<PAGE>
FIRST INVESTORS LIFE VARIABLE ANNUITY FUND A
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
OFFERED BY
FIRST INVESTORS LIFE INSURANCE COMPANY
95 Wall Street, New York, New York 10005/(212) 858-8200
This Prospectus describes the Variable Annuity Contracts (the "Contracts")
offered by First Investors Life Insurance Company ("First Investors Life"). The
Contracts are designed for individual investors who desire to accumulate capital
on a tax-deferred basis for retirement or other long-term purposes. The
Contracts may be purchased on a nonqualified basis. The Contracts may also be
purchased through (1) qualified individual retirement accounts and (2) qualified
corporate employee pension and profit-sharing plans. The Contracts offered are
flexible premium deferred variable annuity contracts ("Deferred Variable Annuity
Contracts") under which annuity payments will begin on a selected future date.
A PENALTY MAY BE ASSESSED ON EARLY WITHDRAWALS. SEE "FEDERAL INCOME TAX
STATUS." THE CONTRACTS CONTAIN A 10-DAY REVOCATION RIGHT. SEE "VARIABLE
ANNUITY CONTRACTS--TEN-DAY REVOCATION RIGHT." The Contracts provide for the
accumulation of values on a variable basis. Payment of annuity benefits will be
on a variable basis, unless a fixed basis or a combination of variable and fixed
bases is selected by the Contractowner. Although the Contracts do not meet the
requirements applicable to tax qualified plans, the tax status of the Annuitant
is determined by the provisions of the plan (see "Federal Income Tax Status").
Unless otherwise stated, this Prospectus describes only the variable aspects of
the Contracts. The Contracts contain information on the fixed aspects.
Contractowners' purchase payments less certain deductions ("net purchase
payments") are paid into a unit investment trust, First Investors Life Variable
Annuity Fund A ("Separate Account A"). The assets of Separate Account A are
invested at net asset value in shares of First Investors Special Bond Fund, Inc.
(the "Fund"), an open-end, diversified management investment company.
This Prospectus sets forth the information about Separate Account A that a
prospective investor should know before investing and should be kept for future
reference. A Statement of Additional Information, dated April 30, 1998, has
been filed with the Securities and Exchange Commission and is incorporated
herein by reference in its entirety. (See page 19 of this Prospectus for the
Table of Contents of the Statement of Additional Information.) The Statement of
Additional Information is available at no charge upon request to First Investors
Life at the address or telephone number indicated above. Additional information
about Separate Account A has been filed with the Securities and Exchange
Commission.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR
PASSED UPON THE ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS VALID ONLY WHEN ATTACHED TO THE CURRENT
PROSPECTUS OF FIRST INVESTORS SPECIAL BOND FUND, INC.
The date of this Prospectus is April 30, 1998
1
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PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<S> <C>
GLOSSARY OF SPECIAL TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . 3
FEE TABLE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
CONDENSED FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . 5
GENERAL DESCRIPTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
First Investors Life Insurance Company. . . . . . . . . . . . . . . . . 5
Separate Account A. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Underwriter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Year 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PURCHASES, DEDUCTIONS, CHARGES AND EXPENSES. . . . . . . . . . . . . . . . . 8
Purchase Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Deductions from Purchase Payments . . . . . . . . . . . . . . . . . . . 8
Deduction Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Exchange Privilege. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Mortality and Expense Risk Charges. . . . . . . . . . . . . . . . . . . 9
Administrative Charge . . . . . . . . . . . . . . . . . . . . . . . . . 10
Other Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
VARIABLE ANNUITY CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . 10
Deferred Variable Annuities--Accumulation Period. . . . . . . . . . . . 11
Annuity Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Death Benefit During the Accumulation Period. . . . . . . . . . . . . . 13
Surrender and Termination (Redemption) During
the Accumulation Period . . . . . . . . . . . . . . . . . . . . . . . 14
Death of Contractowner. . . . . . . . . . . . . . . . . . . . . . . . . 14
Ten-Day Revocation Right. . . . . . . . . . . . . . . . . . . . . . . . 14
FEDERAL INCOME TAX STATUS. . . . . . . . . . . . . . . . . . . . . . . . . . 15
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION . . . . . . . . 19
APPENDIX I - STATE AND LOCAL TAXES . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
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GLOSSARY OF SPECIAL TERMS
ACCUMULATED VALUE - The value of all the Accumulation Units credited to the
Contract.
ACCUMULATION PERIOD - The period between the date of issue of a Contract and
the Annuity Commencement Date.
ACCUMULATION UNIT - A unit used to measure the value of a Contractowner's
interest in Separate Account A prior to the Annuity Commencement Date.
ADDITIONAL PAYMENT - A purchase payment made to First Investors Life after
issuance of a deferred annuity.
ANNUITANT - The person designated to receive or the person who is actually
receiving annuity payments under a Contract.
ANNUITY COMMENCEMENT DATE - The date on which annuity payments are to
commence.
ANNUITY UNIT - A unit used to determine the amount of each annuity payment
after the first.
BENEFICIARY - The person designated to receive any benefits under a Contract
upon the death of the Annuitant in accordance with the terms of the Contract.
CONTRACT - An individual variable annuity contract offered by this
Prospectus.
CONTRACTOWNER - The person or entity with legal rights of ownership of the
Contract.
FIXED ANNUITY - An annuity with annuity payments which remain fixed as to
dollar amount throughout the payment period.
GENERAL ACCOUNT - All assets of First Investors Life other than those
allocated to Separate Account A and other segregated investment accounts of
First Investors Life.
JOINT ANNUITANT - The designated second person under joint and survivor life
annuity.
SEPARATE ACCOUNT A - The segregated investment account entitled "First
Investors Life Variable Annuity Fund A," established by First Investors Life
pursuant to applicable law and registered as a unit investment trust under the
Investment Company Act of 1940, as amended.
SINGLE PAYMENT - A one-time purchase payment made to First Investors Life to
purchase a deferred annuity.
VALUATION DATE - Any date on which the New York Stock Exchange ("NYSE") is
open for regular trading. Each Valuation Date ends as of the close of regular
trading on the NYSE (normally 4:00 p.m., Eastern Time). The NYSE currently
observes the following holidays: New Year's Day, Martin Luther King Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
VALUATION PERIOD - The period beginning on the date after any Valuation Date
and ending at the end of the next Valuation Date.
VARIABLE ANNUITY - An annuity with annuity payments varying in amount in
accordance with the net investment experience of Separate Account A.
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FEE TABLE
The following table has been prepared to assist the investor in understanding
the various costs and expenses a Contractowner will directly or indirectly bear.
The table reflects expenses of Separate Account A as well as the Fund. The Fee
Table reflects Fund expenses expected to be incurred in 1998.
<TABLE>
<S> <C>
CONTRACTOWNER TRANSACTION EXPENSES
Sales Load Imposed on Purchases
(As a percentage of purchase payments) . . . . . . . . . . . . . .7.00%
SEPARATE ACCOUNT ANNUAL EXPENSES
(As a percentage of average account value)
Mortality and Expense Risk Charges. . . . . . . . . . . . . . . . . .0.75%
Total Separate Account Annual Expenses . . . . . . . . . . . . . . . . . .0.75%
FUND ANNUAL EXPENSES
(As a percentage of Fund average net assets)
Management Fees . . . . . . . . . . . . . . . . . . . . . . . . . . .0.75%
Other Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . .0.11%
Total Fund Operating Expenses . . . . . . . . . . . . . . . . . . . .0.86%*
</TABLE>
* The Fund has an expense offset arrangement that may reduce the Fund's
custodian fee based on the amount of cash maintained by the Fund with its
custodian. Any such fee reductions are not reflected under Total Fund
Operating Expenses.
For more complete descriptions of the various costs and expenses shown in
the Fee Table, please refer to "Purchases, Deductions, Charges and Expenses."
An administrative charge may be deducted if the Accumulated Value of a Deferred
Variable Annuity Contract is less than $1,500 (see "Administrative Charge"). In
addition, Premium taxes may be applicable (see "Other Charges").
EXAMPLE
<TABLE>
<CAPTION>
If you surrender your Contract
(or if you annuitize)at the end
of the period shown: . . . . . . . . . . . . . . . . . 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
You would pay the following expenses
on a $1,000 investment, assuming 5%
annual return on assets: . . . . . . . . . . . . $85 $117 $151 $248
</TABLE>
THE EXPENSES IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES IN FUTURE YEARS MAY BE GREATER OR LESS THAN
THOSE SHOWN.
4
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CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
The following shows the accumulation unit values and the number of
accumulation units outstanding for Separate Account A for the last ten fiscal
years:
<TABLE>
<CAPTION>
ACCUMULATION NUMBER OF
AS OF: UNIT VALUE($) ACCUMULATION UNITS
----------------- ------------- ------------------
<S> <C> <C>
December 31, 1988 2.13623 32,388,317.9
December 31, 1989 2.08689 40,781,044.9
December 31, 1990 1.88053 28,318,605.0
December 31, 1991 2.53391 19,910,946.0
December 31, 1992 2.88323 15,144,947.0
December 31, 1993 3.38150 12,724,736.0
December 31, 1994 3.31907 11,057,783.2
December 31, 1995 3.97815 9,552,100.7
December 31, 1996 4.46562 8,254,269.6
December 31, 1997 4.91727 7,334,261.6
</TABLE>
GENERAL DESCRIPTION
FIRST INVESTORS LIFE INSURANCE COMPANY. First Investors Life Insurance
Company, 95 Wall Street, New York, New York 10005 ("First Investors Life"), a
stock life insurance company incorporated under the laws of the State of New
York in 1962, writes life insurance, annuities and accident and health
insurance. First Investors Consolidated Corporation ("FICC"), a holding company,
owns all of the voting common stock of First Investors Management Company, Inc.
("FIMCO" or "Adviser") and all of the outstanding stock of First Investors Life,
First Investors Corporation ("FIC" or "Underwriter") and Administrative Data
Management Corp., the transfer agent for the Fund. Mr. Glenn O. Head, Chairman
of FICC, controls FICC and, therefore, controls the Adviser and First Investors
Life.
SEPARATE ACCOUNT A. First Investors Life Variable Annuity Fund A ("Separate
Account A") was established on September 11, 1979 under the provisions of the
New York Insurance Law. The assets of Separate Account A 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 A 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 A.
The assets of Separate Account A are invested at net asset value in shares of
First Investors Special Bond Fund, Inc. (the "Fund"). The Fund's Prospectus
describes the risks attendant to an investment in the Fund.
Income, gains and losses, whether or not realized, from assets allocated to
Separate Account A are, in accordance with the applicable Contracts, credited to
or charged against Separate Account A
5
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without regard to other income, gains or losses of First Investors Life. The
obligations under the Contracts are obligations of First Investors Life.
Any and all distributions received from the Fund will be paid in Fund shares
or if in cash, will be reinvested in additional Fund shares at net asset value.
Accordingly, no cash distributions will be made to Contractowners. Deductions
and redemptions from Separate Account A may be effected by redeeming the number
of applicable Fund shares, at net asset value, necessary to satisfy the amount
to be deducted or redeemed. Shares of the Fund will be valued at their net
asset value.
Subject to applicable law, First Investors Life reserves the right to make
certain changes if, in its judgment, they would best serve the interests of the
Contractowners and Annuitants or would be appropriate in carrying out the
purposes of the Contract. First Investors Life will obtain, when required, the
necessary Contractowner approval or regulatory approval for any changes and
provide, when required, the appropriate notification to Contractowners prior to
making such changes. Examples of the changes First Investors Life may make
include, but are not limited to:
- To operate Separate Account A in any form permitted under the
1940 Act or in any other form permitted by law.
- To add, delete, or substitute for the Fund shares held in
Separate Account A, the shares of any investment company or
series thereof, or any investment permitted by law.
- To make any amendments to the Contracts necessary for the
Contracts to comply with the provisions of the Internal Revenue
Code or any other applicable Federal or state law.
THE FUND. First Investors Special Bond Fund, Inc. is a diversified open-end
management investment company registered under the 1940 Act. Registration of
the Fund with the Commission does not involve supervision by the Commission of
the management or investment practices or policies of the Fund. The shares of
the Fund are not sold directly to the general public but are available only
through the purchase of Contracts issued by First Investors Life. The Fund
reserves the right to offer its shares to other separate accounts of First
Investors Life or directly to First Investors Life.
The Fund primarily seeks to earn a high level of current income without undue
risk to principal and secondarily seeks growth of capital. The Fund seeks to
achieve its objectives by investing at least 65% of its total assets in high
yield, high risk securities. Investments in high yield, high risk securities,
commonly referred to as "junk bonds," may entail risks that are different or
more pronounced than those involved in higher-rated securities. See
"Description of Certain Securities, Other Investment Policies and Risk Factors -
- - High Yield Securities" in the Fund's Prospectus.
For more complete information about the Fund, including management fees and
other expenses, see the Fund's Prospectus, which is attached to this Prospectus.
It is important to read the Prospectus carefully before you decide to invest.
No offer is made of a Contract funded by the underlying mutual fund unless a
current Prospectus of the Fund has been delivered.
6
<PAGE>
ADVISER. First Investors Management Company, Inc. (the "Adviser"), an
affiliate of First Investors Life, is the investment adviser of the Fund. The
Adviser supervises and manages the investments and operations of the Fund. The
Adviser is a New York corporation located at 95 Wall Street, New York, New York
10005.
UNDERWRITER. First Investors Life and Separate Account A have entered into
an Underwriting Agreement with their affiliate, FIC, 95 Wall Street, New York,
New York 10005. First Investors Life has reserved the right in the Underwriting
Agreement to sell the Contracts directly. The Contracts are sold by insurance
agents licensed to sell variable annuities, who are registered representatives
of the Underwriter or broker-dealers who have sales agreements with the
Underwriter.
YEAR 2000. Like other separate accounts, Separate Account A could be
adversely affected if the computer and other information processing systems used
by First Investors Life, the underlying Funds, the Adviser, Transfer Agent and
other service providers are not properly programmed to process date-related
information on and after January 1, 2000. Such systems typically have been
programmed to use a two-digit number to represent the year for any date. As a
result, computer systems could incorrectly misidentify "00" as 1900, rather than
2000, and make mistakes when performing operations. First Investors Life, the
Funds, the Adviser and Transfer Agent are taking steps that they believe are
reasonably designed to address the Year 2000 problem for computer and other
systems used by them and are obtaining assurances that comparable steps are
being taken by other service providers. However, there can be no assurance
that these steps will be sufficient to avoid any adverse impact on the Separate
Account A. Nor can the Separate Account A estimate the extent of any impact.
VOTING RIGHTS. First Investors Life will vote the shares of the Fund held in
Separate Account A or directly, at any Fund shareholders meeting, in accordance
with its view of present law. It will vote Fund shares held in Separate Account
A as follows: shares attributable to Contractowners for which it receives
instructions, in accordance with the instructions; shares attributable to
Contractowners for which it does not receive instructions, in the same
proportion that it votes shares held in the Separate Account for which it
receives instructions; and shares not attributable to Contractowners, in the
same proportion that it votes shares held in the Separate Account that are
attributable to Contractowners and for which it receives instructions. It will
vote Fund shares held directly in the same proportion that it votes shares held
in the Separate Account that are attributable to Contractowners and for which it
receives instructions. All of the shares of the Fund held by First Investors
Life through the Separate Account or directly will be presented at any Fund
shareholders meeting for purposes of determining a quorum.
Prior to the Annuity Commencement Date, the number of Fund shares held in the
Separate Account that is attributable to each Contractowner is determined by
dividing the Separate Account's Accumulated Value by the net asset value of one
Fund share. After the Annuity Commencement Date, the number of Fund shares held
in the Separate Account that is attributable to each Contractowner is determined
by dividing the reserve held in the Separate Account for the variable annuity
payment under the Contract by the net asset value of one Fund share. As this
reserve fluctuates, the number of votes fluctuates. The number of votes that a
Contractowner has the right to cast will be determined as of the record date
established by the Fund.
