaccount........................ 122 211 302 563
Growth Subaccount............................ 122 209 298 554
High Yield Subaccount........................ 123 209 299 555
International Securities Subaccount.......... 124 214 307 572
Investment Grade Subaccount.................. 121 208 298 555
Target Maturity 2007 Subaccount.............. 121 209 299 556
Target Maturity 2010 Subaccount.............. 121 209 300 558
Target Maturity 2015 Subaccount.............. 121 209 300 558
Utilities Income Subaccount.................. 122 209 298 553
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:
1 year 3 years 5 years 10 years
------ ------- ------- --------
Blue Chip Subaccount......................... $52 $159 $268 $554
Cash Management Subaccount................... 51 160 272 563
Discovery Subaccount......................... 53 160 269 556
Focused Equity Subaccount.................... 53 160 269 556
Government Subaccount........................ 52 161 272 563
Growth Subaccount............................ 52 159 268 554
High Yield Subaccount........................ 53 159 269 555
International Securities Subaccount.......... 54 164 277 572
Investment Grade Subaccount.................. 51 158 268 555
Target Maturity 2007 Subaccount.............. 51 159 269 556
Target Maturity 2010 Subaccount.............. 51 159 270 558
Target Maturity 2015 Subaccount.............. 51 159 270 558
Utilities Income Subaccount.................. 52 159 268 553
</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 $10.00 on October 16, 1990, except as follows: Investment Grade Subaccount
and Government Subaccount, January 7, 1992; Utilities Income Subaccount,
November 16, 1993; Target Maturity 2007 Subaccount, April 24, 1995; Target
Maturity 2010 Subaccount, April 29, 1996; and Focused Equity Subaccount and
Target Maturity 2015 Subaccount, November 8, 1999.
<TABLE>
<CAPTION>
Number of
Accumulation Accumulation
Subaccount At Unit Value($) 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
December 31, 1999 43.37805126 4,075,636.0
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
December 31, 1999 13.66202731 436,613.4
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
December 31, 1999 45.58089213 1,823,561.9
Focused Equity Subaccount December 31, 1999 10.23513243 126,244.7
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
December 31, 1999 14.60339104 568,487.4
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
December 31, 1999 48.51704335 3,252,259.5
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
December 31, 1999 26.45283224 983,518.1
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
December 31, 1999 29.88384295 2,287,489.9
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
December 31, 1999 15.43710810 1,018,466.9
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
December 31, 1999 13.21972831 1,522,038.7
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
December 31, 1999 12.28007118 506,806.1
Target Maturity 2015 Subaccount December 31, 1999 9.47930868 36,480.1
7
<PAGE>
Number of
Accumulation Accumulation
Subaccount At Unit Value($) Units
- -------------------------------------------------------------------------------------------------------------------
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
December 31, 1999 20.46267830 2,474,003.3
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 $10.00 on July 28, 1997, except as follows: Focused Equity Subaccount and
Target Maturity 2015 Subaccount, November 8, 1999.
Number of
Accumulation Accumulation
Subaccount At Unit Value($) Units
- -------------------------------------------------------------------------------------------------------------------
Blue Chip Subaccount...................... December 31, 1997 10.18519950 426,185.6
December 31, 1998 11.91730629 1,531,169.8
December 31, 1999 14.72774188 2,333,261.2
Cash Management Subaccount................ December 31, 1997 10.15474840 28,344.4
December 31, 1998 10.51737952 82,526.4
December 31, 1999 10.85642214 218,614.0
Discovery Subaccount...................... December 31, 1997 10.23140687 205,814.9
December 31, 1998 10.39655938 701,595.6
December 31, 1999 13.11978934 963,277.6
Focused Equity Subaccount................. December 31, 1999 10.24021672 44,020.7
Government Subaccount..................... December 31, 1997 10.28895863 13,321.1
December 31, 1998 10.91102057 103,476.8
December 31, 1999 10.87242751 133,403.0
Growth Subaccount......................... December 31, 1997 10.33626489 346,768.7
December 31, 1998 12.98031991 1,316,750.1
December 31, 1999 16.18805732 2,158,958.5
High Yield Subaccount..................... December 31, 1997 10.42338850 60,209.4
December 31, 1998 10.60191952 325,195.4
December 31, 1999 10.97246124 491,040.3
International Securities Subaccount....... December 31, 1997 9.30734342 196,448.9
December 31, 1998 10.84633615 536,298.4
December 31, 1999 14.06030884 883,074.3
Investment Grade Subaccount............... December 31, 1997 10.33902780 22,448.4
December 31, 1998 11.12810542 156,868.9
December 31, 1999 10.69552064 239,796.7
Target Maturity 2007 Subaccount........... December 31, 1997 10.62155299 62,839.0
December 31, 1998 12.04205143 302,580.8
December 31, 1999 10.75985291 471,988.9
Target Maturity 2010 Subaccount........... December 31, 1997 10.79920122 43,680.6
8
<PAGE>
Number of
Accumulation Accumulation
Subaccount At Unit Value($) Units
- -------------------------------------------------------------------------------------------------------------------
December 31, 1998 12.17798882 188,719.4
December 31, 1999 10.60034923 223,367.6
Target Maturity 2015 Subaccount........... December 31, 1999 9.95734955 5,000.0
Utilities Income Subaccount............... December 31, 1997 11.67391319 33,306.9
December 31, 1998 12.95932846 449,163.0
December 31, 1999 15.00415356 806,463.3
</TABLE>
9
<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 12 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 13 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
Focused Equity Subaccount Focused Equity 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
Target Maturity 2015 Subaccount Target Maturity 2015 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.
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<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 an 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, and Arnhold and S. Bleichroeder,
Inc., 1345 Avenue of the Americas, New York, New York 10105 ("ASB" or
"Subadviser"), to serve as the subadviser of the Focused Equity 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, 1999.
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.
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<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.
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.
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.
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<PAGE>
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:
o choose up to five Subaccounts,
o 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
o 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 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
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<PAGE>
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.
<TABLE>
<CAPTION>
DEDUCTION TABLE
SALES CHARGE AS % OF AMOUNT TO
PURCHASE NET AMOUNT DEALERS AS % OF
AMOUNT OF PURCHASE PAYMENT(S) PAYMENTS* INVESTED PURCHASE PAYMENTS
<S> <C> <C> <C>
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
</TABLE>
* 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> <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>
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
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<PAGE>
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:
o in the event of the death of the Annuitant or the Contractowner,
o if you apply the Accumulated Value to an annuity option under the
contract, or
o 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:
o 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.
o 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.
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
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<PAGE>
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:
o make purchase payments,
o surrender, or
o 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,
1999 amounted to $5,497,137 or 1.00% of average net assets for Separate Account
C and $1,293,708 or 1.39% 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.
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.
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<PAGE>
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:
o 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.
o 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 receipt 7th Contract
of Due Proof of Death Anniversary
$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 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
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<PAGE>
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:
o For Separate Account C, the net Accumulated Value of the Contract
or, in the case of a partial surrender, the portion surrendered.
o 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:
o trading on the NYSE is restricted as the SEC determines or the
NYSE is closed for other than weekends and holidays;
o the SEC has by order permitted such suspension; or
o 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."
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 -
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o for Separate Account C, the Annuitant's 85th birthday or, if
state law permits, 90th birthday.
o 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 -
o for Separate Account C, the Annuitant's 85th birthday, or, if
state law permits, 90th birthday.
o 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:
o the value of your Individual Account, as described in this
Prospectus, before the Annuity Commencement Date;
o the Annuity Option you select;
o the frequency and duration of annuity payments;
o the sex and adjusted age of the Annuitant and any Joint Annuitant
at the Annuity Commencement Date; and
o 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.
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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
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
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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:
o 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
o 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").
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:
o The Contractowner is not a natural person, subject to exceptions.
o The investments of the Separate Accounts do not meet certain
diversification or "investor controls" tests, discussed below.
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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:
o dividing your investment in the Contract by the total amount you
expect to receive out of the Contract and
o 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:
o a partial or total surrender is taxed in the year of receipt to
the extent that the Contract's Accumulated Value exceeds the
investment in the Contract;
o a loan under, or an assignment or pledge of, a Contract is taxed
in the same manner as a partial or total surrender;
o 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
o 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.
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:
o the investments of the Fund in which the Subaccount invests are
diversified according to certain limits;
o the Fund in which the Subaccount invests is a regulated
investment company under the Code;
o 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
o 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.
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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:
o a qualified individual retirement account;
o a qualified corporate employee pension and profit-sharing plan;
or
o 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
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
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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.
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:
o shares attributable to Contractowners for which we received
instructions, would be voted in accordance with the instructions;
o 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
o shares not attributable to Contractowners, would be voted in the
same proportion that we voted shares held in the Subaccount
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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:
o before the Annuity Commencement Date, we divide the Subaccount's
Accumulated Value by the net asset value of one Fund share, and
o 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 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:
o operate either Account in any form permitted under the 1940 Act
or in any other form permitted by law,
o add, delete, combine, or modify Subaccounts of either Account,
o 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
o amend the Contracts if required to comply with the Internal
Revenue Code or any other applicable federal or state law.
DISTRIBUTION OF CONTRACTS
We sell the Contracts solely through individuals who, in addition to
being licensed insurance agents of First Investors Life, are registered
representatives of FIC, which is an affiliate of First Investors Life. FIC is a
registered broker-dealer under the Securities Exchange Act of 1934, and a member
of the National Association of Securities Dealers. FIC's executive offices are
located at 95 Wall Street, New York, NY 10005. First Investors Life has reserved
the right to sell the Contracts directly.
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FINANCIAL STATEMENTS
The Statement of Additional Information, dated April 28, 2000, includes:
o the financial statements for First Investors Life and the
accompanying Report of Independent Certified Public Accountants;
and
o 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.
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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..........................-- Missouri......................--
Alaska...........................-- Nebraska......................--
Arizona..........................-- Nevada.............................3.5%
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.....................--
Mississippi......................-- 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.
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FIRST INVESTORS LIFE SERIES FUND
[FIRST INVESTORS LOGO]
LIFE SERIES FUND
BLUE CHIP
CASH MANAGEMENT
DISCOVERY
FOCUSED EQUITY
GOVERNMENT
GROWTH
HIGH YIELD
INTERNATIONAL SECURITIES
INVESTMENT GRADE
TARGET MATURITY 2007
TARGET MATURITY 2010
TARGET MATURITY 2015
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 28, 2000
<PAGE>
CONTENTS
INTRODUCTION
FUND DESCRIPTIONS
Blue Chip Fund
Cash Management Fund
Discovery Fund
Focused Equity Fund
Government Fund
Growth Fund
High Yield Fund
International Securities Fund
Investment Grade Fund
Target Maturity 2007 Fund
Target Maturity 2010 Fund
Target Maturity 2015 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
Focused Equity Fund
Government Fund
Growth Fund
High Yield Fund
International Securities Fund
Investment Grade Fund
Target Maturity 2007 Fund
Target Maturity 2010 Fund
Target Maturity 2015 Fund
Utilities Income Fund
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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 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
and how it has performed. Each Fund description also contains a "Fund in Detail"
section with more information on the strategies and risks of the Fund.
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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 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.
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The chart below contains the following plot points:
BLUE CHIP
1991 26.17%
1992 6.67%
1993 8.51%
1994 -1.45%
1995 34.00%
1996 21.52%
1997 26.72%
1998 18.66%
1999 25.32%
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 as of December 31, 1999. The
Fund sells its shares solely to variable annuity and/or variable life insurance
subaccounts at net asset value. The average annual total returns shown for the
Fund's shares do not reflect the fees and charges that an individual would pay
in connection with an investment in a variable annuity contract or variable life
insurance policy. The S&P 500 Index is an unmanaged index consisting of the
stocks of large-sized U.S. and foreign 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.
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Inception
1 Year* 5 Years* (3/8/90)
Blue Chip Fund 25.32% 25.13% 16.38%
S&P 500 Index 21.04% 28.51% 18.93%
* The annual returns are based upon calendar years.
THE FUND IN DETAIL
What are the Blue Chip Fund's objective, principal investment strategies,
and principal risks?
OBJECTIVE: The Fund seeks high total investment return consistent with the
preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in common stocks of large, well-established companies that are 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 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. An
investment offering greater potential rewards generally carries greater risks.
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
6
<PAGE>
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.
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. government 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:
o 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.
o 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>
The chart below contains the following plot points:
CASH MANAGEMENT
1990 7.49%
1991 5.71%
1992 3.02%
1993 2.70%
1994 3.77%
1995 5.51%
1996 5.00%
1997 5.08%
1998 5.02%
1999 4.67%
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 as of December 31, 1999. The Fund sells its shares
solely to variable annuity and/or variable life insurance subaccounts at net
asset value. The average annual total returns shown for the Fund's shares do not
reflect the fees and charges that an individual would pay in connection with an
investment in a variable annuity contract or variable life insurance policy.
1 Year* 5 Years* 10 Years*
Cash Management Fund 4.67% 5.06% 4.77%
* The annual returns are based upon calendar years.
THE FUND IN DETAIL
What are the Cash Management Fund's objective, principal investment strategies,
and principal 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 may reset whenever the underlying rate is adjusted, or at specific
intervals.
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 statistical rating
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. An
investment offering greater potential rewards generally carries greater risks.
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, and
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
10
<PAGE>
highest credit ratings. All things being equal, money market instruments with
greater credit risk offer higher yields.
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. While the Fund primarily invests
in U.S. companies, it may invest in stocks of foreign companies.
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.
Stocks of foreign companies carry additional risks including
currency fluctuations, political instability, government
regulation, unfavorable political or legal developments,
differences in financial reporting standards, and less stringent
regulation of foreign securities markets. 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
12
<PAGE>
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.
