<PAGE>
As filed with the Securities and Exchange Commission on April , 1995
Registration No. 2-66294
811-2981
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 14 X
--
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 14 X
--
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FIRST INVESTORS SPECIAL BOND FUND, INC.
(Exact name of Registrant as specified in charter)
Mr. Larry R. Lavoie
Secretary and General Counsel
First Investors Corporation
95 Wall Street
New York, New York 10005
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement
It is proposed that this filing will become effective on May 1, 1995 pursuant to
paragraph (b) of Rule 485.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
previously elected to register an indefinite number of shares of common stock,
par value $1.00 per share, under the Securities Act of 1933. Registrant filed a
Rule 24f-2 Notice for its fiscal year ending December 31, 1994 on February 21,
1995.
<PAGE>
FIRST INVESTORS SPECIAL BOND FUND, INC.
CROSS-REFERENCE SHEET
N-1A Item No. Location
- ------------- --------
PART A: PROSPECTUS
1. Cover Page. . . . . . . . . . . . . . . . Cover Page
2. Synopsis. . . . . . . . . . . . . . . . . Not Applicable
3. Condensed Financial Information . . . . . Financial Highlights
4. General Description of Registrant . . . . Investment Objectives and
Policies; Investment
Restrictions
5. Management of the Fund. . . . . . . . . . Management
5A. Management's Discussion of
Fund Performance. . . . . . . . . . . . Not Applicable
6. Capital Stock and Other Securities. . . . General Information; Dividends
and Other Distributions;
Determination of Net Asset Value
7. Purchase of Securities Being Offered. . . Purchase of Shares
8. Redemption or Repurchase. . . . . . . . . Redemption of Shares
9. Pending Legal Proceedings . . . . . . . . Cover Page; Management
PART B: STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page. . . . . . . . . . . . . . . . Cover Page
11. Table of Contents . . . . . . . . . . . . Table of Contents
12. General Information and History . . . . . General Information
13. Investment Objectives and Policies. . . . Investment Objectives and
Policies; Investment
Restrictions
14. Management of the Fund. . . . . . . . . . Directors and Officers
15. Control Persons and Principal Holders
of Securities . . . . . . . . . . . . . . Not Applicable
16. Investment Advisory and Other Services. . Investment Adviser
17. Brokerage Allocation. . . . . . . . . . . Allocation of Portfolio
Brokerage
18. Capital Stock and Other Securities. . . . Determination of Net Asset Value
19. Purchase, Redemption and Pricing of
Securities Being Offered . . . . . . . Determination of Net Asset Value
20. Tax Status. . . . . . . . . . . . . . . . Not Applicable
21. Underwriters. . . . . . . . . . . . . . . Not Applicable
22. Performance Data. . . . . . . . . . . . . Not Applicable
23. Financial Statements. . . . . . . . . . . Financial Statements; Report of
Independent Accountants
PART C: OTHER INFORMATION
Information required to be included in Part C is set forth under
the appropriate item so numbered, in Part C hereof.
<PAGE>
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
made 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 "HIGH YIELD SECURITIES - RISK
FACTORS."
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 May 1, 1995 (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 May 1, 1995
<PAGE>
FINANCIAL HIGHLIGHTS
The following table sets forth the per share operating performance data for a
share of capital stock outstanding, total return, ratios to average net assets
and other supplemental data for each year indicated. Financial highlights are
not presented for Class B shares since no shares of that class were outstanding
during these periods. The table has been derived from financial statements
which have been examined by Tait, Weller & Baker, independent certified public
accountants, whose report thereon appears in the Statement of Additional
Information ("SAI"). This information should be read in conjunction with the
Financial Statements and Notes thereto, which also appear in the SAI, available
at no charge upon request to the Fund.
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Year $12.18 $11.38 $11.05 $ 9.16 $11.47 $13.19 $12.99 $14.37 $13.93 $12.76
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from Investment Operations
Net investment income 1.09 1.14 1.27 1.26 1.32 1.57 1.61 1.57 1.61 1.61
Net realized and unrealized
gain (loss) on investments 1.22 0.86 0.29 1.86 (2.30) (1.73) 0.20 (1.15) 0.92 1.22
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Total from Investment Operations (0.13) 2.00 1.56 3.12 (.98) (.16) 1.81 .42 2.53 2.83
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Less Distributions from
Net investment income 1.02 1.20 1.23 1.23 1.33 1.56 1.61 1.58 1.61 1.63
Net realized gain -- -- -- -- -- -- -- 0.19 0.48 0.03
Capital surplus -- -- -- -- -- -- -- 0.03 -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Total Distributions 1.02 1.20 1.23 1.23 1.33 1.56 1.61 1.80 2.09 1.66
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Net Asset Value, End of Year $11.03 $12.18 $11.38 $11.05 $9.16 $11.47 $13.19 $12.99 $14.37 $13.93
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN(%)+ (1.00) 18.15 14.56 35.76 (9.18) (1.60) 14.43 2.74 19.44 23.29
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (in thousands) $36,725 $43,056 $44,116 $50,914 $53,328 $85,719 $69,641 $43,965 $23,078 $5,738
Ratio to Average Net Assets:(%)
Expenses .87 .85 .88 .89 .86 .82 .84 .86 1.04 1.24
Net investment income 9.38 9.54 10.95 11.99 12.57 12.38 11.96 11.16 11.01 11.79
Portfolio Turnover Rate:(%) 54 79 65 47 37 34 51 71 112 153
<FN>
+ Calculated without sales charge
</TABLE>
<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 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. 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 and
bankers' acceptances.
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 of the Fund tends to decrease. When
interest rates decline, the net asset value of the Fund tends to increase.
4
<PAGE>
Variable or floating rate debt obligations in which the Fund may invest
periodically adjust their interest rates to reflect changing economic
conditions. Thus, changing economic conditions specified by the terms of the
security would serve to change the interest rate and the return offered to the
investor. This reduces the effect of changing market conditions on the
security's underlying market value.
A High Yield Security may itself be convertible into or exchangeable for
equity securities, or may carry with it the right to acquire equity securities
evidenced by warrants attached to the security or acquired as part of a unit
with the security. Although the Fund invests primarily in High Yield
Securities, securities received upon conversion or exercise of warrants and
securities remaining upon the break-up of units or detachment of warrants may be
retained to permit orderly disposition, to establish a long-term holding 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 - Risk Factors" 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 1994 fiscal year, computed on a monthly basis, are set forth below.
This information reflects the average composition of the Fund's assets during
the 1994 fiscal year and is not necessarily representative of the Fund as of the
end of its 1994 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 0.97% 0%
Ba 22.43 0
B 56.70 3.74
Caa 7.65 0.99
Ca 0.12 0
------- -----
Total 87.87% 4.73%
</TABLE>
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
5
<PAGE>
the same or a different issuer within a particular period of time at a
specified price or formula. A convertible security entitles the holder to
receive interest paid or accrued on debt or dividends paid on preferred stock
until the convertible security matures or is redeemed, converted or exchanged.