7
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Voting instructions will be solicited by written communication prior to the
date of the meeting at which votes are to be cast. Each Contractowner having a
voting interest in the Separate Account will be sent meeting and other materials
relating to the Fund.
First Investors Life reserves the right to proceed other than as described
above, including the right to vote shares of the Fund in its own right, to the
extent permitted by law.
PURCHASES, DEDUCTIONS, CHARGES AND EXPENSES
PURCHASE PAYMENTS. Investors in Separate Account A will be purchasing
Accumulation Units of Separate Account A only and not shares of the Fund in
which Separate Account A invests.
The minimum purchase payment is $2,000 for a Deferred Variable Annuity
Contract. Additional Payments under a Deferred Variable Annuity Contract in the
minimum amount of $200 may be made at any time after the issuance of the
Contract.
Initial purchase payments will be credited to a Contractowner's Account on
the Valuation Date they are received by First Investors Life, provided that
First Investors Life has received a duly completed application. Additional
payments will be credited to a Contractowner's Account on the Valuation Date
they are received by First Investors Life. In the event First Investors Life
receives an incomplete application, all required information shall be provided
not later than five business days following the receipt of such application or
the purchase payment will be returned to the applicant at the end of such five-
day period.
Purchase payments, after deductions for sales expenses and any applicable
Premium taxes (see "Deductions from Purchase Payments" and "Other Charges"),
will be allocated to Separate Account A based upon the next computed value of an
Accumulation Unit following receipt by First Investors Life at its Executive
Office or other designated office. Accumulation Units are valued at the end of
each Valuation Date (i.e., as of the close of regular trading on the NYSE,
normally 4:00 p.m., Eastern Time).
DEDUCTIONS FROM PURCHASE PAYMENTS. First Investors Life or FIC, as the
Underwriter, makes deductions, in accordance with the Deduction Table below,
from the purchase payment for expenses in connection with sales functions
relative to the Contracts. Reductions in sales charges are applicable to the
total amount of the purchase payment. In addition, any Additional Payment made
after the issuance of a Deferred Variable Annuity Contract is subject to the
sales charge applicable to the total amount of all purchase payments previously
made plus the amount of the Additional Payment being made. The sales charge is
intended to cover all expenses relating to the sale of the Contracts, including
commissions paid to persons distributing the Contracts.
8
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<TABLE>
<CAPTION>
DEDUCTION TABLE
SALES CHARGE AS % OF
--------------------- CONCESSION TO
OFFERING NET AMOUNT DEALERS AS % OF
AMOUNT OF PURCHASE PAYMENT(S) PRICE* INVESTED OFFERING PRICE
- ----------------------------- -------- ---------- ---------------
<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 no Premium taxes have been deducted.
EXCHANGE PRIVILEGE. First Investors Life Variable Annuity Fund C ("Separate
Account C") is a segregated investment account established by First Investors
Life which invests in shares of First Investors Life Series Fund, a mutual fund
composed of eleven separate series. Contractowners of Separate Account A may
exchange their Separate Account A Contracts for Separate Account C Contracts.
The Accumulated Value of the Separate Account A Contract will be invested at the
next computed values of the Accumulation Units in one or more Subaccounts of
Separate Account C. Although there is no charge for this exchange,
Contractowners will be required to execute a change of contract form which, in
part, states that First Investors Life deducts a daily charge equal to an annual
rate of 1.00% of the daily Accumulation Unit value of the Subaccounts as a
charge for mortality and expense risks. Contractowners are advised to read the
Prospectus of Separate Account C, which may be obtained free of charge from
First Investors Life, before exchanging Separate Account A Contracts for
Separate Account C Contracts. This exchange privilege may be modified or
terminated at any time by First Investors Life.
MORTALITY AND EXPENSE RISK CHARGES. Although the amount of each variable
annuity payment made to an Annuitant will vary in accordance with the investment
performance of Separate Account A, the amount will not be affected by the
mortality experience (death rate) of persons receiving such payments or of the
general population. First Investors Life assumes this "mortality risk" by
virtue of annuity rates incorporated in the Contracts which cannot be changed.
The mortality risk assumed by First Investors Life arises from its obligation
to continue to make fixed or variable annuity payments, determined in accordance
with the annuity tables and other provisions of the Contracts, to each Annuitant
regardless of how long that person lives and regardless of how long all payees
as a group live. This assures an Annuitant that neither the Annuitant's own
longevity nor an improvement in life expectancy generally will have any adverse
effect on the variable annuity payments the Annuitant will receive under the
Contract, and may reduce the risk that the Annuitant will outlive the funds that
the Annuitant has accumulated for retirement. First Investors Life also assumes
mortality risk as a result of its guarantee of a minimum payment in the event
the Annuitant or the Contractowner named in the original application for the
Contract dies prior to the Annuity Commencement Date.
In addition, First Investors Life assumes the risk that the charges for
administrative expenses may not be adequate to cover such expenses and assures
that it will not increase the amount charged for administrative expenses. In
consideration for its assumption of these mortality and expense risks, First
Investors Life deducts an amount equal on an annual basis to 0.75% of the
9
<PAGE>
daily Accumulation Unit value of Separate Account A. Of such charge,
approximately 0.60% is for assuming the mortality risk and 0.15% is for assuming
the expense risk.
If the charge is insufficient to cover the actual cost of the mortality and
expense risks, the loss will fall on First Investors Life; conversely, if the
deduction proves more than sufficient, the excess will be a profit to First
Investors Life. Any profits resulting to First Investors Life for over-
estimates of the actual costs of the mortality and expense risks can be used by
First Investors Life for any business purpose, including the payment of expenses
of distributing the Contracts, and will not remain in Separate Account A.
ADMINISTRATIVE CHARGE. An administrative charge of $7.50 may be deducted
annually by First Investors Life from the Accumulated Value of Deferred Variable
Annuity Contracts which have an Accumulated Value of less than $1,500 due to
partial surrenders. These charges against Annuitant accounts are for the
purpose of compensating First Investors Life for expenses involved in
administering small dormant accounts. If the actual expenses exceed charges,
First Investors Life will bear the loss.
OTHER CHARGES. Some states assess Premium taxes which presently range from
0% to 2.35% at the time Purchase Payments are made; others assess Premium taxes
at the time of surrender or when annuity payments begin. First Investors Life
currently advances any Premium taxes due at the time Purchase Payments are made
and then deducts Premium taxes from the Accumulated Value of the Contract at the
time of surrender, upon death of the Annuitant or when annuity payments begin.
First Investors Life, however, reserves the right to deduct Premium taxes when
incurred. See Appendix I for Premium tax table.
EXPENSES. The total expenses of Separate Account A for the fiscal year ended
December 31, 1997 amounted to $273,989, or 0.75% of its average net assets.
There are deductions from and expenses paid out of the assets of the Fund that
are described in the Prospectus for the Fund.
VARIABLE ANNUITY CONTRACTS
This Prospectus offers individual Deferred Variable Annuity Contracts under
which annuity payments will begin on a selected future date. First Investors
Life is offering the Contracts in states where it has the authority to issue the
Contracts. The individual Deferred Variable Annuity Contracts offered by this
Prospectus are designed to provide lifetime annuity payments to Annuitants in
accordance with the plan adopted by the Contractowner. The amount of annuity
payments will vary with the investment performance of Separate Account A. The
Contracts obligate First Investors Life to make payments for the lifetime of the
Annuitant in accordance with the annuity rates contained in the Contract,
regardless of actual mortality experience (see "Annuity Period"). Upon the
death of the Annuitant under a Contract before the Annuity Commencement Date,
First Investors Life will pay a death benefit to the beneficiary designated by
the Contractowner. For a discussion of the amount and manner of payment of this
benefit, see "Death Benefit During the Accumulation Period."
All or a portion of the Accumulated Value may be surrendered during the
Accumulation Period. For a discussion on withdrawals during the Accumulation
Period, see "Surrender and Termination (Redemption) During the Accumulation
Period." For Federal income tax consequences of a withdrawal, see "Federal
Income Tax Status." The exercise of Contract rights herein described, including
the right to make a withdrawal during the Accumulation Period, will be subject
to the terms and conditions of any qualified trust or plan under which the
Contracts are purchased. This Prospectus contains no information concerning
such trust or plan.
10
<PAGE>
First Investors Life reserves the right to amend the Contracts to meet the
requirements of the 1940 Act or other applicable Federal or state laws or
regulations.
Contractowners with any inquiries concerning their account should write to
First Investors Life Insurance Company at its Executive Office, 95 Wall Street,
New York, New York 10005.
DEFERRED VARIABLE ANNUITIES--ACCUMULATION PERIOD
CREDITING ACCUMULATION UNITS. During the Accumulation Period, net purchase
payments on Deferred Variable Annuity Contracts, after deductions for sales
expenses and any Premium taxes, where applicable (see "Deductions from Purchase
Payments"), are credited to the Contractowner's Account in the form of
Accumulation Units. The number of Accumulation Units credited to a
Contractowner for Separate Account A is determined by dividing the net purchase
payment by the value of an Accumulation Unit for Separate Account A based upon
the next computed value of an Accumulation Unit following receipt of the
purchase payment by First Investors Life at its Executive Office or other
designated office. The value of the Contractowner's Individual Account varies
with the value of the assets of Separate Account A. The investment performance
of the Fund, expenses and deduction of certain charges affect the value of an
Accumulation Unit. There is no assurance that the value of a Contractowner's
Individual Account will equal or exceed purchase payments. The value of a
Contractowner's Individual Account for a Valuation Period can be determined by
multiplying the total number of Accumulation Units credited to the account for
Separate Account A by the value of an Accumulation Unit for Separate Account A
for the Valuation Period.
ANNUITY PERIOD
COMMENCEMENT DATE. Annuity payments will begin on the Annuity Commencement
Date selected by the Contractowner. Not later than 30 days prior to the Annuity
Commencement Date, the Contractowner may elect in writing to advance or defer
the Annuity Commencement Date. The Annuity Commencement Date may not be deferred
beyond the first day of the calendar month following the Annuitant's 85th
birthday, or 90th birthday, where such later date is permitted under state law.
If no other date is elected, annuity payments will commence on the first day of
the calendar month following the Annuitant's 85th birthday, or 90th birthday,
where such later date is permitted under state law.
If the Net Accumulated Value on the Annuity Commencement Date is less than
$2,000, First Investors Life may pay such value in one sum in lieu of annuity
payments. If the Net Accumulated Value is not less than $2,000 but the variable
annuity payments provided for would be or become less than $20, First Investors
Life may change the frequency of annuity payments to such intervals as will
result in payments of at least $20.
ASSUMED INVESTMENT RATE. A 3.5% assumed investment rate is built into the
Annuity Tables in the Contract. This is based on First Investors Life's opinion
that it is the average result to be expected from a diversified portfolio of
common stocks during a relatively stable economy. A higher assumption would
mean a higher initial payment but more slowly rising and more rapidly falling
subsequent variable annuity payments. A lower assumption would have the opposite
effect. If the actual net investment rate of Separate Account A is at the
annual rate of 3.5%, the variable annuity payments will be level. A fixed
annuity is an annuity with annuity payments which remain fixed as to dollar
amount throughout the payment period and is based on an assumed interest rate of
3.5% per year built into the Annuity Tables in the Contract.
11
<PAGE>
ANNUITY OPTIONS. The Contractowner may, at any time at least 30 days prior
to the Annuity Commencement Date upon written notice to First Investors Life at
its Executive Office or other designated office, elect to have payments made
under any one of the Annuity Options provided in the Contract. If no election
is in effect on the Annuity Commencement Date, annuity payments will be made on
a variable basis only under Annuity Option 3 below, Life Annuity with 120
Monthly Payments Guaranteed, which is the Basic Annuity.
The material factors that determine the level of annuity benefits are (i) the
value of a Contractowner's Individual Account determined in the manner described
in this Prospectus before the Annuity Commencement Date, (ii) the Annuity Option
selected by the Contractowner, (iii) the frequency and duration of annuity
payments, (iv) the sex and adjusted age of the Annuitant and any Joint Annuitant
at the Annuity Commencement Date and, (v) in the case of a variable annuity, the
investment performance of the Fund.
On the Annuity Commencement Date, First Investors Life shall apply the
Accumulated Value, reduced by any applicable Premium taxes not previously
deducted, to provide the Basic Annuity or, if an Annuity Option has been
elected, to provide one of the Annuity Options described below.
The Contracts provide for the six Annuity Options described below:
Option 1 - LIFE ANNUITY - An annuity payable monthly during the lifetime of
the Annuitant, ceasing with the last payment due prior to the death of the
Annuitant. If this Option is elected, annuity payments terminate automatically
and immediately on the death of the Annuitant without regard to the number or
total amount of payments received.
Option 2a - JOINT AND SURVIVOR LIFE ANNUITY - An annuity payable monthly
during the joint lifetime of the Annuitant and the Joint Annuitant and
continuing thereafter during the lifetime of the survivor, ceasing with the last
payment due prior to the death of the survivor.
Option 2b - JOINT AND TWO-THIRDS TO SURVIVOR LIFE ANNUITY - An annuity
payable monthly during the lifetime of the Annuitant and the Joint Annuitant and
continuing thereafter during the lifetime of the survivor at an amount equal to
two-thirds of the joint annuity payment, ceasing with the last payment due prior
to the death of the survivor.
Option 2c - JOINT AND ONE-HALF TO SURVIVOR LIFE ANNUITY - An annuity payable
monthly during the joint lifetime of the Annuitant and the Joint Annuitant and
continuing thereafter during the lifetime of the survivor at an amount equal to
one-half of the joint annuity payment, ceasing with the last payment due prior
to the death of the survivor.
Under Annuity Options 2a, 2b and 2c, annuity payments terminate automatically
and immediately on the deaths of both the Annuitant and the Joint Annuitant
without regard to the number or total amount of payments received.
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, upon the death of the Annuitant, payments have been made for less than
60, 120 or 240 monthly periods, as elected, payments will be made as follows:
1. Any guaranteed annuity payments will be continued during the
remainder of the selected period to the Beneficiary. The Beneficiary may,
at any time, elect to have the present
12
<PAGE>
value of the guaranteed number of annuity payments computed in the manner
specified in (2) below, paid in a lump sum.
2. If a Beneficiary receiving annuity payments under this Option
dies after the death of the Annuitant, the present value, computed as of
the Valuation Period in which notice of death of the Beneficiary is
received by First Investors Life at its Executive Office or other
designated office, of the guaranteed number of annuity payments remaining
after receipt of such notice and to which such deceased Beneficiary would
have been entitled had the Beneficiary not died, computed at the effective
annual interest rate, assumed in determining the Annuity Tables, shall be
paid in a lump sum in accordance with the Contract.
Option 4 - UNIT REFUND LIFE ANNUITY - An annuity payable monthly during the
lifetime of the Annuitant, terminating with the last payment due prior to the
death of the Annuitant. An additional annuity payment will be made to the
Beneficiary equal to the Annuity Unit Value of Separate Account A as of the date
that notice of death in writing is received by First Investors Life at its
Executive Office or other designated office, multiplied by the excess, if any,
of (a) over (b) where (a) is the Net Accumulated Value allocated to Separate
Account A and applied under the option at the Annuity Commencement Date, divided
by the corresponding Annuity Unit Value as of the Annuity Commencement Date, and
(b) is the product of the number of Annuity Units applicable under Separate
Account A represented by each annuity payment and the number of annuity payments
made. (For an illustration of this calculation, see Appendix II, Example A, in
the Statement of Additional Information.)
ALLOCATION OF ANNUITY. The Contractowner may elect to have the Net
Accumulated Value applied at the Annuity Commencement Date to provide a Fixed
Annuity, a Variable Annuity, or any combination thereof. After the Annuity
Commencement Date, no transfers or redemptions are allowed. Such elections must
be made in writing to First Investors Life at its Executive Office or other
designated office, at least 30 days prior to the Annuity Commencement Date. In
the absence of an election, annuity payments will be made on a variable basis
only under Annuity Option 3 above, Life Annuity with 120 monthly payments
guaranteed, which is the Basic Annuity.