The chart below contains the following plot points:
DISCOVERY
1990 -5.47%
1991 51.73%
1992 15.74%
1993 22.20%
1994 -2.53%
1995 25.23%
1996 12.48%
1997 16.84%
1998 3.05%
1999 27.97%
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 as of December 31,
1999. The Fund sells its shares solely to variable annuity and/or variable life
insurance subaccounts at net asset value. The average annual total returns shown
for the Fund's shares do not reflect the fees and charges that an individual
would pay in connection with an investment in a variable annuity contract or
variable life insurance policy. 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.
13
<PAGE>
1 Year* 5 Years* 10 Years*
Discovery Fund 27.97% 16.76% 15.67%
Russell 2000 Index 21.35% 16.36% 12.24%
*The annual returns are based upon calendar years.
THE FUND IN DETAIL
What are the Discovery Fund's objective, principal investment
strategies, and principal 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 small-cap companies. The Fund defines small-cap
stocks as those with market capitalizations which fall within the range of those
of companies in the Standard and Poor's 600 Small-Cap Index ("S&P 600 Small-Cap
Index"). (As of December 31, 1999, the market capitalizations of companies in
the S&P 600 Small-Cap Index was between $28 million and $4.1 billion. The market
capitalizations of companies in the S&P 600 Small-Cap 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. While the
Fund primarily invests in U.S. companies, it may invest in stocks of foreign
companies. The Fund's investments in foreign companies are generally limited to
stocks that are dollar-denominated and traded in the U.S.
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. An
investment offering greater potential rewards generally carries greater risks.
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.
14
<PAGE>
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 RISK: 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.
FOREIGN ISSUERS RISK: Foreign investments involve additional risks, including
currency fluctuations, political instability, government regulation, unfavorable
political or legal developments, differences in financial reporting standards,
and less stringent regulation of foreign securities markets.
OTHER RISKS: While the Fund generally attempts to invest in small-cap stocks
with market capitalizations which fall within the range of those of companies in
the S&P 600 Small-Cap Index, it is not an index fund. The Fund may hold
securities other than those in the S&P 600 Small-Cap 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.
15
<PAGE>
FOCUSED EQUITY FUND
OVERVIEW
OBJECTIVE: The Fund seeks capital appreciation.
PRIMARY
INVESTMENT
STRATEGIES: The Fund seeks to achieve its objective by focusing its investments
in the common stocks of approximately 20 to 30 U.S. companies.
Generally, not more than 12% of the Fund's total assets will be
invested in the securities of a single issuer. The Fund uses an
event-driven approach in selecting investments. In making
investment decisions, the Fund looks for companies that appear to
be undervalued because they are undergoing corporate or other
events that appear likely to result in significant growth in the
companies' valuations. The Fund seeks to identify companies with
proven management, superior cash flow and outstanding franchise
values. The Fund usually will sell a stock when it shows
deteriorating fundamentals, reaches its target value, constitutes
12% or more of the total portfolio, or when the Fund identifies
better investment opportunities.
Primary
Risks: While there are substantial potential long-term rewards of
investing in a concentrated portfolio of securities that are
considered undervalued, there are also substantial risks. First,
the value of the portfolio will fluctuate with movements in the
overall securities markets, general economic conditions, and
changes in interest rates or investor sentiment. Second, because
the Fund is non-diversified and concentrates its investments in the
stocks of a small number of issuers, the Fund's performance may be
substantially impacted by the change in value of a single holding.
Third, there is a risk that the event that led the Fund to make an
investment may occur later than anticipated or not at all. This may
disappoint the market and cause a decline in the value of the
investment. 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.
What about performance?
Because the Fund commenced operations on November 8, 1999, as of the date of
this prospectus it did not have a full year of performance information
available.
16
<PAGE>
THE FUND IN DETAIL
What are the Focused Equity Fund's objective, principal investment
strategies, and principal risks?
OBJECTIVE: The Fund seeks capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES: The Fund seeks to achieve its objective by
focusing its investments in the common stocks of approximately 20 to 30 U.S.
companies. The Fund is a non-diversified investment company. The Fund will
usually concentrate 80% of its portfolio in its top 15 holdings. It will
frequently have more than 10% of its assets in the securities of a single
issuer. Although the Fund is not required to limit the amount of any investment
in the securities of any one issuer, it generally will not invest more than 12%
of its total assets in the securities of a single issuer. The Fund's strategy is
to remain relatively fully invested, but at times the Fund may have cash
positions of 10% or more if the Fund cannot identify qualified investment
opportunities or it has a negative or "bearish" view of the stock market.
However, under normal market conditions, at least 65% of the Fund's total assets
will be invested in equity securities (including not only common stocks, but
preferred stocks and securities convertible into common and preferred stocks).
The Fund uses an event-driven approach in selecting investments. The Fund looks
for companies that appear to be undervalued because they are undergoing some
corporate or other event that the Fund believes can result in significant growth
in the companies' valuations. Examples of these events include: announced
mergers, acquisitions and divestitures; financial restructurings; management
reorganizations; stock buy-back programs; or industry transformations that can
affect competitiveness. The Fund then identifies companies with proven
management teams which maintain significant financial interest in the companies,
superior cash flows in excess of internal growth requirements and outstanding
franchise values. The Fund generally invests with a time horizon of two-to-five
years and seeks investments which offer the potential of appreciating at least
50% within the first two years of the investment.
The Fund actively monitors the companies in its portfolio through regular
meetings and teleconference calls with senior management and personal visits.
The Fund also actively monitors the industries and competitors of the companies
within its portfolio and regularly determines whether the original investment
thesis still holds true. The Fund usually will sell a stock when it shows
deteriorating fundamentals, reaches its target value, constitutes more than 12%
of the total portfolio, or when the Fund identifies better investment
opportunities.
The Fund may purchase and sell futures contracts and options on futures
contracts for hedging purposes. The Fund anticipates engaging in such
transactions relatively infrequently and over relatively short periods of time.
Any hedging strategy that the Fund may decide to employ will generally be
effected by buying puts on the overall market or an index, such as puts on the
Standard & Poor's 500 Composite Stock Price Index.
Information on the Fund's recent strategies and holdings can be found in the
most recent annual report (see back cover).
17
<PAGE>
PRINCIPAL RISKS: Any investment carries with it some level of risk. An
investment offering greater potential rewards generally carries greater risks.
Here are the principal risks of investing in the Focused Equity Fund:
MARKET RISK: Because the Fund primarily invests in stocks, it is subject to
market risk. Stock prices in general may decline over short or even extended
periods not only due to 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. Fluctuations in the prices of
stocks can be sudden and substantial. Accordingly, the value of your investment
in the Fund will go up and down, which means that you could lose money.
NON-DIVERSIFICATION RISK: The Fund is a non-diversified investment company and,
as such, its assets may be invested in a limited number of issuers. This means
that the Fund's performance may be substantially impacted by the change in value
of even a single holding. The price of a share of the Fund can therefore be
expected to fluctuate more than a comparable diversified fund. Moreover, the
Fund's share price may decline even when the overall market is increasing. An
investment in the Fund therefore may entail greater risks than an investment in
a diversified investment company.
EVENT-DRIVEN STYLE RISK: The event-driven investment approach used by the Fund
carries the additional risk that the event anticipated may occur later than
expected or not at all or may not have the desired effect on the market price of
the security.
FUTURES AND OPTIONS RISKS: The Fund could suffer a loss if it fails to hedge its
portfolio prior to a market decline. Moreover, if the Fund engages in hedging
transactions using futures or options, the Fund could nevertheless suffer a loss
if the hedging is based upon an inaccurate prediction of movements in the
direction of the securities and interest rate markets or the hedging instrument
does not accurately reflect the Fund's portfolio. The Fund may experience
adverse consequences that leave it in a worse position than if such strategies
were not used. As a result, the Fund may not achieve its investment objective.
18
<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.
19
<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.
The chart below contains the following plot points:
GOVERNMENT
1993 6.35%
1994 -4.10%
1995 15.63%
1996 3.59%
1997 8.61%
1998 7.54%
1999 1.05%
During the periods shown, the highest quarterly return was 5.50% (for the
quarter ended June 30, 1995), 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.
20
<PAGE>
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") as of
December 31, 1999. The Fund sells its shares solely to variable annuity and/or
variable life insurance subaccounts at net asset value. The average annual total
returns shown for the Fund's shares do not reflect the fees and charges that an
individual would pay in connection with an investment in a variable annuity
contract or variable life insurance policy. 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 Indexes do not take into account
fees and expenses that an investor would incur in holding the securities in the
Indexes. If they did so, the returns would be lower than those shown.
Inception
1 Year* 5 Years* (1/7/92)
Government Fund 1.05% 7.17% 5.92%
Mortgage Index 1.83% 7.93% 6.68%**
Government Index (2.23)% 7.49% 6.65%**
*The annual returns are based upon calendar years.
**The average annual total return shown is for the period 12/31/91 to 12/31/99.
THE FUND IN DETAIL
What are the Government Fund's objective, principal investment
strategies, and principal 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
21
<PAGE>
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 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
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. An
investment offering greater potential rewards generally carries greater risks.
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
Fund's 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.
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FREQUENT TRADING RISK: 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.
23
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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.
24
<PAGE>
GROWTH
The chart below contains the following plot points:
1990 -2.99%
1991 34.68%
1992 9.78%
1993 6.00%
1994 -2.87%
1995 25.12%
1996 24.45%
1997 29.28%
1998 27.35%
1999 26.47%
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 as of December 31, 1999. The Fund
sells its shares solely to variable annuity and/or variable life insurance
subaccounts at net asset value. The average annual total returns shown for the
Fund's shares do not reflect the fees and charges that an individual would pay
in connection with an investment in a variable annuity contract or variable life
insurance policy. The S&P 500 Index is an unmanaged index consisting of the
stocks of large-sized U.S. and foreign 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.
25
<PAGE>
1 Year* 5 Years* 10 Years*
Growth Fund 26.47% 26.52% 16.95%
S&P 500 Index 21.04% 28.51% 18.19%
*The annual returns are based upon calendar years.
THE FUND IN DETAIL
What are the Growth Fund's objectives, principal investment
strategies, and principal risks?
OBJECTIVES: 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.
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. An
investment offering greater potential rewards generally carries greater risks.
Here are the principal risks of investing in the Growth Fund:
26
<PAGE>
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 an investment in the Fund will
go up and down, which means that you could lose money.
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. For example,
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.
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<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 currency fluctuations,
political instability, government regulation, unfavorable political
or legal developments, differences in financial reporting standards
and less stringent regulation of foreign markets. 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.
28
<PAGE>
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 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.
The chart below contains the following plot points:
HIGH YIELD
1990 -5.77%
1991 33.96%
1992 13.15%
1993 18.16%
1994 -1.56%
1995 19.82%
1996 12.56%
1997 12.47%
1998 3.15%
1999 4.95%
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.
29
<PAGE>
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") as of December 31, 1999. The Fund sells its
shares solely to variable annuity and/or variable life insurance subaccounts at
net asset value. The average annual total returns shown for the Fund's shares do
not reflect the fees and charges that an individual would pay in connection with
an investment in a variable annuity contract or variable life insurance policy.
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 4.95% 10.43% 10.42%
High Yield Index 2.26% 8.86% 10.95%
*The annual returns are based upon calendar years.
THE FUND IN DETAIL
What are the High Yield Fund's objectives, principal investment
strategies, and principal 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
30
<PAGE>
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. An
investment offering greater potential rewards generally carries greater risks.
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
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 RISK: 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,
and 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 RISK: Foreign investments involve additional risks, including
currency fluctuations, political instability, government regulation, unfavorable
political or legal developments, differences in financial reporting standards,
and less stringent regulation of foreign securities markets.
31
<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
and more established markets throughout the world. The Fund also
invests opportunistically in smaller 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 similar 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.
32
<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.
The chart below contains the following plot points:
International Securities
1991 15.24%
1992 -1.13%
1993 22.17%
1994 -1.29%
1995 18.70%
1996 15.23%
1997 9.09%
1998 18.18%
1999 31.46%
During the periods shown, the highest quarterly return was 19.51% (for the
quarter ended December 31, 1999), 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
Capital International All Country World Free Index ("MSCI All Country Index") as
of December 31, 1999. The Fund sells its shares solely to variable annuity
and/or variable life insurance subaccounts at net asset value. The average
annual total returns shown for the Fund's shares do not reflect the fees and
charges that an individual would pay in connection with an investment in a
variable annuity contract or variable life insurance policy. The MSCI 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
33
<PAGE>
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 MSCI 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 31.46% 18.31% 13.09%
MSCI All Country Index 26.82% 19.18% 14.07%**
*The annual returns are based upon calendar years.
**The average annual total return shown is for the period 4/30/90 to 12/31/99.
THE FUND IN DETAIL
What are the International Securities Fund's objectives, principal investment
strategies, and principal 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 Depository
Receipts, such as American Depository Receipts and Global Depository Receipts.
The Fund invests primarily in stocks which trade in larger and 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 "smaller," "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.
34
<PAGE>
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.
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. An
investment offering greater potential rewards generally carries greater risks.
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 to the Fund
if stock markets worldwide were to decline at the same time, or if a particular
country where the Fund is significantly invested experiences a significant
decline. 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 securities or 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
35
<PAGE>
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. 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. Using stock index futures and options
thereon as temporary substitutes for foreign stocks carries similar 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 AND MID-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.