Convertible securities have unique investment characteristics in that they
generally (1) have higher yields than common stocks, but lower yields than
comparable non-convertible securities, (2) are less subject to fluctuation in
value than the underlying stock because they have fixed income characteristics,
and (3) provide the potential for capital appreciation if the market price of
the underlying common stock increases. See the SAI for more information on
convertible securities.
DEBT SECURITIES - RISK FACTORS. The market value of debt securities is
influenced primarily by changes in the level of interest rates. Generally, as
interest rates rise, the market value of debt securities decreases. Conversely,
as interest rates fall, the market value of debt securities increases. Factors
which could result in a rise in interest rates, and a decrease in the market
value of debt securities, include an increase in inflation or inflation
expectations, an increase in the rate of U.S. economic growth, an expansion in
the Federal budget deficit or an increase in the price of commodities such as
oil. In addition, the market value of debt securities is influenced by
perceptions of the credit risks associated with such securities. See Appendix A
for a description of corporate bond ratings.
DEEP DISCOUNT SECURITIES. The 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 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 - Risk Factors."
HIGH YIELD SECURITIES - RISK FACTORS. High Yield Securities are subject to
certain risks that may not be present with investments in higher grade
securities.
EFFECT OF INTEREST RATE AND ECONOMIC CHANGES. 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 securities ("High Yield Securities"). The prices of
High Yield Securities tend to be less sensitive to interest rate changes than
higher-rated investments, but may be more sensitive to adverse economic changes
or individual corporate developments. Periods of economic uncertainty and
changes generally result in increased volatility in the market prices and yields
of High Yield Securities and thus in a Fund's net asset value. A strong
economic downturn or a substantial period of rising interest rates could
severely affect the market for High Yield Securities. In these circumstances,
highly leveraged companies might have greater difficulty in making principal and
interest payments, meeting projected business goals, and obtaining additional
financing. Thus, there could be a higher incidence of default. This
6
<PAGE>
would affect the value of such securities and thus a Fund's net asset value.
Further, if the issuer of a security owned by a Fund defaults, that Fund might
incur additional expenses to seek recovery.
Generally, when interest rates rise, the value of fixed rate debt
obligations, including High Yield Securities, tends to decrease; when interest
rates fall, the value of fixed rate debt obligations tends to increase. If an
issuer of a High Yield Security containing a redemption or call provision
exercises either provision in a declining interest rate market, 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 the 1980's, and its growth paralleled a long economic
expansion. During that period, the yields on below investment grade bonds rose
dramatically. Such higher yields did not reflect the value of the income stream
that holders of such bonds expected, but rather the risk that holders of such
bonds could lose a substantial portion of their value as a result of the
issuers' financial restructuring or default. In fact, from 1989 to 1991 during
a period of economic recession, the percentage of lower quality securities that
defaulted rose significantly, although the default rate decreased in subsequent
years. There can be no assurance that such declines in the below investment
grade market will not reoccur. The market for below investment grade bonds
generally is thinner and less active than that for higher quality bonds, which
may limit a Fund's ability to sell such securities at fair value in response to
changes in the economy or the financial markets. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may also decrease the
values and liquidity of lower rated securities, especially in a thinly traded
market.
CREDIT RATINGS. The credit ratings issued by credit rating services may
not fully reflect the true risks of an investment. For example, credit ratings
typically evaluate the safety of principal and interest payments, not market
value risk, of High Yield Securities. Also, credit rating agencies may fail to
change on a timely basis a credit rating to reflect changes in economic or
company conditions that affect a security's market value. Although the Adviser
considers ratings of recognized rating services such as Moody's and S&P, the
Adviser primarily relies on its own credit analysis, which includes a study of
existing debt, capital structure, ability to service debt and to pay dividends,
the issuer's sensitivity to economic conditions, its operating history and the
current trend of earnings. The Fund may invest in securities rated 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 in 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
7
<PAGE>
Yield Securities than that available for higher quality securities may result in
more volatile valuations of the 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.
LEGISLATION. Provisions of the Revenue Reconciliation Act of 1989 limit a
corporate issuer's deduction for a portion of the original issue discount on
"high yield discount" obligations (including certain pay-in-kind securities).
This limitation could have a materially adverse impact on the market for certain
High Yield Securities. From time to time, legislators and regulators have
proposed other legislation that would limit the use of high yield debt
securities in leveraged buyouts, mergers and acquisitions. It is not certain
whether such proposals, which also could adversely affect High Yield Securities,
will be enacted into law.
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.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 15% of its net
assets in illiquid securities, 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 securities for purposes of this limitation do not
include securities eligible for resale to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933, as amended (the "1933
Act"), which the Fund's Board of Directors or the Adviser has determined are
liquid under Board-approved guidelines. See the SAI for more information
regarding restricted and illiquid securities.
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
8
<PAGE>
their face amount or par value, which discount varies depending on the time
remaining until cash payments begin, prevailing interest rates, liquidity of the
security and the perceived credit quality of the issuer. Pay-in-kind securities
are those that pay interest through the issuance of additional securities. The
market prices of zero coupon and pay-in-kind securities generally are more
volatile than the prices of securities that pay interest periodically and in
cash and are likely to respond to changes in interest rates to a greater degree
than do other types of debt securities having similar maturities and credit
quality. Original issue discount earned on zero coupon securities and the
"interest" on pay-in-kind securities must be included in the Fund's income.
Thus, to continue to qualify for tax treatment as a regulated investment company
and to avoid a certain excise tax on undistributed income, 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 made 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 purchases shares of the Fund. Orders for the purchase of shares of
the Fund 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 confirmed at the net asset value
determined as of the close of regular trading on the NYSE on that day. Orders
received after the close of regular trading on the NYSE will be confirmed at the
next determined net asset value. See "Determination of Net Asset Value."
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
next determined net asset value of the Fund upon receipt of a proper request for
redemption or repurchase. Payment will be made by check as soon as possible but
within seven days after presentation. However, 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
9
<PAGE>
Corporation ("FICC") owns all of the voting common stock of the Adviser and all
of the outstanding stock of FIC and the Transfer Agent. Mrs. Julie W. Grayson
(through shares to be received pursuant to probate proceedings) owns
approximately 38.3% and Mr. Glenn O. Head (or members of his family) owns
approximately 38.6% of the voting stock of FICC and, therefore, jointly control
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, 1994,
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 for the Fund
since 1986. Mr. Ganter joined FIMCO in 1985 as an Analyst. In 1989, he was
made Portfolio Manager for First Investors High Yield Fund, Inc., the High Yield
Series of First Investors Life Series Fund and Executive Investors High Yield
Fund.
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 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, 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
immediately following the last business day of the 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.
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TAXES
The Fund has qualified and 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 is distributed to its
shareholders.
Shares of the Fund are offered only to Separate Account A, which is an
insurance company separate account that funds variable annuity 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 1940 Act 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 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.
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<PAGE>
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., 10 Woodbridge Center
Drive, 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.
PERFORMANCE INFORMATION. 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.
SHAREHOLDER INQUIRIES. Shareholder inquiries can be made by calling First
Investors Life at 212-858-8200.