DEATH BENEFIT DURING THE ACCUMULATION PERIOD
If the Annuitant dies prior to the Annuity Commencement Date, First Investors
Life will pay a Death Benefit to the Beneficiary designated by the Contractowner
upon receipt of a death certificate or similar proof of the death of the
Annuitant. The value of the Death Benefit will be determined as of the
Valuation Date on the date on which written notice of death is received by First
Investors Life at its Executive Office or other designated office.
If payment of the Death Benefit under one of the Annuity Options was not
elected by the Contractowner prior to the Annuitant's death, the Beneficiary may
elect to have the Death Benefit paid in a single sum or applied to provide an
annuity under one of the Annuity Options or as otherwise permitted by First
Investors Life. If a single sum settlement is requested, the amount of the
Death Benefit plus any interest at the current settlement option rate then in
effect will be paid within seven days of receipt of such election and due proof
of death. If an Annuity Option is desired, election may be made by the
Beneficiary during a ninety-day period commencing with the date of receipt of
notification of death. If such an election is not made, a single sum settlement
will be made to the Beneficiary at the end of such ninety-day period. If any
Annuity Option is elected, the Annuity Commencement Date shall be the date
specified in the election but no later than ninety days after receipt by First
Investors Life of notification of death.
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<PAGE>
The amount of the Death Benefit will be the greater of (1) the gross purchase
payments (prior to any deductions or charges) made under an Individual Contract
less any amount of purchase payments surrendered, or (2) the Accumulated Value.
SURRENDER AND TERMINATION (REDEMPTION) DURING THE ACCUMULATION PERIOD
A Contractowner may elect, at any time before the earlier of the Annuity
Commencement Date or the death of the Annuitant, to surrender the Contract for
all or any part of the Contractowner's Individual Account. In the event of a
termination of the Contract, First Investors Life will, upon due surrender of
the Contract at the Executive Office of First Investors Life or other designated
office, pay to the Contractowner the Accumulated Value of the Contract. If only
a portion of the amount of the Contractowner's Individual Account is requested,
the amount so requested shall be deducted from Separate Account A resulting in a
corresponding reduction in the number of Accumulation Units credited to the
Contractowner in Separate Account A. For any partial or full surrender, the
deduction will be based upon the next computed value of an Accumulation Unit
following receipt of the request by First Investors Life at its Executive Office
or other designated office. First Investors Life may defer any such payment for
a period of not more than seven days. However, First Investors Life may postpone
such payment during any period when (a) trading on the NYSE is restricted as
determined by the Commission or the NYSE is closed for other than weekends and
holidays, (b) the Commission has by order permitted such suspension or (c) an
emergency, as defined by the rules of the Commission, exists during which time
the sale of portfolio securities or calculation of securities is not reasonably
practicable. For information as to Federal tax consequences resulting from
surrenders, see "Federal Income Tax Status." For information as to State
Premium tax consequences, see "Other Charges" and "Appendix I."
ANNUITY COMMENCEMENT DATE EXCHANGE PRIVILEGE. If this Contract is liquidated
during the one-year period preceding its Annuity Commencement Date, the proceeds
can be used to purchase Class A shares of First Investors mutual funds without
incurring a sales charge.
DEATH OF CONTRACTOWNER
If the Contractowner dies before the entire interest in the Contract has been
distributed, the value of the Contract must be distributed to the Beneficiary as
provided below so that the Contract qualifies as an annuity under Section 72(s)
of the Internal Revenue Code of 1986, as amended (the "Code").
If the death of the Contractowner occurs prior to the Annuity Commencement
Date, the entire interest in the Contract will be (1) distributed to the
Beneficiary within five years, or (2) distributed under an Annuity Option
beginning within one year which provides that annuity payments will be made over
a period not longer than the life or life expectancy of the Beneficiary. If the
Contract is payable to (or for the benefit of) the Contractowner's surviving
spouse, no distributions will be required and the Contract may be continued with
the surviving spouse as the new Contractowner. If the Contractowner is also the
Annuitant, such spouse shall have the right to become the Annuitant under the
Contract. Likewise, if the Annuitant dies and the Contractowner is not a
natural person, the Annuitant's surviving spouse shall have the right to become
the Contractowner and the Annuitant.
TEN-DAY REVOCATION RIGHT
A Contractowner may, within ten days from the date the Contract is delivered
to the Contractowner (or longer as required by applicable state law), elect to
cancel the Contract. First Investors Life will, upon surrender of the Contract,
together with a written request for cancellation,
14
<PAGE>
at the Executive Office of First Investors Life or other designated office, pay
to the Contractowner an amount equal to the Accumulated Value of the Contract on
the date of surrender plus the amount of any sales charges deducted from the
initial purchase payment. The amount refunded to Contractowners may be more or
less than their initial purchase payment depending on the investment results of
Separate Account A. In those states where a full refund of premiums is required
if the Contractowner elects to exercise to cancel the Contract under the ten-day
revocation right, such Contractowner shall be entitled to a full refund of
premiums paid upon such cancellation.
FEDERAL INCOME TAX STATUS
The Contracts are designed for use by individuals who desire to accumulate
capital on a tax-deferred basis for retirement or other long-term purposes. The
Contracts may be purchased on a nonqualified basis or through the following
retirement plans qualified for special tax treatment under the Code (1)
individual retirement accounts and (2) qualified corporate employee pension and
profit sharing plans.
In general, a Contract acquired by a person who is not an individual will be
treated as one which is not an annuity to the extent of contributions made after
February 28, 1986, and any income credited to a Contractowner's Individual
Account will accordingly be includable in the Contractowner's gross income on a
current basis in accordance with that person's method of accounting. The
preceding sentence will not apply to any annuity contract that is (i) acquired
by a decedent's estate by reason of the decedent's death, (ii) held under a
qualified pension, profit-sharing or stock bonus plan described under Section
401(a) of the Code or an employee annuity program described under Section 403(a)
of the Code (or that is purchased by an employer upon the termination of such
plan or program and that is held by the employer until all amounts under a
Contract are distributed to the employee for whom the Contract was purchased or
the employee's beneficiary), (iii) held under an individual retirement plan or
an employee annuity program described under Section 403(b) of the Code, or (iv)
an immediate annuity (as defined in Section 72(u)(4) of the Code).
The ultimate effect of Federal income taxes on Accumulated Values, on annuity
payments and on the economic benefit to the Contractowner, Annuitant or
Beneficiary depends on the tax status of both First Investors Life and the
individual concerned. The discussion contained herein is general in nature and
is not intended as tax advice. No attempt is made to consider any applicable
state or other tax laws. Moreover, the discussion herein is based upon First
Investors Life's understanding of Federal income tax laws as they are currently
interpreted. No representation is made regarding the likelihood of continuation
of current Federal income tax laws or the current interpretations of the
Internal Revenue Service. Prospective Contractowners should consult their tax
advisors as to the tax consequences of purchasing Contracts.
First Investors Life is taxed as a life insurance company under the Code.
Since Separate Account A is not a separate entity from First Investors Life and
its operation forms part of First Investors Life, it will not be taxed
separately as a "regulated investment company" under Subchapter M of the Code.
Under existing Federal income tax law, investment income of Separate Account A,
to the extent that it is applied (after taking into account the mortality risk
and expense risk charges) to increase reserves under the Contract, is not taxed
and may be compounded through reinvestment without additional tax to First
Investors Life to the extent income is so applied. Thus, the Fund may realize
net investment income and pay dividends and Separate Account A may receive and
reinvest them on behalf of Contractowners, all without Federal income tax
consequences for Separate Account A or the Contractowner.
15
<PAGE>
Under current interpretations of the Code, the Contractowner is not subject
to income tax on increases in the value of the Contractowner's Individual
Account until payments are received by the Contractowner under the Contract.
Annuity payments received after the Annuity Commencement Date will be taxed to
the Contractowner as ordinary income in accordance with Section 72 of the Code.
However, that portion of each payment which represents the Contractowner's
investment in the Contract, which is ordinarily the amount of purchase payments
made under the Contract with certain adjustments, will be excluded from gross
income. The investment in the Contract is divided by the Contractowner's life
expectancy or other period for which annuity payments are expected to be made,
in the case of variable annuity payments, and by the expected return, in the
case of fixed annuity payments, to determine the annual exclusion. Annuity
payments received each year in excess of this annual exclusion, and all payments
after the investment in the Contract has been reduced to zero, are taxable as
ordinary income as provided in Section 72 of the Code. The investment in the
Contract is an amount equal to total purchase payments less any previous
distributions from the Contract that were not included in gross income.
In order that the Contracts be treated as annuities for Federal income tax
purposes, other than Contracts issued in connection with retirement plans that
are qualified under the Code, Separate Account A must satisfy certain
diversification requirements that are generally applicable to variable annuity
contract segregated asset accounts under Subchapter L of the Code. Ownership by
Separate Account A of shares of the Fund will not fail the diversification
requirements provided that the Fund is taxed as a regulated investment company
under Subchapter M of the Code, and that the Fund meets such diversification
requirements, and all shares of the Fund are owned only by Separate Account A
(and similar accounts of First Investors Life or other insurance companies), and
access to the Fund is available exclusively through the purchase of Contracts
(and additional variable annuity or life insurance products of First Investors
Life or other insurance companies). Fund shares also may be held by the Adviser
provided such shares are being held in connection with the creation or
management of the Fund and the Adviser does not intend to sell any Fund shares
it owns to the general public. It is expected that the Adviser will cause the
assets of the Fund to be invested in a manner that complies with the asset
diversification requirements.
The Treasury Department has indicated that the diversification regulations do
not provide guidance as to any circumstances in which a Contractowner's control
over allocation of account value among underlying investments may cause an owner
to be treated as the owner of the separate account assets. Such treatment would
result in current taxation of the owner on increases in the account value. We
reserve the right to amend the Contracts in any way necessary to avoid any such
result. As of the date of this prospectus, no regulation or ruling has been
issued on the subject, although the Treasury Department has informally indicated
that a regulation or ruling could limit the number of underlying funds or the
frequency of transfers among those funds. Such regulation or ruling may apply
only prospectively, although retroactive effect is possible if the regulation or
ruling is considered not to embody a new position.
With respect to withdrawals before the start of annuity payments, the Code
currently provides that: (i) withdrawals from an annuity contract are taxable as
ordinary income in the year of receipt to the extent that the Contract's
Accumulated Value exceeds the investment in the Contract, (ii) a loan under, or
an assignment or pledge of an annuity contract is treated as a distribution, and
(iii) a 10 percent penalty will be assessed, subject to certain exceptions, on
the taxable portion of withdrawals made prior to the taxpayer's attainment of
age 59 1/2.
In determining the amount of any distribution that is includable in gross
income, all annuity contracts issued by the same company to the same
Contractowner during any calendar year will be treated as one annuity contract.
Contractowners should consult their tax advisors before purchasing more than one
Contract during any calendar year.
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<PAGE>
Under the Code, income tax must generally be withheld from all "designated
distributions." A designated distribution includes the taxable portion of any
distribution or payment from an annuity. A partial surrender of an annuity
contract is considered a distribution subject to withholding.
The amount of withholding depends on the type of payment: "periodic" or
"non-periodic." For a periodic payment (E.G., an annuity payment), unless the
recipient files an appropriate withholding certificate, the tax withheld from
the taxable portion of the payment is based on a payroll withholding schedule
which assumes a married recipient claiming three withholding exemptions. For a
non-periodic payment distribution (E.G., a partial surrender of an annuity
contract), the tax withheld will generally be 10 percent of the taxable portion
of the payment.
A recipient may elect not to have the withholding rules apply. For periodic
payments, an election is effective for the calendar year for which it is made
and for each necessary year until amended or modified. For non-periodic
distributions, an election is effective only for the distribution for which it
is made. Payors must notify recipients of their right to elect not to have
taxes withheld.
Insurers are required to report all designated distribution payments to the
Internal Revenue Service.
With respect to the Contracts issued in connection with retirement or
deferred compensation plans which do not meet the requirements applicable to tax
qualified plans, the tax status of the Annuitant is determined by the provisions
of the plan. In general, the Annuitant is not taxed until the Annuitant
receives annuity payments. The rules for taxation of payments under
non-qualified plans are, in general, similar to those for taxation of payments
under a qualified plan; however, the special income averaging treatment
available for certain lump sum payments under qualified plans is not available
for similar payments under non-qualified plans.
It should be noted that the laws and regulations with respect to the
foregoing tax matters are subject to change at any time by Congress and the
Treasury Department, respectively, and that the interpretations of such laws and
regulations now in effect are subject to change by judicial decision or by the
Treasury Department.
PERFORMANCE INFORMATION
From time to time, Separate Account A may advertise several types of
performance information, including yield, average annual total return and total
return. Each of these figures is based upon historical earnings and is not
necessarily representative of the future performance of Separate Account A.
Average annual total return and total return calculations measure the net
income of Separate Account A plus the effect of any realized or unrealized
appreciation or depreciation of the underlying investments in Separate Account A
for the period in question. Average annual total return will be quoted for one,
five and ten year periods, or for shorter time periods depending upon the length
of time during which Separate Account A has operated. Average annual total
return figures are annualized and, therefore, represent the average annual
percentage change in the value of an investment in Separate Account A over the
period in question. Total return figures are not annualized and represent the
actual percentage change over the period in question. Average annual total
return and total return figures will include the deduction of all expenses and
fees,
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including the payment of the maximum sales charge of 7.00% and the payment of
the Mortality and Expense Risk charges of 0.75%.
Yield is a measure of the net dividend and interest income earned over a
specific one month or 30-day period expressed as a percentage of the value of
Separate Accounts A's Accumulation Units. Yield is an annualized figure, which
means that it is assumed that Separate Account A generates the same level of net
income over a one-year period which is compounded on a semi-annual basis.
For further information on performance calculations, see "Performance
Information" in the Statement of Additional Information.
FINANCIAL STATEMENTS
The financial statements for First Investors Life and the accompanying Report
of Independent Certified Public Accountants are included in the Statement of
Additional Information, dated April 30, 1998. The financial statements for the
Separate Account A and the accompanying Report of Independent Certified Public
Accountants are also included in the Statement of Additional Information, dated
April 30, 1998. The Statement of Additional Information is available at no
charge upon request to First Investor Life at the address or telephone number
indicated on the coverpage of this Prospectus.
18
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TABLE OF CONTENTS
OF THE STATEMENT OF ADDITIONAL
INFORMATION
<TABLE>
<CAPTION>
ITEM PAGE
---- ----
<S> <C>
General Description. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Annuity Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Performance Information. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Relevance of Financial Statements. . . . . . . . . . . . . . . . . . . . . 7
Appendices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
APPENDIX I
STATE AND LOCAL TAXES*
<TABLE>
<S> <C> <C> <C>
Alabama. . . . . . . . . . -- Mississippi. . . . . . . . . . . --
Alaska . . . . . . . . . . -- Missouri . . . . . . . . . . . . --
Arizona. . . . . . . . . . -- Nebraska . . . . . . . . . . . . --
Arkansas . . . . . . . . . -- New Jersey . . . . . . . . . . . --
California . . . . . . . . 2.35% New Mexico . . . . . . . . . . . --
Colorado . . . . . . . . . -- New York . . . . . . . . . . . . --
Connecticut. . . . . . . . -- North Carolina . . . . . . . . . --
Delaware . . . . . . . . . -- Ohio . . . . . . . . . . . . . . --
District of Columbia . . . 2.25% Oklahoma . . . . . . . . . . . . --
Florida. . . . . . . . . . 1.00% Oregon . . . . . . . . . . . . . --
Georgia. . . . . . . . . . -- Pennsylvania . . . . . . . . . . --
Illinois . . . . . . . . . -- Rhode Island . . . . . . . . . . --
Indiana. . . . . . . . . . -- South Carolina . . . . . . . . . --
Iowa . . . . . . . . . . . -- Tennessee. . . . . . . . . . . . --
Kentucky . . . . . . . . . 2.00% Texas. . . . . . . . . . . . . . --
Louisiana. . . . . . . . . -- Utah . . . . . . . . . . . . . . --
Maryland . . . . . . . . . -- Virginia . . . . . . . . . . . . --
Massachusetts. . . . . . . -- Washington . . . . . . . . . . . --
Michigan . . . . . . . . . -- West Virginia. . . . . . . . . . 1.00%
Minnesota. . . . . . . . . -- Wisconsin. . . . . . . . . . . . --
Wyoming. . . . . . . . . . . . . 1.00%
</TABLE>
Note: The foregoing rates are subject to amendment by legislation and the
applicability of the stated rates may be subject to administrative
interpretation.