36
<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. While the Fund primarily invests
in investment grade bonds, it may also invest to a limited extent
in high yield, below investment grade bonds (commonly called "high
yield bonds" or "junk bonds"). The Fund's investments will
generally be in bonds of U.S. companies, but may include bonds of
foreign companies. The Fund's investments in foreign companies are
generally limited to bonds that are dollar-denominated and traded
in the U.S. (commonly called "Yankee bonds").
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. The Fund's share price will also 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. High yield bonds are subject to greater
credit risk but slightly less interest rate risk than investment
grade bonds. High yield bonds are also subject to greater market
fluctuations. 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.
37
<PAGE>
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.
The chart below contains the following plot points:
INVESTMENT GRADE
1993 10.93%
1994 -3.53%
1995 19.69%
1996 2.84%
1997 9.81%
1998 9.15%
1999 -2.53%
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") as of December 31, 1999. The Fund sells its
shares solely to variable annuity and/or variable life insurance subaccounts at
net asset value. The average annual total returns shown for the Fund's shares do
not reflect the fees and charges that an individual would pay in connection with
an investment in a variable annuity contract or variable life insurance policy.
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.
38
<PAGE>
Inception
1 Year* 5 Years* (1/7/92)
Investment Grade Fund (2.53)% 7.54% 6.65%
Corporate Bond Index (1.96)% 8.18% 7.14%**
*The annual returns are based upon calendar years.
**The average annual total return shown is for the period 12/31/91 to 12/31/99.
THE FUND IN DETAIL
What are the Investment Grade Fund's objective, principal investment
strategies, and principal 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. While the Fund primarily
invests in investment grade bonds, it may invest up to 10% of its total assets
in high yield, below investment grade bonds. The Fund's investments will
generally be in bonds of U.S. companies, but may include bonds of foreign
companies. The Fund's investments in foreign companies are generally limited to
Yankee bonds. The Fund's investments in Yankee bonds are limited to 10% of its
total assets.
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 industry sectors 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).
39
<PAGE>
PRINCIPAL RISKs: Any investment carries with it some level of risk. An
investment offering greater potential rewards generally carries greater risks.
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. 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
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.
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,
and 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.
LIQUIDITY RISK: High yield bonds tend to be less liquid than higher quality
bonds, meaning that it may be difficult to sell high yield bonds at reasonable
prices, 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.
FOREIGN ISSUERS RISK: Foreign investments involve additional risks, including
currency fluctuations, political instability, government regulation, unfavorable
political or legal developments, differences in financial reporting standards,
and less stringent regulation of foreign securities markets.
40
<PAGE>
TARGET MATURITY 2007 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 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.
41
<PAGE>
The chart below contains the following plot points:
TARGET 2007
1996 -2.16%
1997 13.38%
1998 14.97%
1999 -9.39%
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") as of December 31, 1999. The Fund sells its shares
solely to a variable annuity subaccount at net asset value. The average annual
total returns shown for the Fund's shares do not reflect the fees and charges
that an individual would pay in connection with an investment in a variable
annuity contract. 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.
42
<PAGE>
Inception
1 Year* (4/26/95)
Target Maturity 2007 Fund (9.39)% 7.72%
SB Government Index (2.23)% 6.67%**
* The annual returns are based upon calendar years.
** The average annual total return shown is for the period 4/30/95 to 12/31/99.
THE FUND IN DETAIL
What are the Target Maturity 2007 Fund's objective, principal investment
strategies, and principal 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 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. On the Fund's maturity date, the Fund's assets will be
converted to cash and distributed, or reinvested in another Fund of Life Series
Fund, at your choice.
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).
43
<PAGE>
PRINCIPAL RISKS: Any investment carries with it some level of risk. An
investment offering greater potential rewards generally carries greater risks.
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,
and 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.
44
<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.
45
<PAGE>
The chart below contains the following plot points:
TARGET 2010
1997 15.86%
1998 14.36%
1999 -11.73%
During the periods shown, the highest quarterly return was 10.25% (for the
quarter ended September 30, 1998), and the lowest quarterly return was -5.02%
(for the quarter ended March 31, 1999). 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") as of December 31, 1999. The Fund sells its shares
solely to a variable annuity subaccount at net asset value. The average annual
total returns shown for the Fund's shares do not reflect the fees and charges
that an individual would pay in connection with an investment in a variable
annuity contract. 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.
46
<PAGE>
Inception
1 Year* (4/30/96)
Target Maturity 2010 Fund (11.73)% 7.53%
SB Government Index (2.23)% 6.21%**
* The annual returns are based upon calendar years.
** The average annual total return shown is for the period 4/30/96 to 12/31/99.
THE FUND IN DETAIL
What are the Target Maturity 2010 Fund's objective, principal investment
strategies, and principal 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. On the Fund's maturity date, the Fund's assets will be
converted to cash and distributed, or reinvested in another Fund of Life Series
Fund, at your choice.
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. An
investment offering greater potential rewards generally carries greater risks.
Here are the principal risks of investing in the Target Maturity 2010 Fund:
47
<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,
and 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.
48
<PAGE>
TARGET MATURITY 2015 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 the 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 2015. 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.
What about performance?
Because the Fund commenced operations on November 8, 1999, as of the date of
this prospectus, it did not have a full year of performance information
available.
THE FUND IN DETAIL
What are the Target Maturity 2015 Fund's objective, principal investment
strategies, and principal risks?
OBJECTIVE: The Fund seeks a predictable compounded investment return for
investors who hold their Fund shares until the Fund's maturity,
consistent with the preservation of capital.
49
<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 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 vary depending on the
times remaining until maturities, prevailing interest rates, and the liquidity
of the securities. 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. On the Fund's maturity date, the Fund's assets will be
converted to cash and distributed, or reinvested in another Fund of Life Series
Fund, at your choice.
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. An
investment offering greater potential rewards generally carries greater risks.
Here are the principal risks of investing in the Target Maturity 2015 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,
and 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.
50
<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 primarily invests 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 currency fluctuations, political
instability, government regulation, unfavorable political or legal
developments, differences in financial reporting standards and less
stringent regulation of foreign securities markets. 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.
51
<PAGE>
The chart below contains the following plot points:
UTILITIES INCOME
1994 -7.24%
1995 30.26%
1996 9.57%
1997 25.07%
1998 12.58%
1999 17.41%
During the periods shown, the highest quarterly return was 12.86% (for the
quarter ended December 31, 1999), 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") as of December 31, 1999. The Fund sells its shares
solely to variable annuity and/or variable life insurance subaccounts at net
asset value. The average annual total returns shown for the Fund's shares do not
reflect the fees and charges that an individual would pay in connection with an
investment in a variable annuity contract or variable life insurance policy. The
S&P 500 Index is an unmanaged index consisting of the stocks of large-sized U.S.
and foreign companies. The S&P Utilities Index is a capitalization-weighted
index of 41 stocks designed to measure the performance of the utilities sector
of the S&P 500 Index. The Indexes do not take into account fees and expenses
that an investor would incur in holding the securities in the Indexes. If they
did so, the returns would be lower than those shown.
52
<PAGE>
Inception
1 Year* 5 Years* (11/15/93)
Utilities Income
Fund 17.41% 18.73% 13.52%
S&P 500 Index 21.04% 28.51% 23.16%
S&P Utilities Index (8.89)% 13.84% 9.67%
*The annual returns are based upon calendar years.
THE FUND IN DETAIL
What are the Utilities Income Fund's objectives, principal investment
strategies, and principal 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 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 primarily invests 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. An
investment offering greater potential rewards generally carries greater risks.
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
53
<PAGE>
downturn, a change in interest rates, or a change in investor sentiment,
regardless of the success or failure of an individual company's operations.
Stock markets tend to run in cycles with periods when prices generally go up,
known as "bull" markets, and periods when stock prices generally go down,
referred to as "bear" markets. While utilities stocks have long been thought of
as being less volatile than other stocks, like all stocks they fluctuate in
value. As the utilities industry has begun to deregulate and earnings have
become less predictable, utilities stocks have begun to have price fluctuations
which are more like other stocks.
INDUSTRY CONCENTRATION RISK: Because the Fund concentrates its investments in
public utilities companies, the value of its shares will be especially affected
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 national or regional
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 RISK: 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.
FOREIGN ISSUERS RISK: Stock of foreign utilities companies carry additional
risks, including currency fluctuations, political instability, government
regulation, unfavorable political or legal developments, differences in
financial reporting standards, and less stringent regulation of foreign
securities markets.
54
<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 48 mutual funds or series
of funds with total net assets of over $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, 1999, 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; 0.75% of average
daily net assets for Focused Equity 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; 0.60% of average daily net
assets, net of waiver, for Target Maturity 2015 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 Co-Portfolio Manager of the Blue Chip Fund. Mr.
Fitzpatrick also serves as Co-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.
Andrew Wedeck serves as Co-Portfolio Manager of the Blue Chip Fund. Mr. Wedeck
also serves as Co-Portfolio Manager to certain other First Investors Funds. From
April 1999 to November 1999, Mr. Wedeck was a Research Analyst at Cramer
Rosenthal McGlynn. From April 1998 to March 1999, Mr. Wedeck was a personal
money management consultant for family members. From 1995 to March 1998, Mr.
Wedeck was an Equity Analyst at Stechler & Company.
Clark D. Wagner serves as Portfolio Manager of Government Fund, Target Maturity
2007 Fund, Target Maturity 2010 Fund, and Target Maturity 2015 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, serves as Co-Portfolio Manager of the
Discovery Fund. Ms. Poitra also serves as Portfolio Manager of certain other
First Investors Funds. Ms. Poitra joined FIMCO in 1985 as a Senior Equity
Analyst.
David A. Hanover serves as Co-Portfolio Manager of the Discovery Fund. Mr.
Hanover also serves as Co-Portfolio Manager of another First Investors Fund.
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.
55
<PAGE>
George V. Ganter serves as Co-Portfolio Manager of the Investment Grade Fund.
Mr. Ganter also serves as Co-Portfolio Manager to another First Investors Fund.
Mr. Ganter joined FIMCO in 1985 as a Senior Investment Analyst.
Nancy W. Jones serves as Portfolio Manager of the High Yield 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
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. WMC has discretionary trading authority over all of the assets
of the Growth Fund and the International Securities Fund, subject to continuing
oversight and supervision by FIMCO and the Board of Directors. 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, 1999, WMC held investment management authority
with respect to $235.5 billion of assets. Of that amount, WMC acted as
investment adviser or subadviser to approximately 60 investment companies or
series of such companies, with net assets of approximately $170 billion. 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.
FIMCO and the Focused Equity Fund have retained Arnhold and S. Bleichroeder,
Inc. ("ASB") as the Fund's investment subadviser. ASB has discretionary trading
authority over all of the Focused Equity Fund's assets, subject to continuing
oversight and supervision by FIMCO and the Board of Directors. ASB is located at
1345 Avenue of the Americas, New York, NY 10105. ASB and its affiliates
currently provide investment advisory services to investment companies,
institutions and private clients. As of December 31, 1999, ASB and its
affiliates held investment management authority with respect to approximately $7
billion of domestic and international assets. The Focused Equity Fund is managed
by Colin G. Morris, Senior Vice President of ASB, who has been responsible for
the management of various ASB clients since January 1993. Prior to joining ASB
in 1992, Mr. Morris was a partner at Mabon Securities, with responsibility over
arbitrage investments from 1988 to 1992.
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 ("E.T."), on each
56
<PAGE>
day the New York Stock Exchange ("NYSE") is open for regular trading. The NYSE
is closed on most national holidays and Good Friday. 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
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
57
<PAGE>
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.
58
<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.
59
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------
PER SHARE DATA
-------------------------------------------------------------------------------------
<CAPTION>
Less Distributions
Income from Investment Operations from
----------------------------------- ----------------------
Net Realized
and
Net Asset Unrealized
Value Net Gain (Loss) Total from Net Net Total
Year Ended Beginning Investment on Investment Investment Realized Distri-
December 31 of Period Income Investments Operations Income Gains butions
- ---------------------------------------------------------------------------------------------------------------
BLUE CHIP
- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
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
1999 . . . . . . 26.25 .12 6.38 6.50 .18 .43 .61
CASH MANAGEMENT
- ---------------
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
1999 . . . . . . 1.00 .046 -- .046 .046 -- .046
DISCOVERY
- ---------
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
1999 . . . . . . 26.74 (.06) 7.47 7.41 .09 .10 .19
FOCUSED EQUITY
- --------------
11/08/99* to
12/31/99 . . . . $10.00 $(.01) $.26 $.25 $-- $-- $--
</TABLE>
(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, 1999.
++ The effect of fees and charges incurred at the separate account level are not
reflected in these performance figures.
60
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratio to Average Net Assets
Ratio to Average Before Expenses Waived or
Net Assets + Assumed
----------------------- ---------------------------
Net Asset Net Net
Value Total Net Assets Investment Investment Portfolio
End of Return ++ End of Period Expenses Income (%) Income Turnover
Period (%) (in millions) (%) Expenses (%) (%) Rate (%)
- -------------- -------------- ----------------- -------------- ------------- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$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
32.14 25.32 275 .81 .45 N/A N/A 91
$1.00 5.51 $4 .60 5.36 1.10 4.86 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
1.00 4.67 10 .70 4.61 .91 4.40 N/A
$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
33.96 27.97 148 .83 (.24) N/A N/A 109
$10.25 2.50 $2 1.59(a) (1.39)(a) N/A N/A 12
</TABLE>
61
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
--------------------------------------------------------------------------------------------------------
<CAPTION>
Income from Investment Operations Less Distributions from
------------------------------------ ---------------------------
Net Realized
and Total from Net
Net Asset Net Unrealized Investment Invest- Net Total
Value Invest Gain (Loss Operations ment Realized Distri-
Beginning of ment on Income Gains butions
Year Ended December 31 Period Income Investments
- --------------------------- --------------- ------------ ---------------- ---------------- ------------ -------------- -------------
GOVERNMENT
<S> <C> <C> <C> <C> <C> <C> <C>
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
1999 . . . . . . . . . . 10.41 .61 (.51) .10 .59 -- .59
GROWTH
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 . . . . . . . . . . 29.24 .10 7.69 7.79 .15 1.10 1.25
1999 . . . . . . . . . . 35.78 .05 8.97 9.02 .10 1.64 1.74
HIGH YIELD
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
1999. . . . . . . . . . . 11.70 1.09 (.56) .53 1.02 .02 1.04
</TABLE>
(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, 1999
++ The effect of fees and charges incurred at the separate account level are not
reflected in these performance figures.