ANNUAL AND SEMI-ANNUAL REPORTS TO SHAREHOLDERS. It is the 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. The Fund will ensure that an
additional copy of such reports are sent to any shareholder who subsequently
changes his or her mailing address.
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.
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<PAGE>
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 "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.
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<PAGE>
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.
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.
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C Bonds which are rated "C" are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
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TABLE OF CONTENTS PAGE
- ------------------------------------
Financial Highlights . . . . . . . . . . . . . . . . . .2
Investment Objectives and Policies . . . . . . . . . . .4
How to Buy Shares. . . . . . . . . . . . . . . . . . . .9
How to Redeem Shares . . . . . . . . . . . . . . . . . .9
Management . . . . . . . . . . . . . . . . . . . . . . .9
Determination of Net Asset Value . . . . . . . . . . . 10
Dividends and Other Distributions. . . . . . . . . . . 10
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . 11
General Information. . . . . . . . . . . . . . . . . . 11
Appendix A . . . . . . . . . . . . . . . . . . . . . . 12
<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
1800 M Street, N.W.
Washington, DC 20036
CUSTODIAN
The Bank of New York
48 Wall Street
New York, NY 10286
TRANSFER AGENT
Administrative Data Management Corp.
10 Woodbridge Center Drive
Woodbridge, New Jersey 07095-1198
AUDITORS
Tait, Weller & Baker
Two Penn Center Plaza
Philadelphia, Pennsylvania 19102
PROSPECTUS
May 1, 1995
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 SPECIAL BOND FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1995
95 WALL STREET NEW YORK, N.Y. 10005/(212) 858-8200
This is a Statement of Additional Information for First Investors Special
Bond Fund, Inc. ("Fund"), an open-end diversified management investment company.
Shares of the Fund may be purchased only through the acquisition of a variable
annuity contract issued by First Investors Life Insurance Company ("First
Investors Life").
The Fund primarily seeks high current income without undue risk of
principal and secondarily seeks growth of capital by investing at least 65% of
its total assets in high yield, high risk securities, commonly referred to as
"junk bonds." There can be no assurance that the Fund will achieve its
investment objectives.
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the Fund's Prospectus dated May 1, 1995, which may be
obtained free of cost from the Fund at the address or telephone number noted
above.
TABLE OF CONTENTS PAGE
- ----------------- ----
Investment Policies. . . . . . . . . . . . . . . . . . . . 2
Investment Restrictions. . . . . . . . . . . . . . . . . . 5
Directors and Officers . . . . . . . . . . . . . . . . . . 7
Management . . . . . . . . . . . . . . . . . . . . . . . 8
Determination of Net Asset Value . . . . . . . . . . . . . 9
Allocation of Portfolio Brokerage. . . . . . . . . . . . . 10
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
General Information. . . . . . . . . . . . . . . . . . . . 12
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . 13
Financial Statements . . . . . . . . . . . . . . . . . . . 14
<PAGE>
INVESTMENT POLICIES
BANKERS' ACCEPTANCES. The Fund may invest in bankers' acceptances.
Bankers' acceptances are short-term credit instruments used to finance
commercial transactions. Generally, an acceptance is a time draft drawn on a
bank by an exporter or importer to obtain a stated amount of funds to pay for
specific merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
asset or it may be sold in the secondary market at the going rate of interest
for a specific maturity. Although maturities for acceptances can be as long as
270 days, most acceptances have maturities of six months or less.
CERTIFICATES OF DEPOSIT. The Fund may invest in bank certificates of
deposit ("CDs") subject to the restrictions set forth in the Prospectus. The
Federal Deposit Insurance Corporation is an agency of the U.S. Government which
insures the deposits of certain banks and savings and loan associations up to
$100,000 per deposit. The interest on such deposits may not be insured if this
limit is exceeded. Current Federal regulations also permit such institutions to
issue insured negotiable CDs in amounts of $100,000 or more, without regard to
the interest rate ceilings on other deposits. To remain fully insured, these
investments currently must be limited to $100,000 per insured bank or savings
and loan association.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities.
While no securities investment is without some risk, investments in convertible
securities generally entail less risk than the issuer's common stock, although
the extent to which such risk is reduced depends in large measure upon the
degree to which the convertible security sells above its value as a fixed income
security. The Fund's investment adviser, First Investors Management Company,
Inc. ("Adviser" or "FIMCO"), will decide to invest based upon a fundamental
analysis of the long-term attractiveness of the issuer and the underlying common
stock, the evaluation of the relative attractiveness of the current price of the
underlying common stock and the judgment of the value of the convertible
security relative to the common stock at current prices.
FOREIGN SECURITIES - RISK FACTORS. Investments in foreign markets involve
special risks and considerations which are in addition to the usual risks
inherent in domestic investments. These include the following: there may be
less publicly available information about foreign companies comparable to the
reports and ratings that are published about companies in the United States;
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards and requirements comparable to those applicable to
U.S. companies; some foreign stock markets have substantially less volume than
U.S. markets, and securities of some foreign companies are less liquid and more
volatile than securities of comparable U.S. companies; there may be less
government supervision and regulation of foreign stock exchanges, brokers and
listed companies than exist in the United States; and there may be the
possibility of expropriation or confiscatory taxation, political or social
instability or diplomatic developments which could affect assets of the Fund
held in foreign countries.
LOANS OF PORTFOLIO SECURITIES. The Fund may loan securities to qualified
broker-dealers or other institutional investors provided: the borrower pledges
to the Fund and agrees to maintain at all times with the Fund collateral equal
to not less than 100% of the value of the securities loaned (plus accrued
interest or dividend, if any); the loan is terminable at will by the Fund; the
Fund pays only reasonable custodian fees in connection with the loan; and the
Adviser monitors the creditworthiness of the borrower throughout the life of the
loan. Such loans may be terminated by the Fund at any time and the Fund may
vote the proxies if a material event affecting the investment is to occur. The
market risk applicable to any security
2
<PAGE>
loaned remains a risk of the Fund. The borrower must add to the collateral
whenever the market value of the securities rises above the level of such
collateral. The Fund could incur a loss if the borrower should fail financially
at a time when the value of the loaned securities is greater than the
collateral. The Fund may make loans of portfolio securities not in excess of
10% of its total assets.