* Includes local annuity Premium taxation.
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FIRST INVESTORS SPECIAL BOND FUND, INC.
95 Wall Street, New York, N.Y. 10005/(212) 858-8200
This is a Prospectus for First Investors Special Bond Fund, Inc. ("Fund"), an
open-end diversified management investment company. Investments in the Fund are
only available through the purchase of Individual Variable Annuity Contracts
("Contracts") issued by First Investors Life Insurance Company ("First Investors
Life"). Purchase payments for the Contracts, net of certain expenses, are paid
into a unit investment trust, First Investors Life Variable Annuity Fund A
("Separate Account A"). Separate Account A uses these proceeds to purchase
shares of the Fund. Investments in the Fund are used to fund benefits under the
Contracts.
The Fund primarily seeks high current income without undue risk to principal
and secondarily seeks growth of capital by investing, under normal market
conditions, at least 65% of its total assets in high yield, high risk
securities. There can be no assurance the Fund will achieve its investment
objectives. INVESTMENTS IN HIGH YIELD, HIGH RISK SECURITIES, COMMONLY REFERRED
TO AS "JUNK BONDS," MAY ENTAIL RISKS THAT ARE DIFFERENT OR MORE PRONOUNCED THAN
THOSE INVOLVED IN HIGHER-RATED SECURITIES. SEE "DESCRIPTION OF CERTAIN
SECURITIES, OTHER INVESTMENT POLICIES AND THEIR RISKS--HIGH YIELD SECURITIES."
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing and should be retained for
further reference. First Investors Management Company, Inc. ("FIMCO" or
"Adviser") serves as investment adviser to the Fund. A Statement of Additional
Information ("SAI"), dated April 30, 1998 (which is incorporated by reference
herein), has been filed with the Securities and Exchange Commission. The SAI is
available at no charge upon request to the Fund at the address or telephone
number indicated above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is April 30, 1998
<PAGE>
FINANCIAL HIGHLIGHTS
The following table sets forth the per share operating performance data for a
share outstanding, total return, ratios to average net assets and other
supplemental data for each year indicated. Additional performance information
is contained in the Fund's Annual Report which may be obtained without charge by
contacting First Investors Life at 212-858-8200. The table has been derived
from financial statements which have been audited by Tait, Weller & Baker,
independent certified public accountants, whose report thereon appears in the
SAI. This information should be read in conjunction with the Financial
Statements and Notes thereto, which also appear in the SAI, available at no
charge upon request to the Fund.
2
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------
Year Ended December 31
-----------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year . . . . . $12.75 $12.23 $11.03 $12.18 $11.38
------- ------- ------- ------- -------
Income from Investment Operations
Net investment income. . . . . . . . . . . . 1.11 1.17 1.20 1.09 1.14
Net realized and unrealized
gain (loss) on investments. . . . . . . . . .23 .37 1.02 (1.22) .86
------- ------- ------- ------- -------
Total from Investment Operations . . . . . 1.34 1.54 2.22 (.13) 2.00
------- ------- ------- ------- -------
Less Distributions from:
Net investment income. . . . . . . . . . . 1.20 1.02 1.02 1.02 1.20
------- ------- ------- ------- -------
Net Asset Value, End of Year . . . . . . . . $12.89 $12.75 $12.23 $11.03 $12.18
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN(%)+ . . . . . . . . . . . . . . 10.94 13.10 20.76 (1.00) 18.15
- ----------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Year (in thousands) . . . $36,082 $36,948 $38,037 $36,725 $43,056
Ratios to Average Net Assets (%)
Expenses . . . . . . . . . . . . . . . . . . .86 .86 .88 .87 .85
Net investment income. . . . . . . . . . . . 8.60 9.31 10.17 9.38 9.54
Portfolio Turnover Rate (%). . . . . . . . . 53 29 45 54 79
<CAPTION>
-----------------------------------------------
Year Ended December 31
-----------------------------------------------
1992 1991 1990 1989 1988
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year . . . . . $11.05 $9.16 $11.47 $13.19 $12.99
------- ------- ------- ------- -------
Income from Investment Operations
Net investment income. . . . . . . . . . . . 1.27 1.26 1.32 1.57 1.61
Net realized and unrealized
gain (loss) on investments. . . . . . . . . .29 1.86 (2.30) (1.73) .20
------- ------- ------- ------- -------
Total from Investment Operations . . . . . 1.56 3.12 (.98) (.16) 1.81
------- ------- ------- ------- -------
Less Distributions from:
Net investment income. . . . . . . . . . . 1.23 1.23 1.33 1.56 1.61
------- ------- ------- ------- -------
Net Asset Value, End of Year . . . . . . . . $11.38 $11.05 $9.16 $11.47 $13.19
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN(%)+ . . . . . . . . . . . . . . 14.56 35.76 (9.18) (1.60) 14.43
- ----------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Year (in thousands) . . . $44,116 $50,914 $53,328 $85,719 $69,641
Ratios to Average Net Assets (%)
Expenses . . . . . . . . . . . . . . . . . . .88 .89 .86 .82 .84
Net investment income. . . . . . . . . . . . 10.95 11.99 12.57 12.38 11.96
Portfolio Turnover Rate (%). . . . . . . . . 65 47 37 34 51
</TABLE>
+ The effect of fees and charges incurred at the separate account level are
not reflected in these performance figures.
3
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Fund primarily seeks high current income without undue risk to principal
and secondarily seeks growth of capital. The Fund seeks to achieve its
objectives by investing, under normal market conditions, at least 65% of its
total assets in high yield, high risk securities, commonly referred to as "junk
bonds" ("High Yield Securities"). High Yield Securities include the following
instruments: fixed, variable or floating rate debt obligations (including
bonds, debentures and notes) which are rated below Baa by Moody's Investors
Service, Inc. ("Moody's") or below BBB by Standard & Poor's Ratings Group
("S&P"), or are unrated and deemed to be of comparable quality by the Adviser;
preferred stocks and dividend-paying common stocks that have yields comparable
to those of high yielding debt securities; any of the foregoing securities of
companies that are financially troubled, in default or undergoing bankruptcy or
reorganization ("Deep Discount Securities"); and any securities convertible into
any of the foregoing.
The Fund may invest up to 5% of its total assets in debt securities issued by
foreign governments and companies located outside the United States and
denominated in U.S. or foreign currency. The Fund also may borrow money for
temporary or emergency purposes in amounts not exceeding 5% of its total assets,
make loans of portfolio securities and invest in zero coupon and pay-in-kind
securities. The Fund may invest up to 10% of its net assets in securities
issued on a when-issued or delayed delivery basis. See the SAI for more
information concerning these securities.
The Fund may invest up to 35% of its total assets in the following
instruments: common and preferred stocks, other than those considered to be
High Yield Securities; debt obligations of all types (including bonds,
debentures and notes) rated A or better by Moody's or S&P; securities issued by
the U.S. Government or its agencies or instrumentalities ("U.S. Government
Obligations"); warrants and money market instruments consisting of prime
commercial paper, certificates of deposit of domestic branches of U.S. banks,
bankers' acceptances and repurchase agreements.
In any period of market weakness or of uncertain market or economic
conditions, the Fund may establish a temporary defensive position to preserve
capital by having all or part of its assets invested in investment grade debt
securities or retained in cash or cash equivalents, including bank certificates
of deposit, bankers' acceptances, U.S. Government Obligations and commercial
paper issued by domestic corporations. See the SAI for more information
concerning these securities.
The medium- to lower-rated, and certain of the unrated, securities in which
the Fund invests, tend to offer higher yields than higher-rated securities with
the same maturities because the historical financial condition of the issuers of
such securities may not be as strong as that of other issuers. Debt obligations
rated lower than A by Moody's or S&P tend to have speculative characteristics or
are speculative, and generally involve more risk of loss of principal and income
than higher-rated securities. Also, their yields and market value tend to
fluctuate more than higher quality securities. The greater risks and
fluctuations in yield and value occur because investors generally perceive
issuers of lower-rated and unrated securities to be less creditworthy. These
risks cannot be eliminated, but may be reduced by diversifying holdings to
minimize the portfolio impact of any single investment. In addition,
fluctuations in market value do not affect the cash income from the securities,
but are reflected in the computation of the Fund's net asset value. When
interest rates rise, the net asset value
4
<PAGE>
of the Fund tends to decrease. When interest rates decline, the net asset value
of the Fund tends to increase.
Variable or floating rate debt obligations in which the Fund may invest
periodically adjust their interest rates to reflect changing economic
conditions. Thus, changing economic conditions specified by the terms of the
security would serve to change the interest rate and the return offered to the
investor. This reduces the effect of changing market conditions on the
security's underlying market value.
A High Yield Security may itself be convertible into or exchangeable for
equity securities, or may carry with it the right to acquire equity securities
evidenced by warrants attached to the security or acquired as part of a unit
with the security. Although the Fund invests primarily in High Yield
Securities, securities received upon conversion or exercise of warrants and
securities remaining upon the break-up of units or detachment of warrants may be
retained to permit orderly disposition, and to establish a long-term holding
basis.
Because of the greater number of investment considerations involved in
investing in High Yield Securities, the achievement of the Fund's investment
objectives depends more on the Adviser's research abilities than would be the
case if the Fund were investing primarily in securities in the higher rated
categories. Because medium- to lower-rated securities generally involve greater
risks of loss of income and principal than higher-rated securities, investors
should consider carefully the relative risks associated with investments in
securities that carry medium to lower ratings or are unrated. See "High Yield
Securities" and Appendix A for a description of corporate bond ratings.
The Fund actively seeks to achieve its secondary objective to the extent
consistent with its primary objective. There can be no assurance that the Fund
will be able to achieve its investment objectives. The Fund's net asset value
fluctuates based mainly upon changes in the value of its portfolio securities.
The Fund's investment objectives and certain investment limitations set forth in
the SAI are fundamental policies that may not be changed without shareholder
approval.
The dollar weighted average of credit ratings of all bonds held by the Fund
during the 1997 fiscal year, computed on a monthly basis, are set forth below.
This information reflects the average composition of the Fund's assets during
the 1997 fiscal year and is not necessarily representative of the Fund as of the
end of its 1997 fiscal year, the current fiscal year or at any other time in the
future.
<TABLE>
<CAPTION>
COMPARABLE QUALITY
OF UNRATED SECURITIES
RATED BY MOODY'S TO BONDS RATED BY MOODY'S
---------------- -------------------------
<S> <C> <C>
Baa 3.75% 1.34%
Ba 10.86 0
B 75.85 3.17
Caa 0 1.38
----- ----
Total 91.46% 5.89%
</TABLE>
5
<PAGE>
DESCRIPTION OF CERTAIN SECURITIES, OTHER INVESTMENT POLICIES AND RISK FACTORS
CONVERTIBLE SECURITIES. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or
dividends paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Convertible securities have unique investment
characteristics in that they generally (1) have higher yields than common
stocks, but lower yields than comparable non-convertible securities, (2) are
less subject to fluctuation in value than the underlying stock because they have
fixed income characteristics, and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases. See
the SAI for more information on convertible securities.
DEBT SECURITIES. The market value of debt securities is influenced primarily
by changes in the level of interest rates. Generally, as interest rates rise,
the market value of debt securities decreases. Conversely, as interest rates
fall, the market value of debt securities increases. Factors which could result
in a rise in interest rates, and a decrease in the market value of debt
securities, include an increase in inflation or inflationary expectations, an
increase in the rate of U.S. economic growth, an expansion in the Federal budget
deficit or an increase in the price of commodities such as oil. In addition,
the market value of debt securities is influenced by perceptions of the credit
risks associated with such securities. Credit risk is the risk that adverse
changes in economic conditions can affect an issuer's ability to pay principal
and interest. See Appendix A for a description of corporate bond ratings.
DEEP DISCOUNT SECURITIES. Each Fund may invest up to 15% of its total assets
in securities of companies that are financially troubled, in default or
undergoing bankruptcy or reorganization. Such securities are usually available
at a deep discount from the face value of the instrument. The Fund will invest
in Deep Discount Securities when the Adviser believes that there exist factors
that are likely to restore the company to a healthy financial condition. Such
factors include a restructuring of debt, management changes, existence of
adequate assets or other unusual circumstances. Debt instruments purchased at
deep discounts may pay very high effective yields. In addition, if the
financial condition of the issuer improves, the underlying value of the security
may increase, resulting in a capital gain. If the company defaults on its
obligations or remains in default, or if the plan of reorganization is
insufficient for debtholders, the Deep Discount Securities may stop paying
interest and lose value or become worthless. The Adviser will attempt to
balance the benefits of investing in Deep Discount Securities with their risks.
While a diversified portfolio may reduce the overall impact of a Deep Discount
Security that is in default or loses its value, the risk cannot be eliminated.
See "High Yield Securities," below.
HIGH YIELD SECURITIES. High Yield Securities are subject to certain risks
that may not be present with investments in higher grade debt securities.
EFFECT OF INTEREST RATE AND ECONOMIC CHANGES. Debt obligations rated lower
than Baa by Moody's or BBB by S&P, commonly referred to as "junk bonds," are
speculative and generally involve a higher risk or loss of principal and income
than higher-rated debt securities. The prices of High Yield Securities tend to
be less sensitive to interest rate changes than higher-rated investments, but
may be
6
<PAGE>
more sensitive to adverse economic changes or individual corporate developments.
Periods of economic uncertainty and changes generally result in increased
volatility in the market prices and yields of High Yield Securities and thus in
the Fund's net asset value. A strong economic downturn or a substantial period
of rising interest rates could severely affect the market for High Yield
Securities. In these circumstances, highly leveraged companies might have
greater difficulty in making principal and interest payments, meeting projected
business goals, and obtaining additional financing. Thus, there could be a
higher incidence of default. This would affect the value of such securities and
thus the Fund's net asset value. Further, if the issuer of a security owned by
the Fund defaults, it might incur additional expenses to seek recovery.
Generally, when interest rates rise, the value of fixed rate debt
obligations, including High Yield Securities, tends to decrease; when interest
rates fall, the value of fixed rate debt obligations tends to increase. If an
issuer of a High Yield Security containing a redemption or call provision
exercises either provision in a declining interest rate market, the Fund would
have to replace the security, which could result in a decreased return for
shareholders. Conversely, if the Fund experiences unexpected net redemptions in
a rising interest rate market, it might be forced to sell certain securities,
regardless of investment merit. This could result in decreasing the assets to
which Fund expenses could be allocated and in a reduced rate of return for the
Fund. While it is impossible to protect entirely against this risk,
diversification of the Fund's portfolio and the Adviser's careful analysis of
prospective portfolio securities should minimize the impact of a decrease in
value of a particular security or group of securities in the Fund's portfolio.
THE HIGH YIELD SECURITIES MARKET. The market for below investment grade
bonds expanded rapidly in recent years and its growth paralleled a long economic
expansion. In the past, the prices of many lower-rated debt securities declined
substantially, reflecting an expectation that many issuers of such securities
might experience financial difficulties. As a result, the yields on lower-rated
debt securities rose dramatically. However, such higher yields did not reflect
the value of the income streams that holders of such securities expected, but
rather the risk that holders of such securities could lose a substantial portion
of their value as a result of the issuers' financial restructuring or default.