62
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------
<CAPTION>
Ratio to Average Net
Assets Before
Ratio to Average Expenses Waived or
Net Assets + Assumed
-------------------- ----------------------
Net Assets Net Net
Net Asset End of Invest- Invest-
Value Total Period ment ment Portfolio
End of Return ++ (in Expenses Income Expenses Income Turnover
Period (%) millions) (%) (%) (%) (%) Rate (%)
- -------------- ------------ ------------ ------------ ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$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
9.92 1.05 11 .76 6.07 .91 5.92 69
$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
43.06 26.47 262 .81 .14 N/A N/A 38
$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
11.19 4.95 68 .82 9.83 N/A N/A 33
</TABLE>
63
<PAGE>
<TABLE>
- ---------------------------- -------------------------------------------------------------------------------------------
PER SHARE DATA
-------------------------------------------------------------------------------------------
<CAPTION>
Less Distributions
Income from Investment Operations from
---------------------------------- ----------------------
Net Realized
and
Unrealized
Net Asset Net Gain (Loss) Total from Net
Value Investment on Investment Investment Net Total
Year Ended Beginning Income Investments Operations Income Realized Distri-
December 31 of Period Gains butions
- ---------------------------- ------------ ------------- --------------- ------------- -------------- ---------- ----------
INTERNATIONAL SECURITIES
<S> <C> <C> <C> <C> <C> <C> <C>
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
1999 . . . . . . . . . . . 18.88 .15 5.74 5.89 .12 .03 .15
INVESTMENT GRADE
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
1999 . . . . . . . . . . . 11.97 .69 (.98) (.29) .70 .01 .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
1999. . . . . . . . . . . 13.83 .66 (1.93) (1.27) .62 -- .62
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
1999 . . . . . . . . . . . 13.97 .65 (2.26) (1.61) .51 -- .51
TARGET MATURITY 2015
11/08/99* to 12/31/99 . . $10.00 $ .04 $ (.53) $(.49) $ -- $ -- --
UTILITIES INCOME
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
1999 . . . . . . . . . . . 15.83 .31 2.25 2.56 .33 .51 .84
</TABLE>
(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, 1999.
++ The effect of fees and charges incurred at the separate account level are not
reflected in these performance figures.
64
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------
<CAPTION>
Ratio to Average Net
Assets Before
Ratio to Average Expenses Waived or
Net Assets + Assumed
---------------- --------------------
Net Assets Net
Net Asset End of Invest- Invest
Value Total Period ment ment Portfolio
End of Return ++ (in Expenses Income Expenses Income Turnover
Period (%) millions) (%) (%) (%) (%) Rate (%)
- -------------- ------------ ------------- ------------ ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$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
24.62 31.46 127 .98 .76 N/A N/A 118
$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
10.97 (2.53) 21 .68 6.12 .83 5.97 27
$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
11.94 (9.39) 25 .69 5.47 .84 5.32 2
$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
11.85 (11.73) 9 .71 5.48 .86 5.33 9
$9.51 (4.90) $ 1 1.38(a) 4.24(a) 1.64(a) 3.98(a) 0
$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
17.55 17.41 70 .65 2.12 .80 1.97 53
</TABLE>
65
<PAGE>
[First Investors Logo]
LIFE SERIES FUND
BLUE CHIP
CASH MANAGEMENT
DISCOVERY
FOCUSED EQUITY
GOVERNMENT
GROWTH
HIGH YIELD
INTERNATIONAL SECURITIES
INVESTMENT GRADE
TARGET MATURITY 2007
TARGET MATURITY 2010
TARGET MATURITY 2015
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 Fund documents (including reports and SAIs) at the
Public Reference Room of the SEC in Washington, D.C. You can also obtain copies
of Fund documents after paying a duplicating fee (i) by writing to the Public
Reference Section of the SEC, Washington, D.C. 20549-0102 or (ii) by electronic
request at [email protected]. You can obtain information on the operation of
the Public Reference Room, including information about duplicating fee charges,
by calling (202) 942-8090. Text-only versions of Fund documents can be viewed
online or downloaded from the EDGAR database on the SEC's Internet website at
http://www.sec.gov.
(Investment Company Act File No.: First
Investors Life Series Fund 811-4325)
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[FIRST INVESTORS LOGO]
95 Wall Street
New York, New York 10005
(212) 858-8200
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FIRST INVESTORS LIFE VARIABLE ANNUITY FUND D
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
OFFERED BY
FIRST INVESTORS LIFE INSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION DATED APRIL 28, 2000
This Statement of Additional Information is not a Prospectus and should be
read in conjunction with the Prospectus for First Investors Life Variable
Annuity Fund D, dated April 28, 2000, which may be obtained at no cost by
writing to First Investors Life Insurance Company, 95 Wall Street, New York, New
York 10005, or by telephoning (800) 342-7963.
TABLE OF CONTENTS
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
1
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GENERAL DESCRIPTION
FIRST INVESTORS LIFE INSURANCE COMPANY. First Investors Life Insurance
Company, 95 Wall Street, New York, New York 10005 ("First Investors Life"), a
stock life insurance company incorporated under the laws of the State of New
York in 1962, writes life insurance, annuities and accident and health
insurance. First Investors Consolidated Corporation ("FICC"), a holding company,
owns all of the voting common stock of First Investors Management Company, Inc.
("FIMCO" or "Adviser") and all of the outstanding stock of First Investors Life,
First Investors Corporation ("FIC" or "Underwriter") and Administrative Data
Management Corp., the transfer agent for First Investors Life Series Fund ("Life
Series Fund"). Mr. Glenn O. Head, Chairman of FICC, controls FICC and,
therefore, controls the Adviser and First Investors Life.
SEPARATE ACCOUNT D. First Investors Life Variable Annuity Fund D
("Separate Account D") was established on April 8, 1997 under the provisions of
the New York Insurance Law. The assets of Separate Account D are segregated from
the assets of First Investors Life, and that portion of such assets having a
value equal to, or approximately equal to, the reserves and contract liabilities
under the Contracts are not chargeable with liabilities arising out of any other
business of First Investors Life. Separate Account D is registered with the
Securities and Exchange Commission ("Commission") as a unit investment trust
under the Investment Company Act of 1940, as amended (the "1940 Act"), but such
registration does not involve any supervision by the Commission of the
management or investment practices or policies of Separate Account D.
The assets of each Subaccount of Separate Account D are invested at net
asset value in shares of the corresponding series (each a "Fund" and
collectively "Funds") of Life Series Fund. For example, the Blue Chip Subaccount
invests in the Blue Chip Fund, the Government Subaccount invests in the
Government Fund, and so on. The Life Series Fund's Prospectus describes the
risks attendant to an investment in each Fund of Life Series Fund. The thirteen
Funds of Life Series Fund may be referred to as: First Investors Life Blue Chip
Fund, First Investors Life Cash Management Fund, First Investors Life Discovery
Fund, First Investors Life Focused Equity Fund, First Investors Life Government
Fund, First Investors Life Growth Fund, First Investors Life High Yield Fund,
First Investors Life International Securities Fund, First Investors Life
Investment Grade Fund, First Investors Life Target Maturity 2007 Fund, First
Investors Life Target Maturity 2010 Fund, First Investors Life Target Maturity
2015 Fund and First Investors Life Utilities Income Fund.
SERVICES
CUSTODIAN. First Investors Life, subject to applicable laws and
regulations, is the custodian of the securities of the Subaccounts of Separate
Account D.
INDEPENDENT PUBLIC ACCOUNTANTS. Tait, Weller & Baker, Eight Penn Center
Plaza, Philadelphia, PA 19103, independent certified public accountants, has
been selected as the independent accountants for Separate Account D. First
Investors Life pays Tait, Weller & Baker a fee for serving as the independent
accountants for Separate Account D which is set by the Audit Committee of the
Board of Directors of First Investors Life.
UNDERWRITER. First Investors Life and Separate Account D have entered into
an Underwriting Agreement with FIC. FIC, an affiliate of First Investors Life,
and of the Adviser, has its principal business address at 95 Wall Street, New
York, New York 10005. For the fiscal years ended December 31, 1997, 1998 and
1999 FIC received fees of $759,557, $2,492,528, and $2,334,271, respectively, in
connection with the distribution of the Contracts in a continuous offering.
The Contracts are sold by insurance agents licensed to sell variable
annuities, who are registered representatives of the Underwriter.
2
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ANNUITY PAYMENTS
VALUE OF AN ACCUMULATION UNIT. For each Subaccount of Separate Account D,
the value of an Accumulation Unit was arbitrarily initially set at $10.00. The
value of an Accumulation Unit for any subsequent Valuation Period is determined
by multiplying the value of an Accumulation Unit for the immediately preceding
Valuation Period by the Net Investment Factor for the Valuation Period for which
the Accumulation Unit Value is being calculated (see Appendix I, Example B). The
investment performance of each Fund, expenses and deductions of certain charges
affect the Accumulation Unit Value. The value of an Accumulation Unit for the
Subaccounts may increase or decrease from Valuation Period to Valuation Period.
NET INVESTMENT FACTOR. The Net Investment Factor for each Subaccount for
any Valuation Period is determined by dividing (a) by (b) and subtracting (c)
from the result, where:
(a) is the net result of:
(1) the net asset value per share of the applicable Fund determined at
the end of the current Valuation Period, plus
(2) the per share amount of any dividend or capital gains distributions
made by the applicable Fund if the "ex-dividend" date occurs during
the current Valuation Period.
(b) is the net asset value per share of the applicable Fund determined as of
the end of the immediately preceding Valuation Period.
(c) is a factor representing the charges deducted for mortality and expense
risks and administration. Such factor is equal on an annual basis to 1.40%
of the daily net asset value of the applicable Subaccount. This percentage
represents approximately a 0.85% charge for the mortality risk assumed, a
0.4% charge for the expense risk assumed, and a 0.15% charge for
administration.
The Net Investment Factor may be greater or less than one, and therefore,
the value of an Accumulation Unit for any Subaccount may increase or decrease.
(For an illustration of this calculation, see Appendix I, Example A.)
VALUE OF AN ANNUITY UNIT. For each Subaccount of Separate Account D, the
value of an Annuity Unit was arbitrarily initially set at $10.00. The value of
an Annuity Unit for any subsequent Valuation Period is determined by multiplying
the Annuity Unit Value for the immediately preceding Valuation Period by the Net
Investment Factor for the Valuation Period for which the Annuity Unit Value is
being calculated, and multiplying the result by an interest factor to offset the
effect of an investment earnings rate of 3.5% per annum, which is assumed in the
Annuity Tables contained in the Contract. (For an illustration of this
calculation, see Appendix III, Example A.)
AMOUNT OF ANNUITY PAYMENTS. When annuity payments are to commence, the
Accumulated Value to be applied to a variable annuity option will be determined
by multiplying the value of an Accumulation Unit for the Valuation Date on or
immediately preceding the seventh day before the Annuity Commencement Date by
the number of Accumulation Units owned. This seven day period is used to permit
calculation of amounts of annuity payments and mailing of checks in advance of
the due date. At that time, any applicable Premium taxes not previously deducted
will be deducted from the Accumulated Value to determine the Net Accumulated
Value. The resultant value is then applied to the Annuity Tables set forth in
the Contract to determine the amount of the first monthly annuity payment. The
Contract contains Annuity Tables setting forth the amount of the first monthly
installment for each $1,000 of Accumulated Value applied. These Annuity Tables
vary according to the Annuity Option selected by the Contractowner and according
to the sex and adjusted age of the Annuitant and any Joint Annuitant at the
Annuity Commencement Date. The Contract contains a formula for determining the
adjusted age, and the Annuity Tables are determined from the Progressive Annuity
Table with interest at 3.5% per year and assumes births prior to 1900, adjusted
by a setback of four years of age for persons born 1900 and later and an
additional setback of one year of age for each completed five years by which the
year of birth is later than 1900. Annuity Tables used by other insurers may
provide greater or less benefits to the Annuitant.
The dollar amount of the first monthly Variable Payment, based on the
Subaccount determined as above, is divided by the value of an Annuity Unit for
the Subaccount for the Valuation Date on or immediately preceding the seventh
3
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day before the Annuity Commencement Date to establish the number of Annuity
Units representing each monthly payment under the Subaccount. This seven day
period is used to permit calculation of amounts of annuity payments and mailing
of checks in advance of the due date. This number of Annuity Units remains fixed
for all variable annuity payments. The dollar amount of the second and
subsequent variable annuity payments is determined by multiplying the fixed
number of Annuity Units for the Subaccount by the applicable value of an Annuity
Unit Value for the Valuation Date on or immediately preceding the seventh day
before the due date of the payment. The value of an Annuity Unit will vary with
the investment performance of the corresponding Fund, and, therefore, the dollar
amount of the second and subsequent variable annuity payments may change from
month to month. (For an illustration of the calculation of the first and
subsequent Variable Payments, see Appendix III, Examples B, C and D.)