PORTFOLIO TURNOVER. Although the Fund generally will not invest for
short-term trading purposes, portfolio securities may be sold from time to time
without regard to the length of time they have been held when, in the opinion of
the Adviser, investment considerations warrant such action. Portfolio turnover
rate is calculated by dividing (1) the lesser of purchases or sales of portfolio
securities for the fiscal year by (2) the monthly average of the value of
portfolio securities owned during the fiscal year. A 100% turnover rate would
occur if all the securities in Fund's portfolio, with the exception of
securities whose maturities at the time of acquisition were one year or less,
were sold and either repurchased or replaced within one year. A high rate of
portfolio turnover generally leads to transaction costs and may result in a
greater number of taxable transactions. See "Allocation of Portfolio
Brokerage." For the fiscal years ended December 31, 1993 and 1994, the Fund's
portfolio turnover rate was 79% and 54%, respectively.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
banks which are members of the Federal Reserve System or securities dealers who
are members of a national securities exchange or are market makers in government
securities. The period of these repurchase agreements will usually be short,
from overnight to one week, and at no time will the Fund invest in repurchase
agreements with more than one year in time to maturity. The securities which
are subject to repurchase agreements, however, may have maturity dates in excess
of one year from the effective date of the repurchase agreement. The Fund will
always receive, as collateral, securities whose market value, including accrued
interest, which will at all times be at least equal to 100% of the dollar amount
invested by the Fund in each agreement, and the Fund will make payment for such
securities only upon physical delivery or evidence of book entry transfer to the
account of the custodian. If the seller defaults, the Fund might incur a loss
if the value of the collateral securing the repurchase agreement declines, and
might incur disposition costs in connection with liquidating the collateral. In
addition, if bankruptcy or similar proceedings are commenced with respect to the
seller of the security, realization upon the collateral by the Fund may be
delayed or limited. The Fund may not enter into a repurchase agreement with
more than seven days to maturity if, as a result more than 15% of its net assets
would be invested in such repurchase agreements, together with any other
illiquid investments.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may not purchase or otherwise
acquire any security if, as a result more than 15% of its net assets (taken at
current value) would be invested in securities that are illiquid by virtue of
the absence of a readily available market or legal or contractual restrictions
on resale. This policy includes foreign issuers' unlisted securities with a
limited trading market and repurchase agreements maturing in more than seven
days. This policy does not include restricted securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933, as amended ("1933 Act"),
which the Fund's Board of Directors or the Adviser has determined under Board-
approved guidelines are liquid.
Restricted securities which are illiquid may be sold only in privately
negotiated transactions or in public offerings with respect to which a
registration statement is in effect under the 1933 Act. Such securities include
those that are subject to restrictions contained in the securities laws of other
countries. Securities that are freely marketable in the country where they are
principally traded, but would not be freely marketable in the United States,
will not be subject to the Fund's 15% limitation on illiquid securities. Where
registration is required, the Fund may be obligated to pay all or part of the
registration
3
<PAGE>
expenses and a considerable period may elapse between the time of the decision
to sell and the time the Fund may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, the Fund might obtain a less favorable price than
prevailed when it decided to sell.
In recent years, a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including private
placements, repurchase agreements, commercial paper, foreign securities and
corporate bonds and notes. These instruments are often restricted securities
because the securities are either themselves exempt from registration or sold in
transactions not requiring registration. Institutional investors generally will
not seek to sell these instruments to the general public, but instead will often
depend on an efficient institutional market in which such unregistered
securities can be readily resold or on an issuer's ability to honor a demand for
repayment. Therefore, the fact that there are contractual or legal restrictions
on resale to the general public or certain institutions is not dispositive of
the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
that might develop as a result of Rule 144A could provide both readily
ascertainable values for restricted securities and the ability to liquidate an
investment in order to satisfy share redemption orders. An insufficient number
of qualified institutional buyers interested in purchasing Rule 144A-eligible
securities held by the Fund, however, could affect adversely the marketability
of such portfolio securities and the Fund might be unable to dispose of such
securities promptly or at reasonable prices.
U.S. GOVERNMENT OBLIGATIONS. Securities issued or guaranteed as to
principal and interest by the U.S. Government include (1) U.S. Treasury
obligations which differ only in their interest rates, maturities and times of
issuance as follows: U.S. Treasury bills (maturities of one year or less), U.S.
Treasury notes (maturities of one to ten years) and U.S. Treasury bonds
(generally maturities of greater than ten years), and (2) obligations issued or
guaranteed by U.S. Government agencies and instrumentalities that are backed by
the full faith and credit of the United States, such as securities issued by the
Federal Housing Administration, Government National Mortgage Association, the
Department of Housing and Urban Development, the Export-Import Bank, the General
Services Administration and the Maritime Administration and certain securities
issued by the Farmers Home Administration and the Small Business Administration.
The range of maturities of U.S. Government Obligations is usually three months
to thirty years.
WARRANTS. The Fund may purchase warrants, which are instruments that
permit the Fund to acquire, by subscription, the capital stock of a corporation
at a set price, regardless of the market price for such stock. Warrants may be
either perpetual or of limited duration. There is greater risk that warrants
might drop in value at a faster rate than the underlying stock. The Fund's
investment in warrants is limited to 5% of its net assets, with no more than 2%
in warrants not listed on either the New York or American Stock Exchange.
WHEN-ISSUED SECURITIES. Although it has no intention of doing so in the
coming year, the Fund many invest up to 10% of its net assets in securities
issued on a when-issued or delayed delivery basis at the time the purchase is
made. The Fund generally would not pay for such securities or start earning
interest on them until they are issued or received. However, when the Fund
purchases debt obligations on a when-issued basis, it assumes the risks of
ownership, including the risk of price fluctuation, at the
4
<PAGE>
time of purchase, not at the time of receipt. Failure of the issuer to deliver
a security purchased by the Fund on a when-issued basis may result in the Fund
incurring a loss or missing an opportunity to make an alternative investment.
When the Fund enters into a commitment to purchase securities on a when-issued
basis, it establishes a separate account with its custodian consisting of cash
or liquid high-grade debt securities equal to the amount of the Fund's
commitment, which are valued at their fair market value. If on any day the
market value of this segregated account falls below the value of the Fund's
commitment, the Fund will be required to deposit additional cash or qualified
securities into the account until equal to the value of the Fund's commitment.
When the securities to be purchased are issued, the Fund will pay for the
securities from available cash, the sale of securities in the segregated
account, sales of other securities and, if necessary, from sale of the
when-issued securities themselves although this is not ordinarily expected.
Securities purchased on a when-issued basis are subject to the risk that yields
available in the market, when delivery takes place, may be higher than the rate
to be received on the securities the Fund is committed to purchase. Sale of
securities in the segregated account or other securities owned by the Fund and
when-issued securities may cause the realization of a capital gain or loss.
INVESTMENT RESTRICTIONS
The Fund has adopted the investment restrictions set forth below, and,
unless identified as non-fundamental policies, may not be changed without the
approval of a vote of a majority of the outstanding shares of the Fund. As
provided in the Investment Company Act of 1940, as amended ("1940 Act"), a "vote
of a majority of the outstanding shares of the Fund" means the affirmative vote
of the lesser of (1) more than 50% of the outstanding shares of the Fund or (2)
67% or more of the shares present at a meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy.
The investment restrictions provide that, among other things, the Fund will
not:
(1) Borrow money except from banks and only for temporary or emergency
purposes and then in amounts not in excess of 5% of its total assets taken at
cost or value, whichever is the lesser.