There can be no assurance that such declines in the below investment grade
market will not reoccur. The market for below investment grade bonds generally
is thinner and less active than that for higher quality bonds, which may limit
the Fund's ability to sell such securities at fair value in response to changes
in the economy or the financial markets. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may also decrease the
values and liquidity of lower rated securities, especially in a thinly traded
market.
CREDIT RATINGS. The credit ratings issued by credit rating services may not
fully reflect the true risks of an investment. For example, credit ratings
typically evaluate the safety of principal and interest payments, not market
value risk, of High Yield Securities. Also, credit rating agencies may fail to
change on a timely basis a credit rating to reflect changes in economic or
company conditions that affect a security's market value. Although the Adviser
considers ratings of recognized rating services such as Moody's and S&P, the
Adviser primarily relies on its own credit analysis, which includes a study of
existing debt, capital structure, ability to service debt and to pay dividends,
the issuer's sensitivity to economic conditions, its operating history and the
current trend of earnings. The Fund may invest in securities rated as low as D
by S&P or C by Moody's or, if unrated, deemed to be of comparable quality by the
Adviser. Debt obligations with these ratings either have defaulted or are in
7
<PAGE>
great danger of defaulting and are considered to be highly speculative. See
"Deep Discount Securities." The Adviser continually monitors the investments in
the Fund's portfolio and carefully evaluates whether to dispose of or retain
High Yield Securities whose credit ratings have changed. See Appendix A for a
description of corporate bond ratings.
LIQUIDITY AND VALUATION. Lower-rated bonds are typically traded among a
smaller number of broker-dealers than in a broad secondary market. Purchasers
of High Yield Securities tend to be institutions, rather than individuals, which
is a factor that further limits the secondary market. To the extent that no
established retail secondary market exists, many High Yield Securities may not
be as liquid as higher-grade bonds. A less active and thinner market for High
Yield Securities than that available for higher quality securities may result in
more volatile valuations of a Fund's holdings and more difficulty in executing
trades at favorable prices during unsettled market conditions.
The ability of the Fund to value or sell High Yield Securities will be
adversely affected to the extent that such securities are thinly traded or
illiquid. During such periods, there may be less reliable objective information
available and thus the responsibility of the Fund's Board of Directors to value
High Yield Securities becomes more difficult, with judgment playing a greater
role. Further, adverse publicity about the economy or a particular issuer may
adversely affect the public's perception of the value, and thus liquidity, of a
High Yield Security, whether or not such perceptions are based on a fundamental
analysis.
MARKET RISK. The Fund is subject to market risk because it invests in common
stocks. Market risk is the possibility that common stock prices will decline
over short or even extended periods. The U.S. stock market tends to be
cyclical, with periods when stock prices generally rise and periods when stock
prices generally decline.
MONEY MARKET INSTRUMENTS. Investments in commercial paper are limited to
obligations rated Prime-1 by Moody's or A-1 by S&P. Commercial paper includes
notes, drafts, or similar instruments payable on demand or having a maturity at
the time of issuance not exceeding nine months, exclusive of days of grace or
any renewal thereof. Investments in certificates of deposit will be made only
with domestic institutions with assets in excess of $500 million. See the SAI
for more information regarding money market instruments and Appendix A to the
SAI for a description of commercial paper ratings.
PREFERRED STOCK. A preferred stock is a blend of the characteristics of a
bond and common stock. It can offer the higher yield of a bond and has priority
over common stock in equity ownership, but does not have the seniority of a bond
and, unlike common stock, its participation in the issuer's growth may be
limited. Preferred stock has preference over common stock in the receipt of
dividends and in any residual assets after payment to creditors should the
issuer be dissolved. Although the dividend is set at a fixed annual rate, in
some circumstances it can be changed or omitted by the issuer.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which a
Fund purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank or dealer at an
agreed-upon date and price reflecting a market rate of interest unrelated to the
coupon rate or maturity of the purchased securities. Each Fund's risk is
limited primarily to the ability of the seller to repurchase the securities at
the agreed-upon price upon the delivery date. See the SAI for more information
regarding repurchase agreements.
8
<PAGE>
RESTRICTED SECURITIES AND ILLIQUID INVESTMENTS. The Fund may invest up to
15% of its net assets in illiquid investments, including (1) securities that are
illiquid due to the absence of a readily available market or due to legal or
contractual restrictions on resale and (2) repurchase agreements maturing in
more than seven days. However, illiquid investments for purposes of this
limitation do not include restricted securities eligible for resale under Rule
144A under the Securities Act of 1933, as amended ("Rule 144A Securities"),
which the Board of Directors or the Adviser has determined are liquid under
Board-approved guidelines. In addition, there is a risk of increasing
illiquidity during times when qualified institutional buyers are uninterested in
purchasing Rule 144A Securities. See the SAI for more information regarding
restricted securities and illiquid investments, including the risks involved in
their use.
ZERO COUPON AND PAY-IN-KIND SECURITIES. Zero coupon securities are debt
obligations that do not entitle the holder to any periodic payment of interest
prior to maturity or a specified date when the securities begin paying current
interest. They are issued and traded at a discount from their face amount or
par value, which discount varies depending on the time remaining until cash
payments begin, prevailing interest rates, liquidity of the security and the
perceived credit quality of the issuer. Pay-in-kind securities are those that
pay interest through the issuance of additional securities. The market prices
of zero coupon and pay-in-kind securities generally are more volatile than the
prices of securities that pay interest periodically and in cash and are likely
to respond to changes in interest rates to a greater degree than do other types
of debt securities having similar maturities and credit quality. Original issue
discount earned each year on zero coupon securities and the "interest" on
pay-in-kind securities accounted for by the Fund for purposes of determining the
amount it must distribute that year to continue to qualify for tax treatment as
a regulated investment company. Thus, the Fund may be required to distribute as
a dividend an amount that is greater than the total amount of cash it actually
receives. See "Taxes" in the SAI. These distributions must be made from the
Fund's cash assets or, if necessary, from the proceeds of sales of portfolio
securities. The Fund will not be able to purchase additional income-producing
securities with cash used to make such distributions, and its current income
ultimately could be reduced as a result.
HOW TO BUY SHARES
Investments in the Fund are only available through purchases of the Contracts
offered by First Investors Life. Purchase payments for the Contracts, net of
certain expenses, are paid into a unit investment trust, Separate Account A.
Separate Account A pools these proceeds to purchase shares of the Fund
designated by purchasers of the Contracts. Orders for the purchase of Fund
shares received prior to the close of regular trading on the New York Stock
Exchange ("NYSE"), generally 4:00 P.M. (New York City time), on any business day
the NYSE is open for trading, will be processed and shares will be purchased at
the net asset value determined at the close of regular trading on the NYSE on
that day. Orders received after the close of regular trading on the NYSE will
be processed at the net asset value determined at the close of regular trading
on the NYSE on the next trading day. See "Determination of Net Asset Value."
For a discussion of pricing when FIC's Woodbridge offices are unable to open for
business due to an emergency, see the SAI.
9
<PAGE>
HOW TO REDEEM SHARES
Shares of the Fund may be redeemed at the direction of Contractowners, in
accordance with the terms of the Contracts. Redemptions will be made at the
Fund's next determined net asset value upon receipt of a proper request for
redemption or repurchase. Payment will be made by check as soon as possible but
within seven days after presentation. However, the Fund's Board of Directors
may suspend the right of redemption or postpone the date of payment during any
period when (a) trading on the NYSE is restricted as determined by the
Securities and Exchange Commission ("SEC") or the NYSE is closed for other than
weekends and holidays, (b) the SEC has by order permitted such suspension, or
(c) an emergency, as defined by rules of the SEC, exists during which time the
sale or valuation of portfolio securities held by the Fund is not reasonably
practicable.
MANAGEMENT
BOARD OF DIRECTORS. The Fund's Board of Directors, as part of its overall
management responsibility, oversees various organizations responsible for the
Fund's day-to-day management.
ADVISER. First Investors Management Company, Inc. supervises and manages the
Fund's investments, determines the Fund's portfolio transactions and supervises
all aspects of the Fund's operations. The Adviser is a New York corporation
located at 95 Wall Street, New York, NY 10005. The Adviser presently acts as
investment adviser to 14 mutual funds. First Investors Consolidated Corporation
("FICC") owns all of the voting common stock of the Adviser and all of the
outstanding stock of FIC and Administrative Data Management Corp. Mr. Glenn O.
Head controls FICC and, therefore, controls the Adviser.
As compensation for its services, the Adviser receives an annual fee from the
Fund, which is payable monthly. For the fiscal year ended December 31, 1997,
the Fund's advisory fees were 0.75% of its average daily net assets.
The Fund bears all expenses of its operations other than those incurred by
the Adviser under the terms of its advisory agreement. Fund expenses include,
but are not limited to: the advisory fee; shareholder servicing fees and
expenses; custodian fees and expenses; legal and auditing fees; expenses of
communicating to existing shareholders, including preparing, printing and
mailing prospectuses and shareholder reports to such shareholders; and proxy and
shareholder meeting expenses.
PORTFOLIO MANAGER. George V. Ganter has been Portfolio Manager of the Fund
since 1986. Mr. Ganter is also Portfolio Manager of certain other First
Investors funds. Mr. Ganter joined FIMCO in 1985 as a Senior Investment
Analyst.
DETERMINATION OF NET ASSET VALUE
The net asset value of a Fund share is determined as of the close of regular
trading on the NYSE (generally 4:00 P.M., New York City time) on each day the
NYSE is open for trading, and at such other times as the Fund's Board of
Directors deems necessary, by dividing the market value of the securities held
by the Fund, plus any cash and other assets, less all liabilities, by the number
of shares outstanding. If there is no available market value, securities will
be valued at their fair value as
10
<PAGE>
determined in good faith pursuant to procedures adopted by the Fund's Board of
Directors. The NYSE currently observes the following holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
DIVIDENDS AND OTHER DISTRIBUTIONS
Dividends from net investment income are generally declared daily and paid
quarterly in additional Fund shares at net asset value (without sales charge)
generally determined as of the close of business on the first business day of
the following quarter. If you redeem all of your Fund shares at any time during
the quarter, you are paid all dividends declared through the day prior to the
date of the redemption, together with the proceeds of your redemption. Net
investment income includes interest and dividends, earned discount and other
income earned on portfolio securities less expenses. Distributions of
substantially all of the Fund's net capital gain (the excess of net long-term
capital gain over net short-term capital loss) and net short-term capital gain,
if any, after deducting any available capital loss carryovers, and any net
realized gains from foreign currency transactions, are declared annually and
paid in additional Fund shares at the net asset value (without sales charge)
generally determined as of the close of business on the business day immediately
following the record date of the distribution.
TAXES
The Fund intends to continue to qualify for treatment as a regulated
investment company ("RIC") under Subchapter M of the Internal Revenue Code of
1986, as amended ("Code"), so that it will be relieved of Federal income tax on
that part of its investment company taxable income (consisting generally of net
investment income, net short-term capital gain and net gains from certain
foreign currency transactions) and net capital gain that it distributes to its
shareholders.
Shares of the Fund are offered only to Separate Account A, which is an
insurance company separate account that funds the Contracts. Under the Code, no
tax is imposed on an insurance company with respect to income of a qualifying
separate account that is properly allocable to the value of eligible variable
annuity contracts. Please refer to "Federal Income Tax Status" in the
Prospectus of Separate Account A for information as to the tax status of that
account and the holders of the Contracts.
The Fund intends to comply with the diversification requirements imposed by
section 817(h) of the Code and the regulations thereunder. These requirements,
which are in addition to the diversification requirements imposed on the Fund by
the Investment Company Act of 1940, as amended, and Subchapter M of the Code,
place certain limitations on the assets of Separate Account A--and of the Fund,
because section 817(h) and those regulations treat the assets of the Fund as
assets of Separate Account A--that may be invested in securities of a single
issuer. Specifically, the regulations provide that, except as permitted by the
"safe harbor" described below, as of the end of each calendar quarter (or within
30 days thereafter) no more than 55% of the Fund's total assets may be
represented by one investment, no more than 70% by any two investments, no more
than 80% by any three investments and no more than 90% by any four investments.
For this purpose, all securities of the same issuer are considered a single
investment, and while each U.S. Government agency and instrumentality is
11
<PAGE>
considered a separate issuer, a particular foreign government and its agencies,
instrumentalities and political subdivisions all will be considered the same
issuer. Section 817(h) provides, as a safe harbor, that a separate account will
be treated as being adequately diversified if the diversification requirements
under Subchapter M are satisfied and no more than 55% of the value of the
account's total assets are cash and cash items, government securities and
securities of other RICs. Failure of the Fund to satisfy the section 817(h)
requirements would result in taxation of First Investors Life and treatment of
the Contractholders other than as described in the Prospectus of Separate
Account A.
The foregoing is only a summary of some of the important Federal income tax
considerations generally affecting the Fund and its shareholders; see the
Statement of Additional Information for a more detailed discussion.
Shareholders are urged to consult their tax advisers.
GENERAL INFORMATION
ORGANIZATION. The Fund was incorporated in the State of Maryland on November
14, 1979. The Fund is authorized to issue 25 million shares of common stock,
$1.00 par value per share. Shares of the Fund have equal dividend, voting,
liquidation and redemption rights. The Fund does not hold annual shareholder
meetings. If requested to do so by the holders of at least 10% of the Fund's
outstanding shares, the Board of Directors will call a special meeting of
shareholders for any purpose, including the removal of Directors.
CUSTODIAN. The Fund has retained The Bank of New York, 48 Wall Street, New
York, New York 10286, to act as custodian of the securities and cash of the
Fund.
TRANSFER AGENT. Administrative Data Management Corp., 581 Main Street,
Woodbridge, NJ 07095-1198, an affiliate of the Adviser and First Investors Life,
acts as transfer agent for the Fund and as dividend disbursing agent.
SHAREHOLDER INQUIRIES. Shareholder inquiries can be made by calling First
Investors Life at 212-858-8200.
ANNUAL AND SEMI-ANNUAL REPORTS AND PROSPECTUSES TO SHAREHOLDERS. It is each
Fund's practice to mail only one copy of its annual and semi-annual reports to
any address at which more than one shareholder with the same last name has
indicated that mail is to be delivered. Additional copies of the reports will
be mailed if requested in writing or by telephone by any shareholder. In
addition, if the SEC adopts a currently pending proposed rule, it is the Funds'
intention to mail only one copy of its Prospectus to any address at which more
than one shareholder with the same last name has indicated that mail is to be
delivered. Additional copies of the Prospectus will be mailed if requested in
writing or by telephone by any shareholder.
YEAR 2000. Like other mutual funds, the Fund could be adversely affected if
the computer and other information processing systems used by the Adviser,
Transfer Agent and other service providers are not properly programmed to
process date-related information on and after January 1, 2000. Such systems
typically have been programmed to use a two-digit number to represent the year
for any date. As a result, computer systems could incorrectly misidentify "00"
as 1900, rather than 2000, and make mistakes when performing operations. The
Adviser and Transfer Agent are taking steps that they
12
<PAGE>
believe are reasonably designed to address the Year 2000 problem for computer
and other systems used by them and are obtaining assurances that comparable
steps are being taken by the Fund's other service providers. However, there can
be no assurance that these steps will be sufficient to avoid any adverse impact
on the Fund. Nor can the Fund estimate the extent of any impact.
13
<PAGE>
APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS
STANDARD & POOR'S RATINGS GROUP
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
any audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C Debt rated "BB," "B," "CCC," "CC" and "C" is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal. "BB" indicates the least degree of speculation and "C" the
highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The
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<PAGE>
"BB" rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
CCC Debt rated "CCC" has a currently identifiable vulnerability to default
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B" rating.
CC The rating "CC" typically is applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.
C The rating "C" typically is applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
CI The rating "CI" is reserved for income bonds on which no interest is
being paid.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The "D" rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
MOODY'S INVESTORS SERVICE, INC.
Aaa Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities, fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat greater than the Aaa
securities.