A fixed annuity is an annuity with annuity payments which remain fixed as
to dollar amount throughout the payment period and is based on an assumed
interest rate of 3.5% per year built into the Annuity Tables in the Contract.
OTHER INFORMATION
TIME OF PAYMENTS. All payments due under the Contracts will ordinarily be
made within seven days of the payment due date or within seven days after the
date of receipt of a request for partial surrender or termination. However,
First Investors Life reserves the right to suspend or postpone the date of any
payment due under the Contracts (1) for any period during which the New York
Stock Exchange ("NYSE") is closed (other than customary weekend and holiday
closings) or during which trading on the NYSE, as determined by the Commission,
is restricted; (2) for any period during which an emergency, as determined by
the Commission, exists as a result of which disposal of securities held by the
Fund are not reasonably practical or it is not reasonably practical to determine
the value of the Fund's net assets; or (3) for such other periods as the
Commission may by order permit for the protection of security holders or as may
be permitted under the 1940 Act.
REPORTS TO CONTRACTOWNERS. First Investors Life will mail to each
Contractowner, at the last known address of record at the Home Office of First
Investors Life, at least annually, a report containing such information as may
be required by any applicable law or regulation and a statement of the
Accumulation Units credited to the Contract for each Subaccount and the
Accumulation Unit Values. In addition, latest available reports of Life Series
Fund will be mailed to each Contractowner.
ASSIGNMENT. Any amounts payable under the Contracts may not be commuted,
alienated, assigned or otherwise encumbered before they are due. To the extent
permitted by law, no such payments shall be subject in any way to any legal
process to subject them to payment of any claims against any Annuitant, Joint
Annuitant or Beneficiary. The Contracts may be assigned. No assignment of a
Contract shall be binding on First Investors Life unless such assignment is in
writing and is filed with First Investors Life at its Home Office.
4
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PERFORMANCE INFORMATION
Separate Account D may advertise the performance of the Subaccounts in
various ways.
The yield for a Subaccount (other than the Cash Management Subaccount) is
presented for a specified thirty-day period (the "base period"). Yield is based
on the amount determined by (i) calculating the aggregate amount of net
investment income earned by the Subaccount during the base period less expenses
accrued for that period (net of reimbursement), and (ii) dividing that amount by
the product of (A) the average daily number of Accumulation Units of the
Subaccount outstanding during the base period and (B) the net asset value per
Accumulation Unit on the last day of the base period. The result is annualized
by compounding on a semi-annual basis to determine the Subaccount's yield. For
this calculation, interest earned on debt obligations held by the underlying
Fund is generally calculated using the yield to maturity (or first expected call
date) of such obligations based on their market values (or, in the case of
receivables-backed securities such as GNMA's, based on cost). Dividends on
equity securities are accrued daily at their estimated stated dividend rates.
For a Subaccount, other than the Cash Management Subaccount, the
Subaccount's "average annual total return" ("T") is an average annual compounded
rate of return. The calculation produces an average annual total return for the
number of years measured. It is the rate of return based on factors which
include a hypothetical initial investment of $1,000 ("P" in the formula below)
over a number of years ("n") with an Ending Redeemable Value ("ERV") of that
investment, according to the following formula:
1/n
T=[(ERV/P) ]-1
The "total return" uses the same factors, but does not average the rate of
return on an annual basis. Total return is determined as follows:
[ERV-P]/P = TOTAL RETURN
In providing such performance data, each Subaccount, other than the Cash
Management Subaccount, will assume the payment of the applicable CDSC imposed on
a surrender of purchase payments for the applicable period, the payment of
applicable Mortality and Expense Risk and administrative charges of 1.40% ("P"),
and the payment of the $30 annual contract maintenance charge. Each Subaccount,
other than the Cash Management Subaccount, will assume that during the period
covered all dividends and capital gain distributions are paid at net asset value
per Accumulation Unit, and that the investment is redeemed at the end of the
period.
Average annual total return and total return computed at the public
offering price (using the applicable CDSC) for the period ended December 31,
1999 for each Subaccount, other than the Cash Management Subaccount, are set
forth in the following tables.
5
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AVERAGE ANNUAL TOTAL RETURN(1)
Life of
One Year Subaccount(2)
-------- -------------
Blue Chip Subaccount 14.82% 14.72%
Discovery Subaccount 17.25% 9.37%
Focused Equity Subaccount N/A N/A
Government Subaccount -7.44% 1.20%
Growth Subaccount 15.87% 19.29%
High Yield Subaccount -3.86% 1.59%
International Securities 20.45% 12.55%
Investment Grade Subaccount -10.73% 0.52%
Target Maturity 2007 Subaccount -17.01% 0.77%
Target Maturity 2010 Subaccount -19.16% 0.15%
Target Maturity 2015 Subaccount N/A N/A
Utilities Income Subaccount 7.56% 15.61%
TOTAL RETURN(1)
Life of
One Year Subaccount(2)
-------- -------------
Blue Chip Subaccount 14.82% 39.57%
Discovery Subaccount 17.25% 24.30%
Focused Equity Subaccount N/A -4.88%
Government Subaccount -7.44% 2.95%
Growth Subaccount 15.87% 53.44%
High Yield Subaccount -3.86% 3.90%
International Securities 20.45% 33.23%
Investment Grade Subaccount -10.73% 1.27%
Target Maturity 2007 Subaccount -17.01% 1.88%
Target Maturity 2010 Subaccount -19.16% 0.36%
Target Maturity 2015 Subaccount N/A -7.51%
Utilities Income Subaccount 7.56% 42.20%
Nonstandardized average annual total return and total return may also be
advertised using net asset value per Accumulation Unit at the end of the
relevant base period --- i.e., without deducting any applicable CDSC. The
calculation will be made using the standardized formula except that ending net
asset value per Accumulation Unit will be substituted for ending redeemable
value. Any quotation of return not reflecting an applicable CDSC will be greater
than if the CDSC were reflected. Nonstandardized average annual total return and
total return computed at net asset value for the period ended December 31, 1999
for each Subaccount, other than the Cash Management Subaccount, are set forth in
the following tables.
- --------
(1) Some of the expenses for the underlying Funds were waived or reimbursed from
commencement of operations through December 31, 1999. Accordingly, return
figures for the Subaccounts are higher than they would have been had such
expenses not been waived or reimbursed.
(2) The inception date for the Subaccounts, except for Focused Equity Subaccount
and Target Maturity 2015 Subaccount, is July 28, 1997. The Focused Equity and
Target Maturity 2015 Subaccounts commenced operations on November 8, 1999.
6
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NONSTANDARDIZED AVERAGE ANNUAL TOTAL RETURN(1)
Life of
One Year Subaccount(2)
-------- -------------
Blue Chip Subaccount 23.46% 17.17%
Discovery Subaccount 26.07% 11.71%
Focused Equity Subaccount N/A N/A
Government Subaccount -0.47% 3.36%
Growth Subaccount 24.59% 21.84%
High Yield Subaccount 3.38% 3.76%
International Securities 29.51% 14.95%
Investment Grade Subaccount -4.01% 2.67%
Target Maturity 2007 Subaccount -10.77% 2.92%
Target Maturity 2010 Subaccount -13.07% 2.29%
Target Maturity 2015 Subaccount N/A N/A
Utilities Income Subaccount 15.66% 18.08%
TOTAL RETURN(1)
Life of
One Year Subaccount(2)
-------- -------------
Blue Chip Subaccount 23.46% 46.92%
Discovery Subaccount 26.07% 30.84%
Focused Equity Subaccount N/A -2.28%
Government Subaccount -0.47% 8.36%
Growth Subaccount 24.59% 61.52%
High Yield Subaccount 3.38% 9.36%
International Securities 29.51% 40.24%
Investment Grade Subaccount -4.01% 6.60%
Target Maturity 2007 Subaccount -10.77% 7.24%
Target Maturity 2010 Subaccount -13.07% 5.64%
Target Maturity 2015 Subaccount N/A -0.55%
Utilities Income Subaccount 15.66% 49.68%
Return information may be useful to investors in reviewing a Subaccount's
performance. However, the total return and average annual total return will
fluctuate over time and the return figures for any given past period is not an
indication or representation by Separate Account D of future rates of return of
any Subaccount.
At times, the Adviser may reduce its compensation or assume expenses of a
Fund in order to reduce such Fund's expenses. Any such waiver or reimbursement
would increase the corresponding Subaccount's total return, average annual total
return and yield during the period of the waiver or reimbursement.
Each Subaccount may include in advertisements and sales literature,
examples, information and statistics that illustrate the effect of taxable
versus tax-deferred compounding income at a fixed rate of return to demonstrate
the growth of an investment over a stated period of time resulting from the
payment of dividends and capital gains distributions in additional Accumulation
Units. The examples may include hypothetical returns comparing taxable versus
- --------------
(1) Some of the expenses for the underlying Funds were waived or reimbursed from
commencement of operations through December 31, 1999. Accordingly, return
figures for the Subaccounts are higher than they would have been had such
expenses not been waived or reimbursed.
(2) The inception date for the Subaccounts, except for Focused Equity Subaccount
and Target Maturity 2015 Subaccount, is July 28, 1997. The Focused Equity and
Target Maturity 2015 Subaccounts commenced operations on November 8, 1999.
7
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tax-deferred growth. The examples used will be for illustrative purposes only
and are not representations by any Subaccount of past or future yield or return
of any of the Subaccounts.
From time to time, in reports and promotional literature, Separate Account
D may compare the performance of its Subaccounts to, or cite the historical
performance of, other variable annuities. The performance rankings and ratings
of variable annuities reported in L-VIPPAS, a monthly publication for insurance
companies and money managers published by Lipper Analytical Services, Inc. and
in Morningstar Variable Annuity Performance Report, also a monthly publication
published by Morningstar, Inc., may be used. Additionally, performance rankings
and ratings reported periodically in national financial publications such as
MONEY, FORBES, BUSINESS WEEK, BARRON'S, FINANCIAL TIMES, CHANGING TIMES,
FORTUNE, NATIONAL UNDERWRITER, etc., may also be used. Quotations from articles
appearing in daily newspaper publications such as THE NEW YORK TIMES, THE WALL
STREET JOURNAL and THE NEW YORK DAILY NEWS may be cited.
DETERMINATION OF CURRENT AND EFFECTIVE YIELD. Separate Account D provides
current yield quotations for the Cash Management Subaccount based on the
underlying Fund's daily dividends. The underlying Fund declares dividends from
net investment income daily and pays them monthly.
For purposes of current yield quotations, dividends per Accumulation Unit
for a seven-day period are annualized (using a 365-day year basis) and divided
by the average value of an Accumulation Unit for the seven-day period.
The current yield quoted will be for a recent seven day period. Current
yields will fluctuate from time to time and are not necessarily representative
of future results. The investor should remember that yield is a function of the
type and quality of the instruments in the portfolio, portfolio maturity and
operating expenses. Current yield information is useful in reviewing the Cash
Management Subaccount's performance but, because current yield will fluctuate,
such information may not provide a basis for comparison with bank deposits or
other investments which may pay a fixed yield for a stated period of time, or
other investment companies, which may use a different method of calculating
yield.
In addition to providing current yield quotations, Separate Account D
provides effective yield quotations for the Cash Management Subaccount for a
base period return of seven days. An effective yield quotation is determined by
a formula which requires the compounding of the unannualized base period return.
Compounding is computed by adding 1 to the unannualized base period return,
raising the sum to a power equal to 365 divided by 7 and subtracting 1 from the
result.
The following is an example, for purposes of illustration only, of the
current and effective yield calculation for the seven day period ended December
31, 1999.
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Dividends per accumulation unit from net investment
income (seven calendar days ended December 31, 1999)
(Base Period).................................................$.001026800
Annualized (365 day basis)*...................................$.053540284
Average value per accumulation unit for the
seven calendar days ended December 31, 1999......................$1.00
Annualized historical yield per accumulation unit for the
seven calendar days ended December 31, 1999.......................5.35%
Effective Yield**.................................................5.48%
Weighted average life to maturity of the
portfolio on December 31, 1999 was 56 days
*This represents the average of annualized net investment income per
accumulation unit for the seven calendar days ended December 31, 1999.
**Effective Yield=[ (Base Period Return + 1)365/7] -1
The figures in the above example do not include the CDSC. Accordingly, all
yield quotations are higher than they would have been had such CDSC been
included.
Separate Account D's Prospectus and Statement of Additional Information
may be in use for a full year and, accordingly, it can be expected that yields
will fluctuate substantially from the example shown above.
RELEVANCE OF FINANCIAL STATEMENTS
The values of the interests of Contractowners under the variable portion
of the Contracts will be affected solely by the investment results of the
Subaccounts. The financial statements of First Investors Life as contained
herein should be considered only as bearing upon First Investors Life's ability
to meet its obligations to Contractowners under the Contracts, and they should
not be considered as bearing on the investment performance of the Subaccounts.
9
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APPENDICES
10
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APPENDIX I
EXAMPLE A
FORMULA AND ILLUSTRATION FOR DETERMINING
THE NET INVESTMENT FACTOR OF A SUBACCOUNT
OF SEPARATE ACCOUNT D
Net Investment Factor = A + B
----- - D
C
Where:
A = The Net Asset Value of a Fund share as of the end of the current
Valuation Period.
Assume....................................................... = $8.51000000
B = The per share amount of any dividend or capital gains distribution
since the end of the immediately preceding Valuation Period.
Assume....................................................... = 0
C = The Net Asset Value of a Fund share at the end of the immediately
preceding Valuation Period.
Assume....................................................... = $8.39000000
D = The daily deduction for charges for mortality and expense risks
and administration, which totals 1.4% on an annual basis.