(2) Make loans to other persons except that the Fund's Board of Directors
may, on the request of broker-dealers or other institutional investors, which it
deems qualified, authorize the Fund to lend securities for the purpose of
covering short positions of the borrower, but only when the borrower pledges
cash collateral to the Fund and agrees to maintain such collateral so that it
amounts at all times to at least 100% of the value of the securities. Such
security loans will not be made if as a result the aggregate of such loans
exceeds 10% of the value of the Fund's total assets. The Fund may terminate
such loans at any time and vote the proxies if a material event affecting the
investment is to occur. The market risk applicable to any security loaned
remains a risk of the Fund. The investment risk is that the borrower will fail
financially when the collateral is in its possession. The borrower must add to
collateral whenever the market value of the securities rises above the level of
such collateral. The primary objectives of such loaning function is to
supplement the Fund's income through investment of the cash collateral in short-
term interest bearing obligations. The purchase of a portion of an issue of
publicly distributed debt securities is not considered the making of a loan.
(3) With respect to 75% of the Fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) if, as a
5
<PAGE>
result, (a) more than 5% of the Fund's total assets would be invested in the
securities of that issuer, or (b) the Fund would hold more than 10% of the
outstanding voting securities of that issuer.
(4) Invest more than 5% of the value of its total assets in securities of
issuers that have been in business for less than three years.
(5) Underwrite securities of other issuers.
(6) Purchase or sell real estate or commodities or commodity contracts.
However, the Fund may purchase interests in real estate investment trusts whose
securities are registered under the Securities Act of 1933, as amended, and are
readily marketable.
(7) Invest in companies for the purpose of exercising control or
management.
(8) Invest in securities of other investment companies, except in
connection with a merger of another investment company.
(9) Purchase any securities on margin or sell any securities short.
(10) Purchase or retain securities of any issuer if any officer or
director of the Fund or the Adviser owns beneficially more than 1/2 of 1% of
the securities of such issuer and together own more than 5% of the securities
of such issuer.
(11) Invest more than 25% of the value of its total assets in a particular
industry at any one time.
(12) Purchase or sell portfolio securities from or to the Adviser or any
director or officer thereof or of the Fund, as principals.
The Fund has adopted the following non-fundamental investment restrictions
which may be changed without shareholder approval:
(1) The Fund will not purchase any security if, as a result, more than 15%
of its net assets would be invested in illiquid securities, including repurchase
agreements not entitling the holder to payment of principal and interest within
seven days and any securities that are illiquid by virtue of legal or
contractual restrictions on resale or the absence of a readily available market.
The Directors, or the Fund's investment adviser acting pursuant to authority
delegated by the Directors, may determine that a readily available market exists
for securities eligible for resale pursuant to Rule 144A under the Securities
Act of 1933, as amended, or any other applicable rule, and therefore that such
securities are not subject to the foregoing limitation.
(2) The Fund will not pledge, mortgage or hypothecate any of its assets,
except that the Fund may pledge its assets to secure borrowings made in
accordance with fundamental investment restriction (1) above, provided the Fund
maintains asset coverage of at least 300% for all such borrowings.
The Fund has filed the following undertaking to comply with the
requirements of a certain state in which shares of the Fund are sold, which may
be changed without shareholder approval. The Fund will not invest in oil, gas
or other mineral leases or exploration or development programs.
6
<PAGE>
DIRECTORS AND OFFICERS
The following table lists the Directors and executive officers of the Fund,
their business address and principal occupations during the past five years.
Unless otherwise noted, an individual's business address is 95 Wall Street, New
York, New York 10005.
GLENN O. HEAD*+, President and Director. Chairman of the Board, Director and
Treasurer, Administrative Data Management Corp. ("ADM"); Chairman of the Board
and Director, FIMCO, Executive Investors Management Company, Inc. ("EIMCO"),
First Investors Corporation ("FIC"), Executive Investors Corporation ("EIC") and
First Investors Consolidated Corporation ("FICC").
JAMES J. COY, Director, 90 Buell Lane, East Hampton, NY 11937. Retired;
formerly Senior Vice President, James Talcott, Inc. (financial institution).
ROGER L. GRAYSON*, Director. Director, FIC and FICC; President and Director,
First Investors Resources, Inc.; Commodities Portfolio Manager.
KATHRYN S. HEAD*+, Director, 10 Woodbridge Center Drive, Woodbridge, NJ 07095.
President, FICC and FIMCO; Vice President, Chief Financial Officer and Director,
FIC and EIC; President and Director, First Financial Savings Bank, S.L.A.;
Chief Financial Officer, ADM.
F. WILLIAM ORTMAN, JR., Director, 50 B Cambridge Circle, Lakehurst, NJ 08723.
Retired; formerly Management Consultant.
REX R. REED, Director, 76 Keats Way, Morristown, NJ 07960. Retired; formerly
Senior Vice President, American Telephone & Telegraph Company.
HERBERT RUBINSTEIN, Director, 145 Elm Drive, Roslyn, NY 11576. Retired;
formerly President, Belvac International Industries, Ltd. and President,
Central Dental Supply.
JOHN T. SULLIVAN*, Director and Chairman of the Board; Director, FIMCO, FIC,
FICC and ADM; Of Counsel, Hawkins, Delafield & Wood, Attorneys.
ROBERT F. WENTWORTH, Director, RR1, Box 2554, Upland Downs Road, Manchester
Center, VT 05255. Retired; formerly, financial and planning executive with
American Telephone & Telegraph Company.
JOSEPH I. BENEDEK, Treasurer, 10 Woodbridge Center Drive, Woodbridge, NJ 07095.
Treasurer, FIC FIMCO, EIMCO and EIC.
GEORGE V. GANTER, Vice President. Vice President, First Investors Asset
Management Company, Inc., First Investors High Yield Fund, Inc. and Executive
Investors Trust; Portfolio Manager, FIMCO.
CONCETTA DURSO, Vice President and Secretary. Vice President, FIMCO, EIMCO and
ADM; Assistant Vice President and Assistant Secretary, FIC.
7
<PAGE>
CAROL LERNER BROWN, Assistant Secretary. Secretary, FIMCO, EIMCO, FIC, EIC and
ADM.
- -----------------------------
* These Directors may be deemed to be "interested persons," as defined in
the 1940 Act.
+ Mr. Glenn O. Head and Ms. Kathryn S. Head are father and daughter.
All of the officers and Directors, except for Mr. Ganter, hold identical or
similar positions with Executive Investors Trust, First Investors Cash
Management Fund, Inc., First Investors Global Fund, Inc., First Investors
Government Fund, Inc., First Investors Insured Tax Exempt Fund, Inc., First
Investors Series Fund, First Investors Life Fund Series, First Investors
Multi-State Insured Tax Free Fund, First Investors New York Insured Tax Free
Fund, Inc., First Investors Series Fund II, Inc., First Investors High Yield
Fund, Inc., First Investors Fund For Income, Inc., First Investors Tax-Exempt
Money Market Fund, Inc. and First Investors U.S. Government Plus Fund. Mr. Head
is also an officer and/or Director of First Investors Asset Management Company,
Inc., First Investors Credit Funding Corporation, First Investors Leverage
Corporation, First Investors Realty Company, Inc., First Investors Resources,
Inc., N.A.K. Realty Corporation, Real Property Development Corporation, Route 33
Realty Corporation, First Investors Life Insurance Company, First Financial
Savings Bank, S.L.A., First Investors Credit Corporation and School Financial
Management Services, Inc. Ms. Head is also an officer and/or Director of First
Investors Life Insurance Company, First Investors Credit Corporation and School
Financial Management Services, Inc.