15
<PAGE>
A Bonds which are rated "A" possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa Bonds which are rated "Baa" are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba Bonds which are rated "Ba" are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa Bonds which are rated "Caa" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca Bonds which are rated "Ca" represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated "C" are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
16
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . . .4
How to Buy Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
How to Redeem Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . . 10
Dividends and Other Distributions. . . . . . . . . . . . . . . . . . . . . 11
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
<PAGE>
FIRST INVESTORS SPECIAL BOND FUND, INC.
PROSPECTUS
INVESTMENT ADVISER
First Investors Management Company, Inc.
95 Wall Street
New York, NY 10005
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP
1800 Massachussetts Avenue, N.W.
Washington, DC 20036
CUSTODIAN
The Bank of New York
48 Wall Street
New York, NY 10286
TRANSFER AGENT
Administrative Data Management Corp.
581 Main Street
Woodbridge, New Jersey 07095-1198
AUDITORS
Tait, Weller & Baker
8 Penn Center Plaza
Philadelphia, Pennsylvania 19103
PROSPECTUS
April 30, 1998
NO DEALER, SALESMAN OR ANY OTHER PERSONS HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS OR THE STATEMENT OF ADDITIONAL INFORMATION, AND IF GIVEN OR MADE,
SUCH INFORMATION AND REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND, OR ANY AFFILIATE THEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SHARES OFFERED HEREBY IN ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER IS SUCH STATE.
<PAGE>
FIRST INVESTORS LIFE VARIABLE ANNUITY FUND A
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
OFFERED BY
FIRST INVESTORS LIFE INSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION DATED APRIL 30, 1998
This Statement of Additional Information is not a Prospectus and should be
read in conjunction with the Prospectus for First Investors Life Variable
Annuity Fund A, dated April 30, 1998, which may be obtained at no cost by
writing to First Investors Life Insurance Company, 95 Wall Street, New York,
New York 10005, or by telephoning (212) 858-8200.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
General Description . . . . . . . . . . . . . . 2
Services. . . . . . . . . . . . . . . . . . . . 2
Annuity Payments. . . . . . . . . . . . . . . . 3
Other Information . . . . . . . . . . . . . . . 4
Performance Information . . . . . . . . . . . . 5
Relevance of Financial Statements . . . . . . . 7
Appendices. . . . . . . . . . . . . . . . . . . 8
Financial Statements. . . . . . . . . . . . . . 13
</TABLE>
1
<PAGE>
GENERAL DESCRIPTION
FIRST INVESTORS LIFE INSURANCE COMPANY. First Investors Life Insurance
Company, 95 Wall Street, New York, New York 10005 ("First Investors Life"),
a stock life insurance company incorporated under the laws of the State of
New York in 1962, writes life insurance, annuities and accident and health
insurance. First Investors Consolidated Corporation ("FICC"), a holding
company, owns all of the voting common stock of First Investors Management
Company, Inc. ("FIMCO" or "Adviser") and all of the outstanding stock of
First Investors Life, First Investors Corporation ("FIC" or "Underwriter")
and Administrative Data Management Corp., the transfer agent for First
Investors Special Bond Fund, Inc. Mr. Glenn O. Head, Chairman of FICC,
controls FICC and, therefore, controls the Adviser and First Investors Life.
SEPARATE ACCOUNT A. First Investors Life Variable Annuity Fund A
("Separate Account A") was established on September 11, 1979 under the
provisions of the New York Insurance Law. The assets of Separate Account A
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 A 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 A.
The assets of Separate Account A are invested at net asset value in
shares of First Investors Special Bond Fund, Inc. (the "Fund"). The Fund's
Prospectus describes the risks attendant to an investment in the Fund.
SERVICES
CUSTODIAN. First Investors Life, subject to applicable laws and
regulations, is the custodian of the securities of Separate Account A.
INDEPENDENT PUBLIC ACCOUNTANTS. Tait, Weller & Baker, Two Penn Center
Plaza, Philadelphia, PA 19102, independent certified public accountants, has
been selected as the independent accountants for Separate Account A. First
Investors Life pays Tait, Weller & Baker a fee for serving as the independent
accountants for Separate Account A which is set by the Audit Committee of the
Board of Directors of First Investors Life.
UNDERWRITER. First Investors Life and Separate Account A 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 ending December
31, 1995, 1996, and 1997, FIC received fees of $11,406, $5,165, and $9,399,
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 or
broker-dealers who have sales agreements with the Underwriter.
2
<PAGE>
ANNUITY PAYMENTS
VALUE OF AN ACCUMULATION UNIT. For Separate Account A, the value of an
Accumulation Unit was arbitrarily initially set at $1.00. 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 the Fund, and expenses and
deductions of certain charges affect the Accumulation Unit Value. The value
of an Accumulation Unit for Separate Account A may increase or decrease from
Valuation Period to Valuation Period.
NET INVESTMENT FACTOR. The Net Investment Factor for Separate Account A
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 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 Fund if the "ex-dividend" date occurs during the current
Valuation Period.
(b) is the net asset value per share of the 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. Such factor is equal on an annual basis to 0.75% of the daily net
asset value of Separate Account A. This percentage represents
approximately 0.60% charge for the mortality risk assumed and 0.15% charge
for the expense risk assumed.
The Net Investment Factor may be greater or less than one, and therefore, the
value of an Accumulation Unit for Separate Account A may increase or decrease.
(For an illustration of this calculation, see Appendix I, Example A.)
VALUE OF AN ANNUITY UNIT. For Separate Account A, 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
3
<PAGE>
formula for determining the adjusted age, and the Annuity Tables are
determined from the Progressive Annuity Table with interest at 3.5% per year
and assumes births prior to 1900, adjusted by a setback of four years of age
for persons born 1900 and later and an additional setback of one year of age
for each completed 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
Separate Account A determined as above, is divided by the value of an Annuity
Unit for Separate Account A for the Valuation Date on or immediately
preceding the seventh day before the Annuity Commencement Date to establish
the number of Annuity Units representing each monthly payment under Separate
Account A. 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 Separate
Account A 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 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 Separate Account A and the
Accumulation Unit Values. In addition, latest available reports of the Fund
will be mailed to each Contractowner.
ASSIGNMENT. Any amounts payable under the Contracts may not be
commuted, alienated, assigned or otherwise encumbered before they are due.
To the extent permitted by law, no such payments shall be subject in any way
to any legal process to subject them to payment of any claims against any
Annuitant, Joint Annuitant or Beneficiary. The Contracts may be assigned.
No assignment of a Contract shall be binding on First Investors Life unless
such assignment is in writing and is filed with First Investors Life at its
Home Office.
4
<PAGE>
PERFORMANCE INFORMATION
Separate Account A may advertise its performance in various ways.
The yield for Separate Account A 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 Separate
Account A 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 Separate Account A outstanding
during the base period and (B) the maximum public offering price per
Accumulation Unit on the last day of the base period. The result is
annualized by compounding on a semi-annual basis to determine Separate
Account A's yield. For this calculation, interest earned on debt obligations
held by the 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.
Separate Account A'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, Separate Account A will assume the
payment of the maximum sales charge of 7.00% (as a percentage of the purchase
payment) on the initial investment and the payment of the Mortality and
Expense Risk Charges of 0.75% ("P"). Separate Account A 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.
5
<PAGE>
Average annual total return and total return for the periods ended
December 31, 1997 calculated using the offering price for Separate Account A
is set forth in the tables below:
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
<S> <C>
One Year 1.84%
Five Years 9.02
Ten Years 8.50
</TABLE>
TOTAL RETURN*
<TABLE>
<CAPTION>
<S> <C>
One Year 1.84%
Five Years 54.03%
Ten Years 126.11%
</TABLE>
Nonstandardized average annual total return and total return may also be
advertised using reduced sales charge levels or at net asset value per
Accumulation Unit. In such case, the initial investment will either reflect
a reduced sales load or no sales load. Any quotation of return not
reflecting the maximum sales charge will be greater than if the maximum sales
charge were used. Nonstandardized average annual total return and total
return computed at net asset value for the periods ended December 31, 1997
for Separate Account A is set forth in the tables below:
NONSTANDARDIZED AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
<S> <C>
One Year 9.51%
Five Years 10.62%
Ten Years 9.29%
</TABLE>
TOTAL RETURN
<TABLE>
<CAPTION>
<S> <C>
One Year 9.51%
Five Years 65.67%
Ten Years 143.21%
</TABLE>
Return information may be useful to investors in reviewing Separate
Account A's performance. However, the total return and average annual total
return will fluctuate over time and the return for any given past period is
not an indication or representation by Separate Account A of future rates of
return.
At times, the Adviser may reduce its compensation or assume expenses of
the Fund in order to reduce the Fund's expenses. Any such waiver or
reimbursement would increase Separate Account A's total return, average
annual total return and yield during the period of the waiver or
reimbursement.
Separate Account A may include in advertisements and sales literature,
examples, information and statistics that illustrate the effect of taxable
vs. tax-deferred compounding income at a fixed rate of return to demonstrate
the growth of an investment over a stated period of time resulting from the
payment of dividends and capital gains distributions in additional
Accumulation Units. The examples may include hypothetical returns comparing
taxable versus tax-deferred growth. The examples used will be for
illustrative purposes only and are not representations by Separate Account A
of past or future yield or return.
- ---------------------------------------------
* The return figures assume the current maximum sales charge of 7.00%. Prior
to December 30, 1991, the maximum sales charge for Separate Account A was
7.25%.
6
<PAGE>
From time to time, in reports and promotional literature, Separate
Account A may compare its performance 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.
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
Separate Account A. 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
Separate Account A.
7
<PAGE>
APPENDICES
8
<PAGE>
APPENDIX I
EXAMPLE A
FORMULA AND ILLUSTRATION FOR DETERMINING
THE NET INVESTMENT FACTOR OF A SUBACCOUNT
OF SEPARATE ACCOUNT A
A+B
Net Investment Factor = ----- -D
C
Where:
<TABLE>
<CAPTION>
<S> <C>
A = The Net Asset Value of a Fund share, plus dividends accrued but not
reinvested, as of the end of the current Valuation Period.
Assume.......................................................................... = $8.51000000
B = The per share amount of any dividend or capital gains distribution
reinvested since the end of the immediately preceding Valuation Period.
Assume.......................................................................... = 0
C = The Net Asset Value of a Fund share, plus dividends accrued but not
reinvested, as of the end of the immediately preceding Valuation Period.
Assume.......................................................................... = $8.39000000
D = The daily deduction for mortality and expense risks, which totals .75%
on an annual basis.
On a daily basis................................................................ = .00002054
Then, the Net Investment Factor = 8.51000000 + 0
--------------- - .00002054....................... = 1.01428220
8.39000000
</TABLE>
EXAMPLE B
FORMULA AND ILLUSTRATION FOR DETERMINING
ACCUMULATION UNIT VALUE OF A SUBACCOUNT
OF SEPARATE ACCOUNT A
Accumulation Unit Value = A x B
Where:
<TABLE>
<CAPTION>
<S> <C>
A = The Accumulation Unit Value for the immediately preceding Valuation
Period.
Assume.......................................................................... = $1.46328760
B = The Net Investment Factor for the current Valuation Period.
Assume.......................................................................... = 1.01428220
Then, the Accumulation Unit Value = $1.46328760 x 1.01428220........................ = 1.48418657
</TABLE>
9
<PAGE>
APPENDIX II
EXAMPLE A
FORMULA AND ILLUSTRATION FOR DETERMINING
DEATH BENEFIT PAYABLE UNDER
ANNUITY OPTION 4-UNIT REFUND LIFE ANNUITY
Upon the death of the Annuitant, the designated Beneficiary under this option
will receive under a Separate Account a lump sum death benefit of the then
dollar value of a number of Annuity Units computed using the following formula:
A A
Annuity Units Payable = --- - (CXD), if --- is greater than CXD
B B
<TABLE>
<CAPTION>
Where:
<S> <C>
A = The Net Accumulated Value applied on the Annuity Commencement Date to
purchase the Variable Annuity.
Assume.......................................................................... = $ 20,000.00
B = The Annuity Unit Value at the Annuity Commencement Date.
Assume.......................................................................... = $ 1.08353012
C = The number of Annuity Units represented by each payment made.
Assume.......................................................................... = 116.61488844
D = The total number of monthly Variable Annuity Payments made prior
to the Annuitant's death.
Assume.......................................................................... = 30
</TABLE>
Then the number of Annuity Units Payable:
$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
10
<PAGE>
APPENDIX III
EXAMPLE A
FORMULA AND ILLUSTRATION FOR DETERMINING
ANNUITY UNIT VALUE OF
SEPARATE ACCOUNT A
Annuity Unit Value = A X B X C
Where:
<TABLE>
<CAPTION>
<S> <C>
A = Annuity Unit Value of the immediately preceding Valuation Period.
Assume......................................................................... = $1.10071211
B = Net Investment Factor for the Valuation Period for which the Annuity
Unit is being calculated.
Assume.......................................................................... = 1.00083530
C = A factor to neutralize the assumed interest rate of 3 1/2% built into
the Annuity Tables used.
Daily factor equals............................................................. = 0.99990575
</TABLE>
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 A
A
First Monthly Variable Annuity Payment = ------- X B
$1,000
Where:
<TABLE>
<CAPTION>
<S> <C>
A = The Net Accumulated Value allocated to Separate Account A 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
$20,000
Then, the first Monthly Variable Payment = ------- x $6.40 = $128.00
$1,000
</TABLE>
11
<PAGE>
EXAMPLE C
FORMULA AND ILLUSTRATION FOR DETERMINING
THE NUMBER OF ANNUITY UNITS FOR SEPARATE ACCOUNT A
REPRESENTED BY EACH MONTHLY VARIABLE ANNUITY PAYMENT
A
Number of Annuity Units = ---
B
Where:
<TABLE>
<CAPTION>
<S> <C>
A = The dollar amount of the first monthly Variable Annuity Payment.
Assume.......................................................................... = $128.00
B = The Annuity Unit Value for the Valuation Date on or immediately
preceding the seventh day before the Annuity Commencement Date.
Assume.......................................................................... = $1.09763000
</TABLE>
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 A
Second Monthly Variable Annuity Payment = A X B
Where:
<TABLE>
<CAPTION>
<S> <C>
A = The Number of Annuity Units represented by each monthly
Variable Annuity Payment.
Assume.......................................................................... = 116.61488844
B = The Annuity Unit Value for the Valuation Date on or immediately
preceding the seventh day before the date on which the
second (or subsequent) Variable Annuity Payment is due.
Assume.......................................................................... = $1.11834234
</TABLE>
Then, the second monthly Variable Annuity Payment = 116.61488844 x $1.11834234 =
$130.42
The above example was based upon the assumption of an increase in the Annuity
Unit Value since the initial Variable Annuity Payment due to favorable
investment results of the Separate Account and the Fund. If the investment
results were less favorable, a decrease in the Annuity Unit Value and in the
second monthly Variable Annuity Payment could result. Assume B above was
$1.08103230.