On a daily basis............................................. = .00003836
Then, the Net Investment Factor = 8.51000000 + 0 - .00003836 . = 1.01426438
--------------
8.39000000
EXAMPLE B
FORMULA AND ILLUSTRATION FOR DETERMINING
ACCUMULATION UNIT VALUE OF A SUBACCOUNT
OF SEPARATE ACCOUNT D
Accumulation Unit Value = A x B Where:
A = The Accumulation Unit Value for the immediately preceding Valuation
Period.
Assume....................................................... = $1.46328760
B = The Net Investment Factor for the current Valuation Period.
Assume....................................................... = 1.01426438
Then, the Accumulation Unit Value = $1.46328760 x 1.01426438..... = 1.48416049
11
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APPENDIX II
EXAMPLE A
FORMULA AND ILLUSTRATION FOR DETERMINING
DEATH BENEFIT PAYABLE UNDER
ANNUITY OPTION 4-UNIT REFUND LIFE ANNUITY
Upon the death of the Annuitant, the designated Beneficiary under this option
will receive under a Separate Account a lump sum death benefit of the then
dollar value of a number of Annuity Units computed using the following formula:
Annuity Units Payable = A A
--- - (CxD), if --- is greater than CxD
B B
Where:
A = The Net Accumulated Value applied on the Annuity Commencement Date to
purchase the Variable Annuity.
Assume...................................................... = $20,000.00
B = The Annuity Unit Value at the Annuity Commencement Date.
Assume...................................................... = $1.08353012
C = The number of Annuity Units represented by each payment made.
Assume..................................................... =116.61488844
D = The total number of monthly Variable Annuity Payments made prior to the
Annuitant's death.
Assume...................................................... = 30
Then the number of Annuity Units Payable:
$20,000.00 - (116.61488844 x 30)
------------
$1.08353012
= 18,458.18554633 - 3,498.44665320
= 14,959.73889313
If the value of an Annuity Unit on the date of receipt of notification of death
was $1.12173107 then the amount of the death benefit under the Separate Account
would be:
14,959.73889313 x $1.12173107 = $16,780.80
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APPENDIX III
EXAMPLE A
FORMULA AND ILLUSTRATION FOR DETERMINING
ANNUITY UNIT VALUE OF
SEPARATE ACCOUNT D
Annuity Unit Value = A x B x C
Where:
A = Annuity Unit Value of the immediately preceding Valuation Period.
Assume.................................................... = $1.10071211
B = Net Investment Factor for the Valuation Period for which the Annuity
Unit is being calculated.
Assume.................................................... = 1.00083530
C = A factor to neutralize the assumed interest rate of 3 1/2% built into
the Annuity Tables used.
Daily factor equals....................................... = 0.99990575
Then, the Annuity Value is:
$1.10071211 x 1.00083530 x 0.99990575 = $1.10152771
EXAMPLE B
FORMULA AND ILLUSTRATION FOR DETERMINING
AMOUNT OF FIRST MONTHLY VARIABLE ANNUITY PAYMENT FROM
SEPARATE ACCOUNT D
First Monthly Variable Annuity Payment = A
------- x B
$1,000
Where:
A = The Net Accumulated Value allocated to Separate Account D for the
Valuation Date on or immediately preceding the seventh day before the
Annuity Commencement Date.
Assume.................................................... = $20,000.00
B = The Annuity purchase rate per $1,000 based upon the option selected,
the sex and adjusted age of the Annuitant according to the Annuity Tables
contained in the Contract.
Assume.................................................... = $6.40
Then, the first Monthly Variable Payment = $20,000
------- x $6.40 = $128.00
$1,000
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EXAMPLE C
FORMULA AND ILLUSTRATION FOR DETERMINING
THE NUMBER OF ANNUITY UNITS FOR SEPARATE ACCOUNT D
REPRESENTED BY EACH MONTHLY VARIABLE ANNUITY PAYMENT
Number of Annuity Units = A
---
B
Where:
A = The dollar amount of the first monthly Variable Annuity Payment.
Assume................................................... = $128.00
B = The Annuity Unit Value for the Valuation Date on or immediately
preceding the seventh day before the Annuity Commencement Date.
Assume................................................... = $1.09763000
Then, the number of Annuity Units = $128.00
------------- = 116.61488844
$1.09763000
EXAMPLE D
FORMULA AND ILLUSTRATION FOR DETERMINING
THE AMOUNT OF SECOND AND SUBSEQUENT MONTHLY VARIABLE
ANNUITY PAYMENTS FROM SEPARATE ACCOUNT D
Second Monthly Variable Annuity Payment = A x B
Where:
A = The Number of Annuity Units represented by each monthly
Variable Annuity Payment.
Assume................................................... = 116.61488844
B = The Annuity Unit Value for the Valuation Date on or immediately
preceding the seventh day before the date on which the second
(or subsequent) Variable Annuity Payment is due.
Assume................................................... = $1.11834234
Then, the second monthly Variable Annuity Payment = 116.61488844 x $1.11834234 =
$130.42
The above example was based upon the assumption of an increase in the Annuity
Unit Value since the initial Variable Annuity Payment due to favorable
investment results of the Separate Account and the Fund. If the investment
results were less favorable, a decrease in the Annuity Unit Value and in the
second monthly Variable Annuity Payment could result. Assume B above was
$1.08103230.
Then, the second monthly Variable Annuity Payment = 116.61488844 x $1.08103230 =
$126.06
14
<PAGE>
Financial Statements as of
December 31, 1999
15
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
First Investors Life Insurance Company
New York, New York
We have audited the accompanying balance sheets of First Investors Life
Insurance Company as of December 31, 1999 and 1998, and the related statements
of income, stockholder's equity and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of First Investors Life
Insurance Company as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 18, 2000
<PAGE>
<TABLE>
<CAPTION>
FIRST INVESTORS LIFE INSURANCE COMPANY
BALANCE SHEET
ASSETS
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Investments (note 2):
Available-for-sale securities....................................... $109,081,845 $131,031,939
Held-to-maturity securities......................................... 31,147,991 5,491,598
Short term investments.............................................. 4,179,510 3,982,209
Policy loans........................................................ 28,640,385 24,961,708
---------------- --------------
Total investments................................................ 173,049,731 165,467,454
Cash ................................................................. (729,147) 113,094
Premiums and other receivables, net of allowances of
$30,000 in 1999 and 1998............................................ 6,391,696 6,297,635
Accrued investment income............................................. 3,204,950 3,473,067
Deferred policy acquisition costs (note 6)............................ 24,607,577 20,873,233
Deferred Federal income taxes (note 7) ........................... 1,868,000 473,000
Furniture, fixtures and equipment, at cost, less accumulated
depreciation of $1,169,049 in 1999 and $1,110,857 in 1998........... 57,966 102,448
Other assets.......................................................... 118,396 82,822
Separate account assets............................................... 1,058,703,230 821,105,059
--------------- -------------
Total assets..................................................... $1,267,272,399 $1,017,987,812
============== ==============
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Policyholder account balances (note 6)................................ $123,677,096 $118,786,854
Claims and other contract liabilities................................. 14,870,396 13,934,636
Accounts payable and accrued liabilities.............................. 3,573,113 3,796,503
Separate account liabilities.......................................... 1,058,229,265 821,105,059
-------------- -------------
Total liabilities................................................ 1,200,349,870 957,623,052
-------------- -------------
STOCKHOLDER'S EQUITY:
Common Stock, par value $4.75; authorized,
issued and outstanding 534,350 shares............................... 2,538,163 2,538,163
Additional paid in capital............................................ 6,496,180 6,496,180
Accumulated other comprehensive income (note 2)....................... (908,000) 2,193,000
Retained earnings .................................................... 58,796,186 49,137,417
---------------- -------------
Total stockholder's equity....................................... 66,922,529 60,364,760
---------------- -------------
Total liabilities and stockholder's equity....................... $1,267,272,399 $1,017,987,812
============== ==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST INVESTORS LIFE INSURANCE COMPANY
STATEMENT OF INCOME
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31,1998 DECEMBER 31,1997
----------------- ---------------- ----------------
<S> <C> <C> <C>
REVENUES
Policyholder fees................................... $26,171,703 $25,393,372 $24,826,454
Premiums............................................ 5,656,183 6,091,731 6,279,137
Investment income (note 2).......................... 11,049,520 10,501,572 10,259,601
Realized gain (loss) on investments................. (1,190,548) 914,891 158,874
Other income........................................ 818,604 893,181 702,644
-------------- ------------- -------------
Total income..................................... 42,505,462 43,794,747 42,226,710
------------ ----------- -----------
BENEFITS AND EXPENSES
Benefits and increases in contract liabilities...... 10,571,181 13,803,921 14,370,510
Dividends to policyholders.......................... 1,390,300 1,749,579 1,033,663
Amortization of deferred acquisition costs (note 6). 969,205 1,005,483 663,200
Commissions and general expenses.................... 14,848,007 15,553,605 15,445,888
------------ ----------- -----------
Total benefits and expenses...................... 27,778,693 32,112,588 31,513,261
------------ ------------ -----------
Income before Federal income tax ..................... 14,726,769 11,682,159 10,713,449
Federal income tax (note 7):
Current............................................. 4,865,000 3,682,000 4,285,000
Deferred............................................ 203,000 265,000 (603,000)
----------- ------------ -----------
5,068,000 3,947,000 3,682,000
------------ ------------ -----------
Net Income............................................ $ 9,658,769 $ 7,735,159 $ 7,031,449
============ ============ ===========
Income per share, based on 534,350 shares outstanding
$18.08 $14.48 $13.16
============ ============= ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST INVESTORS LIFE INSURANCE COMPANY
STATEMENT OF STOCKHOLDER'S EQUITY
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31,1999 DECEMBER 31,1998 DECEMBER 31, 1997
---------------- ---------------- -----------------
<S> <C> <C> <C>
Balance at beginning of year............................. $60,364,760 $ 52,044,601 $ 44,049,152
----------- ------------ ------------
Net income............................................... 9,658,769 7,735,159 7,031,449
Other comprehensive income
Increase (decrease) in unrealized holding gains on
available-for-sale securities.......................... (3,101,000) 585,000 964,000
------------- -------------- --------------
Comprehensive income..................................... 6,557,769 8,320,159 7,995,449
------------- -------------- --------------
Balance at end of year................................... $ 66,922,529 $ 60,364,760 $ 52,044,601
============ ============ ============
STATEMENT OF CASH FLOWS
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31,1997
----------------- ----------------- ----------------
Increase (decrease) in cash:
Cash flows from operating activities:
Policyholder fees received..........................$ 25,827,717 $ 25,010,611 $ 24,587,113
Premiums received................................... 5,931,178 5,433,211 6,088,582
Amounts received on policyholder accounts........... 124,375,574 132,528,386 125,818,334
Investment income received.......................... 11,726,193 10,630,564 10,263,095
Other receipts...................................... 73,652 91,864 57,287
Benefits and contract liabilities paid.............. (129,416,853) (142,124,914) (138,420,373)
Commissions and general expenses paid............... (24,060,176) (24,138,476) (20,899,476)
------------- -------------- --------------
Net cash provided by operating activities........... 14,457,285 7,431,246 7,494,562
-------------- -------------- --------------
Cash flows from investing activities:
Proceeds from sale of investment securities......... 47,855,224 42,655,632 38,900,851
Purchase of investment securities................... (58,962,363) (47,605,879) (44,021,791)
Purchase of furniture, equipment and other assets... (13,710) (79,322) (62,170)
Net increase in policy loans........................ (3,678,677) (3,433,898) (2,662,162)
Investment in Separate Account ..................... (500,000) 100 593,945
-------------- -------------- ------------
Net cash used for investing activities.............. (15,299,526) (8,463,367) (7,251,327)
-------------- -------------- -------------
Net increase (decrease) in cash..................... (842,241) (1,032,121) 243,235
Cash
Beginning of year ..................................... 113,094 1,145,215 901,980
------------- ------------- ----------
End of year ...........................................$ (729,147) $ 113,094 $ 1,145,215
============= ============= ==============
The Company received a refund of Federal income tax of $79,000 in 1997 and paid Federal income tax
of $5,075,000 in 1999, $4,400,000 in 1998 and $4,358,000 in 1997.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST INVESTORS LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Reconciliation of net income to net cash
provided by operating activities:
Net income........................................ $ 9,658,769 $ 7,735,159 $ 7,031,449
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 66,281 82,342 117,804
Amortization of deferred policy acquisition costs 969,205 1,005,483 663,200
Realized investment (gains) losses............. 1,190,548 (914,891) (158,874)
Amortization of premiums and discounts on
investments.................................. 408,556 421,135 280,852
Deferred Federal income taxes.................. 203,000 265,000 (603,000)
Other items not requiring cash - net........... 25,470 (660) 9,771
(Increase) decrease in:
Premiums and other receivables, net............ (94,061) (1,548,536) (750,889)
Accrued investment income...................... 268,117 (292,143) (277,358)
Deferred policy acquisition costs, exclusive
of amortization.............................. (3,797,549) (3,613,000) (1,866,787)
Other assets................................... (43,663) 29,133 9,323
Increase (decrease) in:
Policyholder account balances.................. 4,890,242 3,505,536 1,985,844
Claims and other contract liabilities.......... 935,760 1,386,540 357,815
Accounts payable and accrued liabilities....... (223,390) (629,852) 695,412
------------ ------------ ------------
$ 14,457,285 $ 7,431,246 $ 7,494,562
============ =========== ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF FINANCIAL STATEMENTS
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles (GAAP). Such basis of presentation
differs from statutory accounting practices permitted or prescribed by insurance
regulatory authorities primarily in that:
(a) policy reserves are computed according to the Company's estimates of
mortality, investment yields, withdrawals and other benefits and expenses,
rather than on the statutory valuation basis;
(b) certain expenditures, principally for furniture and equipment and
agents' debit balances, are recognized as assets rather than being
non-admitted and therefore charged to retained earnings;
(c) commissions and other costs of acquiring new business are recognized
as deferred acquisition costs and are amortized over the premium paying
period of policies and contracts, rather than charged to current operations
when incurred;
(d) income tax effects of temporary differences, relating primarily to
policy reserves and acquisition costs, are provided
(e) the statutory asset valuation and interest maintenance reserves are
reported as retained earnings rather than as liabilities;
NOTE 2 -- OTHER SIGNIFICANT ACCOUNTING PRACTICES
(a) ACCOUNTING ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosures of contingent assets and liabilities, at the date
of the financial statements and revenues and expenses during the reported
period. Actual results could differ from those estimates.