Compensation to officers and interested Directors of the Funds is paid by
the Adviser and not by the Fund. In addition, compensation to non-interested
Directors of the Funds is currently voluntarily paid by the Adviser.
MANAGEMENT
Investment advisory services to the Fund are provided by First Investors
Management Company, Inc. pursuant to an Investment Advisory Agreement ("Advisory
Agreement") dated June 13, 1994. The Advisory Agreement was approved by the
Board of Directors of the Fund, including a majority of the Directors who are
not parties to the Advisory Agreement or "interested persons" (as defined in the
1940 Act) of any such party ("Independent Directors"), in person at a meeting
called for such purpose and by a majority of the shareholders of the Fund.
Pursuant to the Advisory Agreement, FIMCO shall supervise and manage the
Fund's investments, determine the Fund's portfolio transactions and supervise
all aspects of its operations, subject to review by the Directors. The Advisory
Agreement also provides that FIMCO shall provide the Fund with certain
executive, administrative and clerical personnel, office facilities and
supplies, conduct the business and details of the operation of the Fund and
assume certain expenses thereof, other than obligations or liabilities of the
Fund. The Advisory Agreement may be terminated at any time without penalty by
the Directors or by a majority of the outstanding voting securities of the Fund,
or by FIMCO, in each instance on not less than 60 days' written notice, and
shall automatically terminate in the event of its assignment (as defined in the
1940 Act). The Advisory Agreement also provides that it will continue in effect
for a period of over two years only if such continuance is approved annually
either by the Directors or by a majority of the outstanding voting securities of
the Fund, and, in either case, by a vote of a majority of the Independent
Directors voting in person at a meeting called for the purpose of voting on such
approval.
8
<PAGE>
Under the Advisory Agreement, the Fund pays the Adviser an annual fee, paid
monthly, according to the following schedule:
<TABLE>
<CAPTION>
Annual
Average Daily Net Assets Rate
- ------------------------ ------
<S> <C>
Up to $250 million . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.75%
In excess of $250 million up to $500 million . . . . . . . . . . . . . . 0.72
In excess of $500 million up to $750 million . . . . . . . . . . . . . . 0.69
Over $750 million. . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.66
</TABLE>
The SEC staff takes the position that fees of 0.75% or greater are higher than
those paid by most investment companies.
For the fiscal years ended December 31, 1992, 1993 and 1994, the Fund paid
the Adviser $354,696, $322,888 and $294,179, respectively, in advisory fees.
The Adviser has an Investment Committee composed of Denise M. Burns,
George V. Ganter, Margaret Haggerty, Glenn O. Head, Nancy W. Jones, Patricia D.
Poitra, Christopher Brigati, Clark D. Wagner and John Tomasulo. The Committee
usually meets weekly to discuss the composition of the portfolio of the Fund and
to review additions to and deletions from its portfolio.
DETERMINATION OF NET ASSET VALUE
Except as provided herein, a security listed or traded on an exchange or
the NASDAQ national market system is valued at its last sale price on the
exchange or market system where the security is primarily traded, and lacking
any sales on a particular day, the security is valued at the closing bid price
on that day. Each security traded in the over-the-counter ("OTC") market,
including securities listed on exchanges whose primary market is believed to be
OTC, is valued at the last bid price based upon quotes furnished by a market
maker for such securities. In the absence of market quotations, the Fund will
determine the value of bonds based upon quotes furnished by market makers, if
available, or in accordance with the procedures described herein. In that
connection, the Fund's Board of Directors has determined that the Fund may use
an outside pricing service. The pricing service uses quotations obtained from
investment dealers or brokers for the particular securities being evaluated,
information with respect to market transactions in comparable securities and
other available information in determining value. Short-term debt securities
that mature in 60 days or less are valued at amortized cost if their original
term to maturity from the date of purchase was 60 days or less, or by amortizing
their value on the 61st day prior to maturity if their term to maturity from the
date of purchase exceeded 60 days, unless the Fund's Board of Directors
determines that such valuation does not represent fair value. Securities for
which market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Fund's officers in a
manner specifically authorized by the Fund's Board of Directors.
"When-issued securities" are reflected in the assets of the Fund as of the
date the securities are purchased. Such investments are valued thereafter at
the most recent bid price obtained from recognized dealers in such securities.
For valuation purposes, quotations of foreign securities in foreign currencies
are converted into U.S. dollar equivalents using the foreign exchange
equivalents in effect.
9
<PAGE>
The Fund's Board of Directors may suspend the determination of the Fund's
net asset value for the whole or any part of any period (1) during which trading
on the New York Stock Exchange ("NYSE") is restricted as determined by the SEC
or the NYSE is closed for other than weekend and holiday closings, (2) when an
emergency exists, as defined by the SEC, that makes it not reasonably
practicable for the Fund to dispose of securities owned by it or fairly to
determine the value of its net assets, or (3) for such other period as the SEC
has by order permitted.
ALLOCATION OF PORTFOLIO BROKERAGE
Purchases and sales of portfolio securities by the Fund may be principal
transactions. In principal transactions, portfolio securities are normally
purchased directly from the issuer or from an underwriter or market maker for
the securities. There will usually be no brokerage commission paid by the Fund
for such purchases. Purchases from underwriters will include the underwriter's
commission or concession and purchases from dealers serving as market makers
will include the spread between the bid and asked price. Certain money market
instruments may be purchased by the Fund directly from an issuer, in which no
commission or discounts are paid. The Fund may purchase fixed income securities
on a "net" basis with dealers acting as principal for its own account without a
stated commission, although the price of the security usually includes a profit
to the dealer.
The Fund may deal in securities which are not listed on a national
securities exchange or the Nasdaq national market system but are traded in the
OTC market. The Fund also may purchase listed securities through the "third
market." When transactions are executed in the OTC market, the Fund seeks to
deal with the primary market makers, but when advantageous they utilize the
services of brokers.
In effecting portfolio transactions for the Fund, the Adviser seeks best
execution of trades either (1) at the most favorable and competitive rate of
commission charged by any broker or member of an exchange, or (2) with respect
to agency transactions, at a higher rate of commission if reasonable in relation
to brokerage and research services provided to the Fund or the Adviser, by such
member or broker. Such services may include, but are not limited to, any one or
more of the following: information as to the availability of securities for
purchase or sale and statistical or factual information or opinions pertaining
to investments. The Adviser may use research and services provided to it by
brokers in servicing all the funds in First Investors Group of Funds; however,
not all such services may be used by the Adviser in connection with the Fund.
No portfolio orders are placed with an affiliated broker, nor does any
affiliated broker participate in these commissions.
The Adviser may combine transaction orders placed on behalf of the Fund and
any other fund in the First Investors Group of Funds, any series of Executive
Investors Trust and First Investors Life for the purpose of negotiating
brokerage commissions or obtaining a more favorable transaction price; and where
appropriate, securities purchased or sold may be allocated, in terms of price
and amount, to the Fund according to the proportion that the size of the
transaction order actually placed by the Fund bears to the aggregate size of the
transaction orders simultaneously made by other participants in the transaction.