Then, the second monthly Variable Annuity Payment = 116.61488844 x $1.08103230 =
$126.06
12
<PAGE>
Financial Statements
as of December 31, 1997
13
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
First Investors Life Insurance Company
New York, New York
We have audited the accompanying balance sheets of First Investors Life
Insurance Company as of December 31, 1997 and 1996, and the related statements
of income, stockholder's equity and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of First Investors Life
Insurance Company as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 19, 1998
14
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Investments (note 2):
Available-for-sale securities. . . . . . . . . . . . . . . $125,380,627 $114,011,891
Held-to-maturity securities. . . . . . . . . . . . . . . . 5,529,687 5,549,214
Short term investments . . . . . . . . . . . . . . . . . . 3,083,769 7,667,491
Policy loans . . . . . . . . . . . . . . . . . . . . . . . 21,527,810 18,865,648
------------ ------------
Total investments . . . . . . . . . . . . . . . . . . . 155,521,893 146,094,244
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,145,215 901,980
Premiums and other receivables, net of allowances of
$30,000 in 1997 and 1996 . . . . . . . . . . . . . . . . . 4,749,099 3,998,210
Accrued investment income. . . . . . . . . . . . . . . . . . 3,180,924 2,903,566
Deferred policy acquisition costs (note 6) . . . . . . . . . 18,446,716 17,547,129
Deferred Federal income taxes (note 7) . . . . . . . . . 1,039,000 934,000
Furniture, fixtures and equipment, at cost, less accumulated
depreciation of $1,075,336 in 1997 and $925,736 in 1996. . 97,379 146,078
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 120,044 136,302
Separate account assets. . . . . . . . . . . . . . . . . . . 642,453,414 465,456,848
------------ ------------
Total assets. . . . . . . . . . . . . . . . . . . . . . $826,753,684 $638,118,357
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Policyholder account balances (note 6) . . . . . . . . . . . $115,281,318 $113,295,474
Claims and other contract liabilities. . . . . . . . . . . . 12,548,096 12,190,281
Accounts payable and accrued liabilities . . . . . . . . . . 4,426,355 3,730,943
Separate account liabilities . . . . . . . . . . . . . . . . 642,453,314 464,852,507
------------ ------------
Total liabilities . . . . . . . . . . . . . . . . . . . 774,709,083 594,069,205
------------ ------------
STOCKHOLDER'S EQUITY:
Common Stock, par value $4.75; authorized,
issued and outstanding 534,350 shares. . . . . . . . . . . 2,538,163 2,538,163
Additional paid in capital . . . . . . . . . . . . . . . . . 6,496,180 6,496,180
Unrealized holding gains (losses) on available-for-sale
securities (note 2). . . . . . . . . . . . . . . . . . . . 1,608,000 644,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . 41,402,258 34,370,809
------------ ------------
Total stockholder's equity. . . . . . . . . . . . . . . 52,044,601 44,049,152
------------ ------------
Total liabilities and stockholder's equity. . . . . . . $826,753,684 $638,118,357
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31,1996 DECEMBER 31,1995
----------------- ---------------- ----------------
<S> <C> <C> <C>
REVENUES
Policyholder fees. . . . . . . . . . . . . . . . . . . . . . $24,826,454 $22,955,165 $19,958,420
Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . 6,279,137 6,725,329 7,293,719
Investment income (note 2) . . . . . . . . . . . . . . . . . 10,259,601 9,771,389 9,363,212
Realized gain (loss) on investments. . . . . . . . . . . . . 158,874 (221,025) 373,582
Other income . . . . . . . . . . . . . . . . . . . . . . . . 702,644 704,678 835,703
------------ ------------ ------------
Total income. . . . . . . . . . . . . . . . . . . . . . . 42,226,710 39,935,536 37,824,636
------------ ------------ ------------
BENEFITS AND EXPENSES
Benefits and increases in contract liabilities . . . . . . . 14,370,510 12,912,810 13,027,516
Dividends to policyholders . . . . . . . . . . . . . . . . . 1,033,663 964,913 954,384
Amortization of deferred acquisition costs (note 6). . . . . 663,200 1,454,408 1,672,429
Commissions and general expenses . . . . . . . . . . . . . . 15,445,888 16,287,498 15,773,968
------------ ------------ ------------
Total benefits and expenses . . . . . . . . . . . . . . . 31,513,261 31,619,629 31,428,297
------------ ------------ ------------
Income before Federal income tax . . . . . . . . . . . . . . . 10,713,449 8,315,907 6,396,339
Federal income tax (note 7):
Current . . . . . . . . . . . . . . . . . . . . . . . . . . 4,285,000 3,099,000 2,553,000
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . (603,000) (286,000) (376,000)
------------ ------------ ------------
3,682,000 2,813,000 2,177,000
------------ ------------ ------------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,031,449 $ 5,502,907 $ 4,219,339
------------ ------------ ------------
------------ ------------ ------------
Income per share, based on 534,350 shares outstanding. . . . . $ 13.16 $ 10.30 $ 7.90
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31,1996 DECEMBER 31,1995
----------------- ---------------- ----------------
<S> <C> <C> <C>
Balance at beginning of year . . . . . . . . . . . . . . . . . $ 44,049,152 $ 39,780,245 $ 31,196,906
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . 7,031,449 5,502,907 4,219,339
Increase (decrease) in unrealized holding gains on
available-for-sale securities. . . . . . . . . . . . . . . . 964,000 (1,234,000) 4,364,000
------------ ------------ ------------
Balance at end of year . . . . . . . . . . . . . . . . . . . . $ 52,044,601 $ 44,049,152 $ 39,780,245
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31,1996 DECEMBER 31,1995
----------------- ---------------- ----------------
<S> <C> <C> <C>
Increase (decrease) in cash:
Cash flows from operating activities:
Policyholder fees received. . . . . . . . . . . . . . . . $ 24,587,113 $ 22,925,131 $ 19,374,522
Premiums received . . . . . . . . . . . . . . . . . . . . 6,088,582 6,413,009 6,895,096
Amounts received on policyholder accounts . . . . . . . . 125,818,334 105,489,481 87,156,662
Investment income received. . . . . . . . . . . . . . . . 10,263,095 9,964,169 9,360,894
Other receipts. . . . . . . . . . . . . . . . . . . . . . 57,287 55,779 69,621
Benefits and contract liabilities paid. . . . . . . . . . (138,420,373) (117,321,389) (101,642,156)
Commissions and general expenses paid . . . . . . . . . . (20,899,476) (20,857,687) (18,176,870)
------------ ------------ ------------
Net cash provided by (used for) operating activities. . . 7,494,562 6,668,493 3,037,769
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sale of investment securities . . . . . . . 38,900,851 39,062,702 58,755,827
Purchase of investment securities . . . . . . . . . . . . (44,021,791) (44,134,604) (58,622,646)
Purchase of furniture, equipment and other assets . . . . (62,170) (34,485) (128,442)
Net increase in policy loans. . . . . . . . . . . . . . . (2,662,162) (1,848,956) (2,330,591)
Investment in Separate Account . . . . . . . . . . . . . 593,945 (200) (500,000)
------------ ------------ ------------
Net cash provided by (used for) investing activities. . . (7,251,327) (6,955,543) (2,825,852)
Net increase (decrease) in cash . . . . . . . . . . . . . 243,235 (287,050) 211,917
Cash
Beginning of year . . . . . . . . . . . . . . . . . . . . . 901,980 1,189,030 977,113
------------ ------------ ------------
End of year . . . . . . . . . . . . . . . . . . . . . . . . $ 1,145,215 $ 901,980 $ 1,189,030
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The Company received a refund of Federal income tax of $79,000 in 1997 and
$102,000 in 1996 and paid Federal income tax of $4,283,000 in 1997, $3,243,000
in 1996 and $2,125,000 in 1995.
See accompanying notes to financial statements.
17
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Reconciliation of net income to net cash
provided by (used for) operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 7,031,449 $ 5,502,907 $ 4,219,339
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization. . . . . . . . . . . 117,804 130,924 141,121
Amortization of deferred policy acquisition costs. 663,200 1,454,408 1,672,429
Realized investment (gains) losses . . . . . . . . . . . . (158,874) 221,025 (373,582)
Amortization of premiums and discounts on
investments. . . . . . . . . . . . . . . . . . . . 280,852 262,785 237,472
Deferred Federal income taxes. . . . . . . . . . . (603,000) (286,000) (376,000)
Other items not requiring cash - net . . . . . . . 9,771 6,794 (112,268)
(Increase) decrease in:
Premiums and other receivables, net. . . . . . . . (750,889) 336,385 (433,106)
Accrued investment income. . . . . . . . . . . . . (277,358) (70,005) (239,790)
Deferred policy acquisition costs, exclusive
of amortization. . . . . . . . . . . . . . . . . . (1,866,787) (1,275,323) (1,117,752)
Other assets . . . . . . . . . . . . . . . . . . . 9,323 (18,574) 64,490
Increase (decrease) in:
Policyholder account balances. . . . . . . . . . . 1,985,844 (78,699) (1,882,591)
Claims and other contract liabilities. . . . . . . 357,815 901,173 551,392
Accounts payable and accrued liabilities . . . . . 695,412 (419,307) 686,615
------------ ----------- ------------
$ 7,494,562 $ 6,668,493 $ 3,037,769
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF FINANCIAL STATEMENTS
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles (GAAP). Such basis of presentation
differs from statutory accounting practices permitted or prescribed by insurance
regulatory authorities primarily in that:
(a) policy reserves are computed according to the Company's estimates
of mortality, investment yields, withdrawals and other benefits and expenses,
rather than on the statutory valuation basis;
(b) certain expenditures, principally for furniture and equipment and
agents' debit balances, are recognized as assets rather than being non-admitted
and therefore charged to retained earnings;
(c) commissions and other costs of acquiring new business are
recognized as deferred acquisition costs and are amortized over the premium
paying period of policies and contracts, rather than charged to current
operations when incurred;
(d) income tax effects of temporary differences, relating primarily
to policy reserves and acquisition costs, are provided;
(e) the statutory asset valuation and interest maintenance reserves
are reported as retained earnings rather than as liabilities;
NOTE 2 -- OTHER SIGNIFICANT ACCOUNTING PRACTICES
(a) ACCOUNTING ESTIMATES. The preparation of financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosures of contingent assets and liabilities, at the date
of the financial statements and revenues and expenses during the reported
period. Actual results could differ from those estimates.
(b) DEPRECIATION. Depreciation is computed on the useful service life
of the depreciable asset using the straight line method of depreciation over
three to seven years.
(c) INVESTMENTS. Investments in equity securities that have readily
determinable fair values and all investments in debt securities are classified
in separate categories and accounted for as follows:
HELD-TO-MATURITY SECURITIES
Debt securities the Company has the positive intent and ability to hold to
maturity are recorded at amortized cost.
AVAILABLE-FOR-SALE SECURITIES
Debt and equity securities not classified in the other two categories are
recorded at fair value with unrealized gains and losses excluded from earnings
and reported as "unrealized holding gains or losses on available-for-sale
securities" in stockholder's equity.
19
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Short term investments are reported at market value which approximates
cost.
Gains and losses on sales of investments are determined using the
specific identification method. Investment income for the years indicated
consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31,1997 DECEMBER 31, 1996 DECEMBER 31,1995
---------------- ----------------- ----------------
<S> <C> <C> <C>
Interest on fixed maturities . . . . . . . . . . . . . . . . $ 9,029,979 $ 8,559,429 $ 8,243,748
Interest on short term investments . . . . . . . . . . . . . 307,656 410,930 451,475
Interest on policy loans . . . . . . . . . . . . . . . . . . 1,268,834 1,151,681 973,242
Dividends on equity securities . . . . . . . . . . . . . . . -- 43,756 58,305
------------ ----------- ------------
Total investment income . . . . . . . . . . . . . . . . 10,606,469 10,165,796 9,726,770
Investment expense. . . . . . . . . . . . . . . . . . . 346,868 394,407 363,558
------------ ----------- ------------
Net investment income. . . . . . . . . . . . . . . . . . . . $10,259,601 $ 9,771,389 $ 9,363,212
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
The amortized cost and estimated market values of investments at December 31,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES
DECEMBER 31, 1997
U.S. Treasury Securities and obligations
of U.S. Government Corporations
and Agencies. . . . . . . . . . . . . . . . . $ 39,532,729 $ 975,819 $ -- $ 40,508,548
Debt Securities issued by
States of the U.S.. . . . . . . . . . . . . . 7,309,135 92,015 -- 7,401,150
Corporate Debt Securities. . . . . . . . . . . . 67,900,325 1,739,318 75,913 69,563,730
Other Debt Securities . . . . . . . . . . . . . 7,606,438 300,761 -- 7,907,199
------------ ----------- ------- ------------
$122,348,627 $ 3,107,913 $75,913 $125,380,627
------------ ----------- ------- ------------
------------ ----------- ------- ------------
DECEMBER 31,1996
U.S. Treasury Securities and obligations
of U.S. Government Corporations
and Agencies. . . . . . . . . . . . . . . . . $ 41,254,552 $ 569,803 $ 157,020 $ 41,667,335
Debt Securities issued by
States of the U.S.. . . . . . . . . . . . . . 5,525,022 -- 172,264 5,352,758
Corporate Debt Securities. . . . . . . . . . . . 56,013,590 1,217,747 297,752 56,933,585
Other Debt Securities. . . . . . . . . . . . . . 9,952,727 133,266 27,780 10,058,213
------------- ------------ --------- -------------
$ 112,745,891 $ 1,920,816 $ 654,816 $ 114,011,891
------------ ------------ --------- -------------
------------ ------------ --------- -------------
</TABLE>
20
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1997 and 1996, the Company recognized "Unrealized Holding
Gains on Available-For-Sale Securities" of $1,608,000 and $644,000, net of
applicable deferred income taxes and amortization of deferred acquisition costs.
The change in the Unrealized Holding Gains (Losses) of $964,000, ($1,234,000)
and $4,364,000 for 1997, 1996 and 1995, respectively is reported as a separate
component of stockholders' equity.
<TABLE>
<CAPTION>
HELD-TO-MATURITY SECURITIES
DECEMBER 31,1997
<S> <C> <C> <C> <C>
U.S. Treasury Securities and obligations
of U.S. Government Corporations
and Agencies*. . . . . . . . . . . . . . . . . . $ 3,419,687 $ 90,126 $ 700 $ 3,509,113
Corporate Debt Securities. . . . . . . . . . . . . 2,000,000 109,000 -- 2,109,400
Other Debt Securities. . . . . . . . . . . . . . . 110,000 -- -- 110,000
------------ ---------- ------------- -----------
$ 5,529,687 $ 199,126 $ 700 $ 5,728,513
------------ ---------- ------------- -----------
------------ ---------- ------------- -----------
DECEMBER 31,1996
U.S. Treasury Securities and obligations
of U.S. Government Corporations
and Agencies*. . . . . . . . . . . . . . . . . . $ 3,439,214 $ 36,945 $ 10,944 $ 3,465,215
Corporate Debt Securities. . . . . . . . . . . . . 2,000,000 -- 66,200 1,933,800
Other Debt Securities. . . . . . . . . . . . . . . 110,000 -- -- 110,000
------------ ---------- ------------- -----------
$ 5,549,214 $ 36,945 $ 77,144 $ 5,509,015
------------ ---------- ------------- -----------
------------ ---------- ------------- -----------
</TABLE>
*These securities are on deposit for various state insurance departments and are
therefore restricted as to sale.
The amortized cost and estimated market value of debt securities at December
31, 1997, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
HELD TO MATURITY AVAILABLE FOR SALE
---------------------------- ---------------------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST MARKET VALUE COST MARKET VALUE
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Due in one year or less. . . . . . . . . . $ 363,473 $ 362,773 $ 6,608,708 $ 6,633,659
Due after one year through five years. . . 2,634,603 2,715,715 37,905,751 38,828,513
Due after five years through ten years . . 531,611 540,625 50,889,338 52,290,280
Due after ten years. . . . . . . . . . . . 2,000,000 2,109,400 26,944,831 27,628,175
---------- ----------- ------------- ------------
$5,529,687 $5,728,513 $122,348,628 $125,380,627
---------- ---------- ------------- ------------
---------- ---------- ------------- ------------
</TABLE>
Proceeds from sales of investments in fixed maturities were $34,316,604,
$39,046,422 and $56,949,635 in 1997, 1996 and 1995, respectively. Gross gains
of $374,583 and gross losses of $215,709 were realized on those sales in 1997.
Gross gains of $185,708 and gross losses of $406,733 were realized on those
sales in 1996. Gross gains of $578,810 and gross losses of $205,228 were
realized on those sales in 1995.
21
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(d) RECOGNITION OF REVENUE, POLICYHOLDER ACCOUNT BALANCES AND POLICY BENEFITS
TRADITIONAL ORDINARY LIFE AND HEALTH
Revenues from the traditional life insurance policies represent
premiums which are recognized as earned when due. Health insurance premiums
are recognized as revenue over the time period to which the premiums
relate. Benefits and expenses are associated with earned premiums so as to
result in recognition of profits over the lives of the contracts. This
association is accomplished by means of the provision for liabilities for
future policy benefits and the deferral and amortization of policy
acquisition costs.