(b) DEPRECIATION. Depreciation is computed on the useful service life of
the depreciable asset using the straight line method of depreciation over three
to seven years.
(c) INVESTMENTS. Investments in equity securities that have readily
determinable fair values and all investments in debt securities are classified
in separate categories and accounted for as follows:
HELD-TO-MATURITY SECURITIES
Debt securities in which the Company has the positive intent and
ability to hold to maturity are recorded at amortized cost.
AVAILABLE-FOR-SALE SECURITIES
Debt securities not classified as held to maturity securities and
equity securities are recorded at fair value with unrealized gains and
losses excluded from earnings and reported as "accumulated other
comprehensive income" in stockholder's equity.
Short term investments are reported at market value which approximates
cost.
Gains and losses on sales of investments are determined using the specific
identification method. Investment income for the years indicated consists of the
following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31,1999 DECEMBER 31, 1998 DECEMBER 31,1997
---------------- ----------------- ----------------
<S> <C> <C> <C>
Interest on fixed maturities............................. $ 9,589,859 $ 9,276,036 $ 9,029,979
Interest on short term investments....................... 243,945 226,544 307,656
Interest on policy loans................................. 1,714,441 1,465,497 1,268,834
------------ ------------- ------------
Total investment income............................. 11,548,245 10,968,077 10,606,469
Investment expense.................................. 498,725 466,505 346,868
-------------- ------------- -------------
Net investment income.................................... $11,049,520 $ 10,501,572 $ 10,259,601
=========== ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The amortized cost and estimated market values of investments at December 31, 1999 and 1998 are as
follows:
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES
DECEMBER 31, 1999
U.S. Treasury Securities and obligations
of U.S. Government Corporations
and Agencies............................... $ 35,374,157 $ -- $ 297,674 $ 35,076,483
Debt Securities issued by
States of the U.S.......................... 984,941 -- 78,161 906,780
Corporate Debt Securities................... 69,097,105 209,641 1,899,219 67,407,527
Other Debt Securities ...................... 5,966,094 -- 275,039 5,691,055
-------------- ------------- ------------- ---------------
$111,422,297 $ 209,641 $ 2,550,093 $109,081,845
============ ========== ============ ============
DECEMBER 31,1998
U.S. Treasury Securities and obligations
of U.S. Government Corporations
and Agencies............................... $ 28,353,391 $ 1,703,441 $ 912 $ 30,055,920
Debt Securities issued by
States of the U.S.......................... 13,964,587 261,109 8,696 14,217,000
Corporate Debt Securities................... 77,938,088 2,148,113 378,682 79,707,519
Other Debt Securities....................... 6,676,873 374,627 -- 7,051,500
-------------- ------------- -------------- ---------------
$126,932,939 $ 4,487,290 $ 388,290 $131,031,939
============ =========== ============ ============
</TABLE>
At December 31, 1999 and 1998, the Company had "Unrealized Holding Gains
(Losses) on Available-For-Sale Securities" of ($908,000) and $2,193,000, net of
applicable deferred income taxes and amortization of deferred acquisition costs.
The change in the Unrealized Holding Gains (Losses) of ($3,101,000), $585,000
and $964,000 for 1999, 1998 and 1997, respectively is reported as other
comprehensive income in stockholders' equity. During the year ended December 31,
1999, the Company reclassified certain investments from Available-For-Sale
securities to Held-To-Maturity securities. In connection with the
reclassification, $834,455 of unrealized gains on such securities are included
in Accumulated Other Comprehensive Income in Stockholder's Equity and is being
amortized over the remaining life of the securities as an adjustment to yield.
<TABLE>
<CAPTION>
HELD-TO-MATURITY SECURITIES
DECEMBER 31,1999
<S> <C> <C> <C> <C>
U.S. Treasury Securities and obligations
of U.S. Government Corporations
and Agencies*.............................. $ 3,336,121 $ 68,367 $ 7,222 $ 3,397,266
Debt Securities issued by
States of the U.S.......................... 15,578,482 -- 1,896,633 13,681,849
Corporate Debt Securities................... 7,171,138 -- 755,842 6,415,296
Other Debt Securities....................... 5,062,250 -- 632,074 4,430,176
-------------- -------------- ---------- ------------
$ 31,147,991 $ 68,367 $ 3,291,771 $ 27,924,587
============= =========== =========== ============
DECEMBER 31,1998
U.S. Treasury Securities and obligations
of U.S. Government Corporations
and Agencies*.............................. $ 3,381,598 $ 223,647 $ -- $ 3,605,245
Corporate Debt Securities................... 2,000,000 125,400 -- 2,125,400
Other Debt Securities....................... 110,000 -- -- 110,000
-------------- ------------ --------- -------------
$ 5,491,598 $ 349,047 $ -- $ 5,840,645
============ ========= =========== ===========
</TABLE>
*These securities are on deposit for various state insurance departments and are
therefore restricted as to sale.
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The amortized cost and estimated market value of debt securities at
December 31, 1999, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
HELD TO MATURITY AVAILABLE FOR SALE
---------------- ------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST MARKET VALUE COST MARKET VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less.......................$ 100,000 $ 100,000 $ 9,263,507 $ 9,067,102
Due after one year through five years......... 3,346,121 3,407,266 23,841,639 23,782,165
Due after five years through ten years........ 1,098,443 979,037 41,461,579 40,105,851
Due after ten years........................... 26,603,427 23,438,284 36,855,572 36,126,727
------------ ------------ --------------- --------------
$31,147,991 $27,924,587 $111,422,297 $109,081,845
=========== =========== ============ ============
</TABLE>
Proceeds from sales of investments in fixed maturities were $47,855,224,
$42,655,632 and $38,900,851 in 1999, 1998 and 1997, respectively. Gross gains of
$422,254 and gross losses of $1,612,802 were realized on those sales in 1999.
Gross gains of $977,442 and gross losses of $62,551 were realized on those sales
in 1998. Gross gains of $374,583 and gross losses of $215,709 were realized on
those sales in 1997.
(d) RECOGNITION OF REVENUE, POLICYHOLDER ACCOUNT BALANCES AND POLICY
BENEFITS
TRADITIONAL ORDINARY LIFE AND HEALTH
Revenues from the traditional life insurance policies represent
premiums that are recognized as earned when due. Health insurance
premiums are recognized as revenue over the time period to which the
premiums relate. Benefits and expenses are associated with earned
premiums so as to result in recognition of profits over the lives of the
contracts. This association is accomplished by means of the provision
for liabilities for future policy benefits and the deferral and
amortization of policy acquisition costs.
UNIVERSAL LIFE AND VARIABLE LIFE
Revenues from universal life and variable life policies represent
amounts assessed against policyholders. Included in such assessments are
mortality charges, surrender charges and policy service fees.
Policyholder account balances on universal life consist of the
premiums received plus credited interest, less accumulated policyholder
assessments. Amounts included in expense represent benefits in excess of
policyholder account balances. The value of policyholder accounts on
variable life are included in separate account liabilities as discussed
below.
ANNUITIES
Revenues from annuity contracts represent amounts assessed against
contractholders. Such assessments are principally sales charges,
administrative fees, and in the case of variable annuities, mortality
and expense risk charges. The carrying value and fair value of fixed
annuities are equal to the policyholder account balances, which
represent the net premiums received plus accumulated interest.
(e) SEPARATE ACCOUNTS. Separate account assets and the related liabilities,
both of which are valued at market, represent segregated variable annuity and
variable life contracts maintained in accounts with individual investment
objectives. All investment income (gains and losses of these accounts) accrues
directly to the contractholders and therefore does not affect net income of the
Company.
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(f) COMPREHENSIVE INCOME. For 1998, the Company adopted Statement of
Financial Accounting Standards No, 130 ("SFAS 130"), "Reporting Comprehensive
Income". SFAS 130 establishes the disclosure requirements for reporting
comprehensive income in an entity's financial statements. Total comprehensive
income includes net income and unrealized gains and losses on available-for-sale
securities. Accumulated other comprehensive income, a component of stockholders'
equity, was formerly reported as unrealized gains and losses on
available-for-sale securities. There was no impact on previously reported net
income from the adoption of SFAS 130.
Note 3 -- Fair Value of Financial Instruments
The carrying amounts for cash, short-term investments and policy loans as
reported in the accompanying balance sheet approximate their fair values. The
fair values for fixed maturity and equity-securities are based upon quoted
market prices, where available or are estimated using values from independent
pricing services.
The carrying amounts for the Company's liabilities under investment - type
contracts approximate their fair values because interest rates credited to
account balances approximate current rates paid on similar investments and are
generally not guaranteed beyond one year. Fair values for the Company's
insurance contracts other than investment - type contracts are not required to
be disclosed. However, the fair values of liabilities for all insurance
contracts are taken into consideration in the overall management of interest
rate risk, which minimizes exposure to changing interest rates.
NOTE 4 -- RETIREMENT PLANS
The Company participates in a non-contributory profit sharing plan for the
benefit of its employees and those of other wholly-owned subsidiaries of its
parent. The Plan provides for retirement benefits based upon earnings. Vesting
of benefits is based upon years of service. For the years ended December 31,
1999, 1998 and 1997, the Company charged operations approximately $74,000,
$79,000 and $70,000 respectively for its portion of the contribution.
The Company also has a non-contributory retirement plan for the benefit of
its sales agents. The plan provides for retirement benefits based upon
commission on first-year premiums and length of service. The plan is unfunded.
Vesting of benefits is based upon graduated percentages dependent upon the
number of allocations made in accordance with the plan by the Company for each
participant. The Company charged to operations pension expenses of approximately
$478,000 in 1999, $475,000 in 1998 and $419,000 in 1997. The accrued liability
of approximately $3,406,000 in 1999 and $3,251,000 in 1998 was sufficient to
cover the value of benefits provided by the plan.
In addition, the Company participates in a 401(k) savings plan covering all
of its eligible employees and those of other wholly-owned subsidiaries of its
parent whereby employees may voluntarily contribute a percentage of their
compensation with the Company matching a portion of the contributions of certain
employees. Contributions to this plan were not material.
NOTE 5 -- COMMITMENTS AND CONTINGENT LIABILITIES
The Company has agreements with affiliates and non-affiliates as follows:
(a) The Company's maximum retention on any one life is $100,000. The Company
reinsures a portion of its risk with other insurance companies and reserves are
reduced by the amount of reserves for such reinsured risks. The Company is
liable for any obligations that any reinsurance company may be unable to meet.
The Company had reinsured approximately 10% of its net life insurance in force
at December 31, 1999, 1998 and 1997. The Company also had assumed reinsurance
amounting to approximately 19%, 20% and 20% of its net life insurance in force
at the respective year ends. None of these transactions had any material effect
on the Company's operating results.
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(b) The Company and certain affiliates share office space, data processing
facilities and management personnel. Charges for these services are based upon
the Company's proportionate share of: space occupied, usage of data processing
facilities and time allocated to management. During the years ended December 31,
1999, 1998 and 1997, the Company paid approximately $1,610,000, $1,440,000 and
$1,114,000, respectively, for these services. In addition, the Company
reimbursed an affiliate approximately $10,501,000 in 1999, $10,799,000 in
1998,and $9,814,000 in 1997 for commissions relating to the sale of its
products.
The Company maintains a checking account with a financial institution,
which is also a wholly-owned subsidiary of its parent. The balance in this
account was approximately $443,000 at December 31, 1999 and $387,000 at December
31, 1998.
(c) The Company is subject to certain claims and lawsuits arising in the
ordinary course of business. In the opinion of management, all such claims
currently pending will not have a material adverse effect on the financial
position of the Company or its results of operations.
NOTE 6 -- ADJUSTMENTS MADE TO STATUTORY ACCOUNTING PRACTICES
Note 1 describes some of the common differences between statutory practices
and generally accepted accounting principles. The effects of these differences
for the years ended December 31, 1999, 1998 and 1997 are shown in the following
table in which net income and capital shares and surplus reported therein on a
statutory basis are adjusted to a GAAP basis.