For the fiscal year ended December 31, 1992, the Fund paid brokerage
commissions of $1,731, all of which was paid to brokers who furnished research
services on portfolio transactions in the amount of $288,025. For the fiscal
year ended December 31, 1993, the Fund paid $2,790 in brokerage commissions. Of
that amount $1,843 was paid in brokerage commissions to brokers who furnished
research services on portfolio transactions in the amount of $188,559. For the
fiscal year ended December
10
<PAGE>
31, 1994, the Fund paid $781 in brokerage commissions, all of which was paid to
brokers who furnished research services on portfolio transactions in the amount
of $17,968.
TAXES
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code of 1986, as amended ("Code"),
the Fund must distribute to its shareholders for each taxable year at least 90%
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) ("Distribution Requirement") and must meet several additional
requirements. These requirements include the following: (1) the Fund must
derive at least 90% of its gross income each taxable year from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of securities or foreign currencies, or other income derived
with respect to its business of investing in securities or those currencies;
(2) the Fund must derive less than 30% of its gross income each taxable year
from the sale or other disposition of securities, or foreign currencies that are
not directly related to the Fund's principal business of investing in
securities, that were held for less than three months ("Short-Short
Limitation"); (3) at the close of each quarter of the Fund's taxable year, at
least 50% of the value of its total assets must be represented by cash and cash
items, U.S. Government securities, securities of other RICs and other
securities, with those other securities limited, in respect of any one issuer,
to an amount that does not exceed 5% of the value of the Fund's total assets and
that does not represent more than 10% of the issuer's outstanding voting
securities; and (4) at the close of each quarter of the Fund's taxable year, not
more than 25% of the value of its total assets may be invested in securities
(other than U.S. Government securities or the securities of other RICs) of any
one issuer.
Dividends and interest received by the Fund may be subject to income,
withholding or other taxes imposed by foreign countries that would reduce the
yield on its securities. Tax conventions between certain countries and the
United States may reduce or eliminate these foreign taxes, however, and many
foreign countries do not impose taxes on capital gains in respect of investments
by foreign investors.
The Fund may acquire zero coupon securities issued with original issue
discount. As a holder of those securities, the Fund must include in its income
the original issue discount that accrues on the securities for the taxable year,
even if it receives no corresponding payment on the securities during the year.
Similarly, the Fund must include in its gross income securities it receives as
"interest" on pay-in-kind securities. Because the Fund annually must distribute
substantially all of its investment company taxable income, including any
original issue discount and other non-cash income, in order to satisfy the
Distribution Requirement, the Fund may be required in a particular year to
distribute as a dividend an amount that is greater than the total amount of cash
it actually receives. Those distributions will be made from the Fund's cash
assets or from the proceeds of sales of portfolio securities, if necessary. The
Fund may realize capital gains or losses from those sales, which would increase
or decrease its investment company taxable income and/or net capital gain (the
excess of net long-term capital gain over net short-term capital loss). In
addition, any such gains may be realized on the disposition of securities held
for less than three months. Because of the Short-Short Limitation, any such
gains would reduce the Fund's ability to sell other securities held for less
than three months that it might wish to sell in the ordinary course of its
portfolio management.
11
<PAGE>
GENERAL INFORMATION
AUDITS AND REPORTS. The accounts of the Fund are audited twice a year by
Tait, Weller & Baker, independent certified public accountants, Two Penn Center
Plaza, Philadelphia, PA, 19102-1707. Shareholders of the Fund receive semi-
annual and annual reports, including audited financial statements, and a list of
securities owned.
12
<PAGE>
APPENDIX A
DESCRIPTION OF COMMERCIAL PAPER RATINGS
STANDARD & POOR'S RATINGS GROUP
S&P's commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market. Ratings
are graded into several categories, ranging from "A-1" for the highest quality
obligations to "D" for the lowest.
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) designation.
MOODY'S INVESTORS SERVICE, INC.
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year. Obligations relying upon support mechanisms such as
letters-of-credit and bonds of indemnity are excluded unless explicitly rated.
PRIME-1 Issuers (or supporting institutions) rated Prime-1 (P-1) have a
superior ability for repayment of senior short-term debt obligations. P-1
repayment ability will often be evidenced by many of the following
characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance
on debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
13
<PAGE>
FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1994
14
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments
FIRST INVESTORS SPECIAL BOND FUND, INC.
December 31, 1994
- --------------------------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS--89.0%
Apparel/Textiles--.0%
$ 500M + Linter Textiles Corp., Ltd., 13 3/4%, 2000 $ 6,250 $ 2
- --------------------------------------------------------------------------------------------------------------------------
Automotive--2.7%
1,000M SPX Corp.,11 3/4%, 2002 998,750 272
- --------------------------------------------------------------------------------------------------------------------------
Chemicals--6.7%
1,100M OSI Specialties, Inc., 9 1/4%, 2003 1,006,500 274
700M Rexene Corp., 11 3/4%, 2004 822,000 224
800M Synthetic Industries, Inc., 12 3/4%, 2002 619,500 169
- --------------------------------------------------------------------------------------------------------------------------
2,448,000 667
- --------------------------------------------------------------------------------------------------------------------------
Conglomerates--2.2%
1,250M Eagle Industries, Inc., 0%-10 1/2%, 2003 806,250 220
- --------------------------------------------------------------------------------------------------------------------------
Containers--2.8%
1,000M Owens Illinois, Inc., 11%, 2003 1,040,000 283
- --------------------------------------------------------------------------------------------------------------------------
Durable Goods Manufacturing--1.8%
700M Idex Corp., 9 3/4%, 2002 675,500 184
- --------------------------------------------------------------------------------------------------------------------------
Electrical Equipment--10.9%
1,100M Essex Group, Inc., 10%, 2003 1,028,500 280
1,000M IMO Industries, Inc., 12%, 2001 1,005,000 274
1,000M Mark IV Industries, Inc., 8 3/4%, 2003 915,000 249
472M Thermadyne Industries, Inc., 10 1/4%, 2002 453,120 123
656M Thermadyne Industries, Inc., 10 3/4%, 2003 616,640 168
- --------------------------------------------------------------------------------------------------------------------------
4,018,260 1,094
- --------------------------------------------------------------------------------------------------------------------------
Energy Services--8.6%
1,000M Clark Oil & Refining Corp., 10 1/2%, 2001 1,017,500 277
1,000M Clark R&M Holdings, Inc., 0%, 2000 568,750 155
837M Synergy Group, Inc., 9 1/2%, 2000 669,600 182
850M Transco Energy Co., 11 1/4%, 1999 907,375 247
- --------------------------------------------------------------------------------------------------------------------------
3,163,225 861
- --------------------------------------------------------------------------------------------------------------------------
Food/Beverage/Tobacco--1.9%
750M Canandaigua Wine, Inc., 8 3/4%, 2003 678,750 185
- --------------------------------------------------------------------------------------------------------------------------
<PAGE>
Gaming/Lodging--3.8%
900M GB Funding, Inc., 10 7/8%, 2004 733,500 200