UNIVERSAL LIFE AND VARIABLE LIFE
Revenues from universal life and variable life policies represent
amounts assessed against policyholders. Included in such assessments are
mortality charges, surrender charges and policy service fees.
Policyholder account balances on universal life consist of the
premiums received plus credited interest, less accumulated policyholder
assessments. Amounts included in expense represent benefits in excess of
policyholder account balances. The value of policyholder accounts on
variable life are included in separate account liabilities as discussed
below.
ANNUITIES
Revenues from annuity contracts represent amounts assessed against
contractholders. Such assessments are principally sales charges,
administrative fees, and in the case of variable annuities, mortality and
expense risk charges. The carrying value and fair value of fixed annuities
are equal to the policyholder account balances, which represent the net
premiums received plus accumulated interest.
(e) SEPARATE ACCOUNTS. Separate account assets and the related liabilities,
both of which are valued at market, represent segregated variable annuity and
variable life contracts maintained in accounts with individual investment
objectives. All investment income (gains and losses of these accounts) accrues
directly to the contractholders and therefore does not affect net income of the
Company.
NOTE 3 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for cash, short-term investments and policy loans as
reported in the accompanying balance sheet approximate their fair values. The
fair values for fixed maturities and equity-securities are based upon quoted
market prices, where available or are estimated using values from independent
pricing services.
22
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The carrying amounts for the Company's liabilities under investment - type
contracts approximate their fair values because interest rates credited to
account balances approximate current rates paid on similar investments and are
generally not guaranteed beyond one year. Fair values for the Company's
insurance contracts other than investment - type contracts are not required to
be disclosed. However, the fair values of liabilities for all insurance
contracts are taken into consideration in the overall management of interest
rate risk, which minimizes exposure to changing interest rates.
NOTE 4 -- RETIREMENT PLANS
The Company participates in a non-contributory profit sharing plan for the
benefit of its employees and those of other wholly-owned subsidiaries of its
parent. The Plan provides for retirement benefits based upon earnings. Vesting
of benefits is based upon years of service. For the years ended December 31,
1997, 1996 and 1995, the Company charged operations approximately $70,000,
$100,000 and $40,000 respectively for its portion of the contribution.
The Company also has a non-contributory retirement plan for the benefit of
its sales agents. The plan provides for retirement benefits based upon
commission on first-year premiums and length of service. The plan is unfunded.
Vesting of benefits is based upon graduated percentages dependent upon the
number of allocations made in accordance with the plan by the Company for each
participant. The Company charged to operations pension expenses of
approximately $419,000 in 1997, $414,000 in 1996 and $375,000 in 1995. The
accrued liability of approximately $2,913,000 in 1997 and $2,858,000 in 1996 was
sufficient to cover the value of benefits provided by the plan.
In addition, the Company participates in a 401(k) savings plan covering all
of its eligible employees and those of other wholly-owned subsidiaries of its
parent whereby employees may voluntarily contribute a percentage of their
compensation with the Company matching a portion of the contributions of certain
employees. The amount contributed by the Company in 1997 and 1996 was not
material.
NOTE 5 -- COMMITMENTS AND CONTINGENT LIABILITIES
The Company has agreements with affiliates and non-affiliates as follows:
(a) The Company's maximum retention on any one life is $100,000. The
Company reinsures a portion of its risk with other insurance companies and
reserves are reduced by the amount of reserves for such reinsured risks. The
Company is liable for any obligations which any reinsurance company may be
unable to meet. The Company had reinsured approximately 10% of its net life
insurance in force at December 31, 1997, 1996 and 1995. The Company also had
assumed reinsurance amounting to approximately 20%, 21% and 20% of its net life
insurance in force at the respective year ends. None of these transactions had
any material effect on the Company's operating results.
23
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(b) The Company and certain affiliates share office space, data processing
facilities and management personnel. Charges for these services are based upon
space occupied, usage of data processing facilities and time allocated to
management. During the years ended December 31, 1997, 1996 and 1995, the
Company paid approximately $1,114,000, $1,222,000 and $1,282,000, respectively,
for these services. In addition, the Company reimbursed an affiliate
approximately $9,814,000 in 1997, $9,709,000 in 1996,and $8,739,000 in 1995 for
commissions relating to the sale of its products.
The Company maintains a checking account with a financial institution,
which is also a wholly-owned subsidiary of its parent. The balance in this
account was approximately $332,000 at December 31, 1997 and $326,000 at December
31, 1996.
(c) The Company is subject to certain claims and lawsuits arising in the
ordinary course of business. In the opinion of management, all such claims
currently pending will not have a material adverse effect on the financial
position of the Company or its results of operations.
NOTE 6 -- ADJUSTMENTS MADE TO STATUTORY ACCOUNTING PRACTICES
Note 1 describes some of the common differences between statutory practices
and generally accepted accounting principles. The effects of these differences
for the years ended December 31, 1997, 1996 and 1995 are shown in the following
table in which net income and capital shares and surplus reported therein on a
statutory basis are adjusted to a GAAP basis.
<TABLE>
<CAPTION>
NET INCOME CAPITAL SHARES AND SURPLUS
YEAR ENDED DECEMBER 31 AT DECEMBER 31
---------------------- --------------------------
1997 1996 1995 1997 1996 1995
----------- ---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Reported on a statutory basis. . . . . . $5,809,629 $5,002,533 $3,705,334 $32,159,721 $26,580,877 $21,600,537
----------- ---------- ---------- ----------- ----------- -----------
Adjustments:
Deferred policy acquisition costs (b). . 351,239 (179,085) (554,677) 18,446,716 17,547,129 17,318,214
Future policy benefits (a) . . . . . . 133,848 514,086 422,387 (3,000,589) (2,398,397) (2,912,483)
Deferred income taxes. . . . . . . . . 603,000 286,000 376,000 1,039,000 934,000 12,000
Premiums due and deferred (e). . . . . 84,291 85,461 80,133 (1,274,816) (1,359,107) (1,444,568)
Cost of colletion and other statutory
liabilities . . . . . . . . . . . . (924) (12,283) (16,318) 36,060 36,984 49,267
Non-admitted assets. . . . . . . . . . -- -- -- 224,411 298,731 395,758
Asset valuation reserve. . . . . . . . -- -- -- 1,325,986 1,136,664 1,016,830
Interest maintenance reserve . . . . . (55,019) (48,542) (40,804) 56,112 6,271 200,690
Gross unrealized holding gains on
available-for-sale securities . . -- -- -- 3,032,000 1,266,000 3,544,000
Net realized capital gains (losses). . 158,874 (221,025) 373,582 -- -- --
Other . . . . . . . . . . . . . . . (53,489) 75,762 (126,298) -- -- --
----------- ---------- ---------- ----------- ----------- -----------
1,221,820 500,374 514,005 19,884,880 17,468,275 18,179,708
----------- ---------- ---------- ----------- ----------- -----------
In accordance with generally accepted
accounting principles. . . . . . . . . $7,031,449 $5,502,907 $4,219,339 $52,044,601 $44,049,152 $39,780,245
----------- ---------- ---------- ----------- ----------- -----------
----------- ---------- ---------- ----------- ----------- -----------
Per share, based on 534,350 shares
outstanding. . . . . . . . . . . . . . $13.16 $10.30 $7.90 $97.40 $82.44 $74.45
----------- ---------- ---------- ----------- ----------- -----------
----------- ---------- ---------- ----------- ----------- -----------
</TABLE>
24
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following is a description of the significant policies used to adjust the
net income and capital shares and surplus from a statutory to a GAAP basis.
(a) Liabilities for future policy benefits have been computed primarily by the
net level premium method with assumptions as to anticipated mortality,
withdrawals and investment yields. The composition of the policy liabilities
and the more significant assumptions pertinent thereto are presented below:
<TABLE>
<CAPTION>
DISTRIBUTION OF LIABILITIES* BASIS OF ASSUMPTIONS
- ------------------------------------------------------------------------------------------
1996 1995 YEARS OF ISSUE INTEREST MORTALITY TABLE WITHDRAWAL
- ---- ---- -------------- -------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Non-par:
$1,505,551 $ 1,655,040 1962-1967 4 1/2% 1955-60 Basic Select plus Ultimate Linton B
5,310,394 5,814,885 1968-1988 5 1/2% 1955-60 Basic Select plus Ultimate Linton B
2,433,724 2,546,702 1984-1988 7 1/2% 85% of 1965-70 Basic Select Modified
plus Ultimate Linton B
101,775 86,508 1989-Present 7 1/2% 1975-80 Basic Select plus Ultimate Linton B
108,985 113,117 1989-Present 7 1/2% 1975-80 Basic Select plus Ultimate Actual
28,971 34,185 1989-Present 8% 1975-80 Basic Select plus Ultimate Actual
32,412,007 31,902,122 1985-Present 6% Accumulation of Funds --
Par:
224,913 223,500 1966-1967 4 1/2% 1955-60 Basic Select plus Ultimate Linton A
13,273,949 13,357,249 1968-1988 5 1/2% 1955-60 Basic Select plus Ultimate Linton A
899,407 975,132 1981-1984 7 1/4% 90% of 1965-70 Basic Select
plus Ultimate Linton B
4,699,324 4,772,595 1983-1988 9 1/2% 80% of 1965-70 Basic Select
plus Ultimate Linton B
15,977,808 14,031,404 1990-Present 8% 66% of 1975-80 Basic Select
plus Ultimate Linton B
Annuities:
19,581,382 21,779,771 1976-Present 5 1/2% Accumulation of Funds --
Miscellaneous:
19,604,218 16,939,829 1962-Present 2 1/2%-3 1/2% 1958-CSO None
</TABLE>
* The above amounts are before deduction of deferred premiums of $881,090 in
1997 and $936,565 in 1996.
(b) The costs of acquiring new business, principally commissions and
related agency expenses, and certain costs of issuing policies, such as medical
examinations and inspection reports, all of which vary with and are primarily
related to the production of new business, have been deferred. Costs deferred
on universal life and variable life are amortized as a level percentage of the
present value of anticipated gross profits resulting from investment yields,
mortality and surrender charges. Costs deferred on traditional ordinary life
and health are amortized over the premium-paying period of the related policies
in proportion to the ratio of the annual premium revenue to the total
anticipated premium revenue. Anticipated premium revenue was estimated using
the same assumptions which were used for computing liabilities for future policy
benefits. Amortization of $663,200 in 1997 and $1,454,408 in 1996, $1,672,429
in 1995 was charged to operations.
(c) Participating business represented 9.5% and 9.8% of individual life
insurance in force at December 31, 1997 and 1996, respectively.
The Board of Directors annually approves a dividend formula for calculation
of dividends to be distributed to participating policyholders.
25
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The portion of earnings of participating policies that can inure to the
benefit of shareholders is limited to the larger of 10% of such earnings or $.50
per thousand dollars of participating insurance in force. Earnings in excess of
that limit must be excluded from shareholders' equity by a charge against
operations. No such charge has been made, since participating business has
operated at a loss to date on a statutory basis. It is anticipated, however,
that the participating lines will be profitable over the lives of the policies.
(d) New York State insurance law prohibits the payment of dividends to
stockholders from any source other than the statutory unassigned surplus. The
amount of said surplus was $22,374,879, $16,796,135 and $11,815,645 at December
31, 1997, 1996 and 1995, respectively.
(e) Statutory due and deferred premiums are adjusted to conform to the
expected premium revenue used in computing future benefits and deferred policy
acquisition costs. In this regard, the GAAP due premium is recorded as an asset
and the GAAP deferred premium is applied against future policy benefits.
NOTE 7 -- FEDERAL INCOME TAXES
The Company joins with its parent company and other affiliated companies in
filing a consolidated Federal income tax return. The provision for Federal
income taxes is determined on a separate company basis.
Retained earnings at December 31, 1997 included approximately $146,000
which is defined as "policyholders' surplus" and may be subject to Federal
income tax at ordinary corporate rates under certain future conditions,
including distributions to stockholders.
Deferred tax liabilities (assets) are comprised of the following:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Policyholder dividend provision. . . . . . . . . . . . . . . $ (357,219) $ (332,719)
Non-qualified agents' pension plan reserve . . . . . . . . . (1,161,304) 1,127,384)
Deferred policy acquisition costs. . . . . . . . . . . . . . 2,215,873 2,507,526
Future policy benefits . . . . . . . . . . . . . . . . . . . (2,575,365) 2,346,908)
Bond discount. . . . . . . . . . . . . . . . . . . . . . . . 39,184 28,677
Unrealized holding gains on Available-For-Sale Securities . 829,000 331,000
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . (29,169) 5,808
------------ -----------
$(1,039,000) $ (934,000)
------------ -----------
------------ -----------
</TABLE>
The currently payable Federal Income tax provision of $3,099,000 for 1996
is net of a $75,000 Federal tax benefit resulting from a capital loss carryback
of $221,025.
26
<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 A (a separate account of First Investors
Life Insurance Company, registered as a unit investment trust under the
Investment Company Act of 1940), as of December 31, 1997, and the related
statements of operations 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 A as of December 31, 1997, 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 19, 1998
27
<PAGE>
FIRST INVESTORS LIFE
VARIABLE ANNUITY FUND A
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments at net asset value (Note 2)
First Investors Special Bond Fund, Inc. (2,800,087 shares
at $12.89 per share, cost $53,077,693) $36,081,528
LIABILITIES
Payable to First Investors Life Insurance Company 22,628
------------
NET ASSETS $36,058,900
------------
Net assets represented by Contracts in accumulation period
(7,334,262 units at unit value of $4.92) $36,058,900
------------
</TABLE>
See notes to financial statements.
28
<PAGE>
FIRST INVESTORS LIFE
VARIABLE ANNUITY FUND A
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME
Income:
Dividends $3,378,373
----------
Total income 378,373
----------
Expenses:
Mortality and expense risks (Note 3) 273,989
----------
Total expenses 273,989
----------
NET INVESTMENT INCOME 3,104,384
----------
UNREALIZED DEPRECIATION ON INVESTMENTS
Beginning of year 17,331,916
End of year 16,996,165
----------
Change in unrealized depreciation on investments 335,751
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $3,440,135
----------
----------
</TABLE>
See notes to financial statements.
29
<PAGE>
FIRST INVESTORS LIFE
VARIABLE ANNUITY FUND A
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Increase (Decrease) in Net Assets
From Operations
Net investment income $3,104,384 $2,711,688
Change in unrealized depreciation on investments 335,751 1,537,900
---------- ----------
Net increase (decrease) in net assets resulting
from operations 3,440,135 4,249,588
---------- ----------
From Unit Transactions
Net annuity considerations 214,715 268,926
Contract payments (4,514.314) (5,619,918)
---------- ----------
Net decrease in net assets derived from
unit transactions (4,299,599) (5,350.992)
---------- ----------
Net increase (decrease) in net assets (859,464) (1,101,404)
Net Assets
Beginning of year 36,918,364 38,019,768
---------- ----------
End of year $36,058,900 $36,918,364
---------- ----------
</TABLE>
See notes to financial statements.
30
<PAGE>
FIRST INVESTORS LIFE
VARIABLE ANNUITY FUND A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 -- ORGANIZATION
First Investors Life Variable Annuity Fund A (Separate Account A), 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). All assets of the separate account
are invested in shares of First Investors Special Bond Fund, Inc. (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 A 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. The Fund's
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.
FEDERAL INCOME TAXES
Separate Account A 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 A 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 A.
NOTE 3 -- 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 0.75% of the daily net asset value of Separate Account A.
The deduction for the year ended December 31, 1997 was $273,989. An
additional administrative charge of $7.50 may be deducted annually by FIL
from the Accumulated Value of Deferred Annuity Contracts which have an
Accumulated Value of less than $1,500 due to partial surrenders. There was
no deduction under this provision during 1997.
31