<TABLE>
<CAPTION>
NET INCOME CAPITAL SHARES AND SURPLUS
YEAR ENDED DECEMBER 31 AT DECEMBER 31
------------------------------------------ -----------------------------------------
1999 1998 1997 1999 1998 1997
------------- ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Reported on a statutory basis ........... $ 8,813,513 $ 6,191,762 $ 5,809,629 $ 45,872,816 $ 37,991,708 $ 32,159,721
------------ ------------ ------------ ------------ ------------ ------------
Adjustments:
Deferred policy acquisition costs (b) 2,828,344 2,607,517 351,239 24,607,577 20,873,233 18,446,716
Future policy benefits (a) ........... (901,121) (1,259,673) 133,848 (5,161,385) (4,260,262) (3,000,589)
Deferred income taxes ................ (203,000) (265,000) 603,000 1,868,000 473,000 1,039,000
Premiums due and deferred (e) ........ 102,955 85,385 84,291 (1,086,477) (1,189,428) (1,274,816)
Cost of collection and other statutory
liabilities ....................... (4,228) (6,185) (924) 25,648 29,874 36,060
Non-admitted assets .................. -- -- -- 236,793 218,959 224,411
Asset valuation reserve .............. -- -- -- 2,065,557 1,691,873 1,325,986
Interest maintenance reserve ......... (192,495) (223,136) (55,019) -- 436,803 56,112
Gross unrealized holding gains on
available-for-sale securities ..... -- -- -- (1,506,000) 4,099,000 3,032,000
Net realized capital gains (losses) .. (1,190,548) 914,891 158,874 -- -- --
Other ................................ 405,349 (310,402) (53,489) -- -- --
------------ ------------ ------------ ------------ ------------ ------------
845,256 1,543,397 1,221,820 21,049,713 22,373,052 19,884,880
------------ ------------ ------------ ------------ ------------ ------------
In accordance with generally accepted
accounting principles ................ $ 9,658,769 $ 7,735,159 $ 7,031,449 $ 66,922,529 $ 60,364,760 $ 52,044,601
============ ============ ============ ============ ============ ============
Per share, based on 534,350 shares
outstanding .......................... $ 18.08 $ 14.48 $ 13.16 $ 125.24 $ 112.97 $ 97.40
============ ============ ============ ============ ============ ============
</TABLE>
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following is a description of the significant policies used to adjust
the net income and capital shares and surplus from a statutory to a GAAP basis.
(a) Liabilities for future policy benefits have been computed primarily by
the net level premium method with assumptions as to anticipated mortality,
withdrawals and investment yields. The composition of the policy liabilities and
the more significant assumptions pertinent thereto are presented below:
<TABLE>
<CAPTION>
DISTRIBUTION OF LIABILITIES* BASIS OF ASSUMPTIONS
- -------------------------------------------------------------------------------------------------------------
YEARS
1999 1998 OF ISSUE INTEREST MORTALITY TABLE WITHDRAWAL
---- ---- -------- -------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Non-par:
$1,314,871 $ 1,458,458 1962-1967 4 1/2% 1955-60 Basic Select plus Ultimate Linton B
4,852,177 5,021,949 1968-1988 5 1/2% 1955-60 Basic Select plus Ultimate Linton B
2,093,102 2,403,257 1984-1988 7 1/2% 85% of 1965-70 Basic Select Modified
plus Ultimate Linton B
130,064 116,030 1989-Present 7 1/2% 1975-80 Basic Select plus Ultimate Linton B
118,686 63,482 1989-Present 7 1/2% 1975-80 Basic Select plus Ultimate Actual
25,240 26,682 1989-Present 8% 1975-80 Basic Select plus Ultimate Actual
33,668,196 33,158,902 1985-Present 6% Accumulation of Funds --
Par:
220,214 216,096 1966-1967 4 1/2% 1955-60 Basic Select plus Ultimate Linton A
12,886,598 13,141,191 1968-1988 5 1/2% 1955-60 Basic Select plus Ultimate Linton A
956,577 907,950 1981-1984 7 1/4% 90% of 1965-70 Basic Select
plus Ultimate Linton B
4,864,140 4,791,142 1983-1988 9 1/2% 80% of 1965-70 Basic Select
plus Ultimate Linton B
19,211,131 17,805,284 1990-Present 8% 66% of 1975-80 Basic Select
plus Ultimate Linton B
Annuities:
14,360,260 16,075,327 1976-Present 5 1/2% Accumulation of Funds --
Miscellaneous:
29,724,170 24,418,452 1962-Present 2 1/2%-3 1/2% 1958-CSO None
</TABLE>
- ------------------
* The above amounts are before deduction of deferred premiums of $748,330 in
1999 and $817,348 in 1998.
(b) The costs of acquiring new business, principally commissions and related
agency expenses, and certain costs of issuing policies, such as medical
examinations and inspection reports, all of which vary with and are primarily
related to the production of new business, have been deferred. Costs deferred on
universal life and variable life are amortized as a level percentage of the
present value of anticipated gross profits resulting from investment yields,
mortality and surrender charges. Costs deferred on traditional ordinary life and
health are amortized over the premium-paying period of the related policies in
proportion to the ratio of the annual premium revenue to the total anticipated
premium revenue. Anticipated premium revenue was estimated using the same
assumptions that were used for computing liabilities for future policy benefits.
Amortization of $969,205 in 1999, $1,005,483 in 1998 and $663,200 in 1997 was
charged to operations.
(c) Participating business represented 7.9% and 8.8% of individual life
insurance in force at December 31, 1999 and 1998, respectively.
The Board of Directors annually approves a dividend formula for calculation
of dividends to be distributed to participating policyholders.
The portion of earnings of participating policies that can inure to the
benefit of shareholders is limited to the larger of 10% of such earnings or $.50
per thousand dollars of participating insurance in force. Earnings in excess of
that limit must be excluded from shareholders' equity by a charge against
operations. No such charge has been made, since participating business has
operated at a loss to date on a statutory basis. It is anticipated, however,
that the participating lines will be profitable over the lives of the policies.
(d) New York State insurance law prohibits the payment of dividends to
stockholders from any source other than the statutory unassigned surplus. The
amount of said surplus was $36,088,375, $28,207,166 and $22,374,879 at December
31, 1999, 1998 and 1997, respectively.
(e) Statutory due and deferred premiums are adjusted to conform to the
expected premium revenue used in computing future benefits and deferred policy
acquisition costs. In this regard, the GAAP due premium is recorded as an asset
and the GAAP deferred premium is applied against future policy benefits.
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- FEDERAL INCOME TAXES
The Company joins with its parent company and other affiliated companies in
filing a consolidated Federal income tax return. The provision for Federal
income taxes is determined on a separate company basis.
Retained earnings at December 31, 1999 included approximately $146,000 which
is defined as "policyholders' surplus" and may be subject to Federal income tax
at ordinary corporate rates under certain future conditions, including
distributions to stockholders.
Deferred tax liabilities (assets) are comprised of the following:
<TABLE>
<CAPTION>
1999 1998
------------------ -------------------
<S> <C> <C>
Policyholder dividend provision.................................................... $ (471,717) $ (448,300)
Non-qualified agents' pension plan reserve......................................... (1,306,579) (1,262,900)
Deferred policy acquisition costs.................................................. 3,535,251 2,956,800
Future policy benefits............................................................. (3,042,310) (2,835,100)
Bond discount...................................................................... 47,677 35,900
Unrealized holding gains (losses) on Available-For-Sale Securities................. (468,000) 1,130,000
Capital loss carryover............................................................. (100,759) -
Other.............................................................................. (61,563) (49,400)
--------------- ------------------
$ (1,868,000) $ (473,000)
=============== ===============
</TABLE>
The currently payable Federal Income tax provision of $4,865,000 for 1999 is
net of a $311,000 Federal tax benefit resulting from a capital loss carryback of
$914,891.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
First Investors Life Insurance Company
New York, New York
We have audited the statement of assets and liabilities of First
Investors Life Variable Annuity Fund D (a separate account of First Investors
Life Insurance Company, registered as a unit investment trust under the
Investment Company Act of 1940), as of December 31, 1999, and the related
statements of operations for the year then ended and changes in net assets for
each of the two years in the period then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of First Investors Life
Variable Annuity Fund D as of December 31, 1999, and the results of its
operations for the year then ended and the changes in its net assets for each of
the two years in the period then ended, in conformity with generally accepted
accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 18, 2000
<PAGE>
FIRST INVESTORS LIFE
VARIABLE ANNUITY FUND D
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
<TABLE>
ASSETS
<S> <C>
Investments at net asset value (Note 3):
First Investors Life Series Fund..................................... $126,591,909
------------
LIABILITIES
Payable to First Investors Life Insurance Company...................... 377,326
Other Liabilities...................................................... 4,830,365
------------
Total Liabilities................................................ 5,207,691
------------
NET ASSETS............................................................... $121,384,218
============
Net assets represented by Contracts in accumulation period............... $121,384,218
============
</TABLE>
See notes to financial statements.
<PAGE>
FIRST INVESTORS LIFE
VARIABLE ANNUITY FUND D
STATEMENT OF OPERATIONS
Year ended December 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME
Income:
Dividends............................................................ $ 2,614,423
------------
Total income..................................................... 2,614,423
------------
Expenses:
Mortality and expense risks (Note 4)................................. 1,293,708
Administrative Charges (Note 4)...................................... 28,958
------------
Total expenses................................................... 1,322,666
------------
NET INVESTMENT INCOME.................................................... 1,291,757
------------
UNREALIZED APPRECIATION ON INVESTMENTS
Beginning of period.................................................... 5,309,599
End of period.......................................................... 21,700,458
------------
Change in unrealized appreciation on investments......................... 16,390,859
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..................... $ 17,682,616
============
</TABLE>
See notes to financial statements.
<PAGE>
FIRST INVESTORS LIFE
VARIABLE ANNUITY FUND D
STATEMENTS OF CHANGES IN NET ASSETS
Years ended December 31,
<TABLE>
<CAPTION>
1999 . 1998
---- ----
<S> <C> <C>
Increase in Net Assets
From Operations
Net investment income ................................................ $1,291,757 $722,068
Change in unrealized appreciation on investments...................... 16,390,859 5,204,905
------------ -----------
Net increase in net assets resulting from operations.................. 17,682,616 5,926,973
------------ -----------
From Unit Transactions
Net insurance premiums................................................ 42,227,186 45,368,185
Contract payments..................................................... (2,893,809) (748,864)
------------ -----------
Increase in net assets derived from unit transactions................. 39,333,377 44,619,321
------------ -----------
Net increase in net assets......................................... 57,015,993 50,546,294
Net Assets
Beginning of year........................................................ 64,368,225 13,821,931
------------ -----------
End of year.............................................................. $121,384,218 $64,368,225
============ ===========
</TABLE>
See notes to financial statements.
<PAGE>
FIRST INVESTORS LIFE
VARIABLE ANNUITY FUND D
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
NOTE 1 -- ORGANIZATION
First Investors Life Variable Annuity Fund D (Separate Account D), a unit
investment trust registered under the Investment Company Act of 1940 (the 1940
Act), is a segregated investment account established by First Investors Life
Insurance Company (FIL). Assets of Separate Account D have been used to purchase
shares of First Investors Life Series Fund (the Fund), an open-end diversified
management investment company registered under the 1940 Act.
NOTE 2 -- SIGNIFICANT ACCOUNTING PRACTICES
INVESTMENTS
Shares of the Fund held by Separate Account D are valued at net asset
value per share. All distributions received from the Fund are reinvested
to purchase additional shares of the Fund at net asset value.
FEDERAL INCOME TAXES
Separate Account D is not taxed separately because its operations are
part of the total operations of FIL, which is taxed as a life insurance
company under the Internal Revenue Code. Separate Account D will not be
taxed as a regulated investment company under Subchapter M of the Code.
Under existing Federal income tax law, no taxes are payable on the
investment income or on the capital gains of Separate Account D.
NOTE 3 -- INVESTMENTS
<TABLE>
Investments consist of the following:
Net Asset Market
Shares Value Value Cost
------ ----- ----- ----
<S> <C> <C> <C> <C>
First Investors Life Series Fund
Cash Management.................................. 2,376,382 $ 1.00 $ 2,376,382 $ 2,376,382
High Yield....................................... 482,128 11.19 5,394,010 5,552,866
Growth........................................... 812,704 43.06 34,997,086 27,075,424
Discovery........................................ 372,590 33.96 12,652,674 10,074,403
Blue Chip........................................ 1,070,628 32.14 34,408,737 26,895,292
International Securities......................... 504,990 24.62 12,432,010 9,577,287
Focused Equity................................... 44,011 10.25 451,250 437,551
Government....................................... 146,407 9.92 1,452,381 1,479,536
Investment Grade................................. 234,111 10.97 2,568,599 2,672,452
Utilities Income................................. 690,467 17.55 12,115,824 10,458,009
Target Maturity 2007............................. 425,879 11.94 5,084,750 5,439,165
Target Maturity 2010........................... 200,053 11.85 2,370,648 2,566,103
Target Maturity 2015........................... 30,236 9.51 287,558 300,000
------------ ------------
$126,591,909 $104,904,470
============ ============
</TABLE>
The High Yield Series' investments in high yield securities, whether rated
or unrated, may be considered speculative and subject to greater market
fluctuations and risks of loss of income and principal than lower yielding,
higher rated, fixed income securities.
As of December 31, 1999 FIL held shares in the Target Maturity 2015 Series
in the amount of $236,983.
NOTE 4 -- MORTALITY AND EXPENSE RISKS AND DEDUCTIONS
In consideration for its assumption of the mortality and expense risks
connected with the Variable Annuity Contracts, FIL deducts an amount equal on an
annual basis to 1.25% of the daily net asset value of Separate Account D. An
additional administrative charge equal on an annual basis to 0.15% of the daily
net asset value is deducted. The total of these deductions in 1999 was
$1,293,708.
An annual contract maintenance charge of $30 is deducted from the
accumulated value of the contract on the last business day of the contract year
or on the date of surrender of the contract, if earlier. The deduction for the
year ended December 31, 1999 was $28,958.
<PAGE>
The Variable Annuity Contracts are sold without an initial sales charge,
but at the time of a full or partial surrender of the Contract, they may be
subject to a contingent deferred sales charge ("CDSC") of 0% to 7% of the value
of the Accumulation Units surrendered.