800M Showboat, Inc., 9 1/4%, 2008 674,000 183
- --------------------------------------------------------------------------------------------------------------------------
1,407,500 383
- --------------------------------------------------------------------------------------------------------------------------
Healthcare--8.4%
870M Abbey Healthcare Group, Inc., 9 1/2%, 2002 783,000 213
800M Healthtrust, Inc., 8 3/4%, 2005 772,000 210
700M Hillhaven Corp., 10 1/8%, 2001 701,750 191
900M Mediq/PRN Life Support Services, Inc., 11 1/8%, 1999 814,500 222
- --------------------------------------------------------------------------------------------------------------------------
3,071,250 836
- --------------------------------------------------------------------------------------------------------------------------
Media/Cable Television--14.6%
1,500M Affiliated Newspaper Investments, 13 1/4%, 2006 780,000 212
1,000M Cablevision Industries, Inc., 10 3/4%, 2002 995,000 271
700M Continental Broadcasting, Inc., 10 5/8%, 2003 707,875 193
500M Rogers Cablesystems, Ltd., 9 5/8%, 2002 491,250 134
800M Summit Communications Group, 10 1/2%, 2005 818,000 223
1,400M Videotron Holding, PLC., 0% - 11 1/8%, 2004 742,000 202
900M World Color Press, Inc., 9 1/8%, 2003 834,750 227
- --------------------------------------------------------------------------------------------------------------------------
5,368,875 1,462
- --------------------------------------------------------------------------------------------------------------------------
Mining/Metals--1.8%
800M Geneva Steel Corp., 11 1/8%, 2001 675,000 184
- --------------------------------------------------------------------------------------------------------------------------
Miscellaneous--1.2%
1,050M + Acme Holdings, Inc., 11 3/4%, 2000 441,000 120
- --------------------------------------------------------------------------------------------------------------------------
Paper/Forest Products--5.9%
700M Rainy River Forest Products Co., Inc., 10 3/4%, 2001 698,250 190
800M SD Warren Co., Inc., 12%, 2004 (Note 5) 820,000 223
700M Stone Container Corp., 9 7/8%, 2001 665,000 181
- --------------------------------------------------------------------------------------------------------------------------
2,183,250 594
- --------------------------------------------------------------------------------------------------------------------------
Real Estate/Construction--2.5%
1,000M Oriole Homes, Inc., 12 1/2%, 2003 895,000 244
- --------------------------------------------------------------------------------------------------------------------------
Retail/Food/Drug--3.0%
600M P&C Food Markets, Inc., 11 1/2%, 2001 609,000 166
500M Penn Traffic Company, 10 1/4%, 2002 484,375 132
- --------------------------------------------------------------------------------------------------------------------------
1,093,375 298
- --------------------------------------------------------------------------------------------------------------------------
Retail/General Merchandise-- .5%
5M Barry's Jewelers, Inc., 12 5/8%, 1996 2,611 1
200M General Host Co., Inc., 11 1/2%, 2002 176,000 48
- --------------------------------------------------------------------------------------------------------------------------
178,611 49
- --------------------------------------------------------------------------------------------------------------------------
Telecommunications--7.5%
850M Cencall Communication Corp., 0%-10 1/8%, 2004 301,750 82
1,000M MFS Communication, Inc., 0%-9 3/8%, 2004 581,250 158
<PAGE>
900M Paging Network, Inc., 11 3/4%, 2002 897,750 244
1,000M PanAmSat Capital Corp., 9 3/4%, 2000 955,000 260
- --------------------------------------------------------------------------------------------------------------------------
2,735,750 744
- --------------------------------------------------------------------------------------------------------------------------
Transportation--2.2%
900M Eletson Holdings, Inc., 9 1/4%, 2003 805,500 219
- --------------------------------------------------------------------------------------------------------------------------
Total Value of Corporate Bonds (cost $35,380,953) 32,690,096 8,901
- --------------------------------------------------------------------------------------------------------------------------
BOND UNITS--2.4%
1,675 Echostar Communication Corp., 0%-12 7/8%, 2004(cost $967,268) 875,188 238
- --------------------------------------------------------------------------------------------------------------------------
Shares,
Warrants or
Principal
Amount
- --------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS-- .6%
Electrical Equipment-- .0%
1,036 *Thermadyne Holding Corp. 12,432 4
- --------------------------------------------------------------------------------------------------------------------------
Gaming/Lodging-- .0%
8,500 *Goldriver Hotel & Casino Corp., Series "B" 12,750 4
- --------------------------------------------------------------------------------------------------------------------------
Media/Cable Television-- .1%
1,500 *Affiliated Newspaper Investments, Inc. "B" 37,500 10
- --------------------------------------------------------------------------------------------------------------------------
Paper/Forest Products-- .2%
6,136 *Gaylord Container Corp., Class "A" 55,991 15
- --------------------------------------------------------------------------------------------------------------------------
Retail/General Merchandise--.3%
14,354 *Barry's Jewelers, Inc. 100,484 27
- --------------------------------------------------------------------------------------------------------------------------
Total Value of Common Stocks (cost $408,307) 219,157 60
- --------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS--2.7%
Financial Services
10,000 California Federal Bank, 10 5/8%, Series B (cost $1,000,000) 1,000,000 272
- --------------------------------------------------------------------------------------------------------------------------
WARRANTS--.7%
Gaming/Lodging--.0%
850 *Goldriver Finance Corp., Liquidating Trust 12,750 4
- --------------------------------------------------------------------------------------------------------------------------
Paper/Forest Products--.7%
32,590 *Gaylord Container Corp. (expiring 7/31/96) 240,351 65
- --------------------------------------------------------------------------------------------------------------------------
Total Value of Warrants (cost $48,875) 253,101 69
- --------------------------------------------------------------------------------------------------------------------------
SHORT-TERM CORPORATE NOTES--2.0%
$ 750M Raytheon Co., 5.95%, 1/9/95 (cost $749,008) 749,008 204
- --------------------------------------------------------------------------------------------------------------------------
Total Value of Investments (cost $38,554,411) 97.4% 35,786,550 9,744
Other Assets, Less Liabilities 2.6 938,533 256
- --------------------------------------------------------------------------------------------------------------------------
<PAGE>
Net Assets 100.0% $36,725,083 $10,000
==========================================================================================================================
* Non-incoming producing
+ In default as to principal and/or interest (Note 5).
(a)Each unit consists of a $1,000 principal amount 12 7/8% senior secured
discount note due 6/1/04 and warrants to purchase six shares of
common stock.
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
FIRST INVESTORS SPECIAL BOND FUND, INC.
December 31, 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments in securities, at value (identified cost $38,554,411) (Note 1A) $ 35,786,550
Cash ..................................................................... 201,460
Interest and dividends receivable ........................................ 802,078
Other assets ............................................................. 4,373
------------
Total Assets ............................................................. 36,794,461
Liabilities
Payable for capital stock redeemed ....................................... $33,745
Accrued advisory fee ..................................................... 22,478
Accrued expenses ......................................................... 13,155
-------
Total Liabilities ........................................................ 69,378
------------
Net Assets ............................................................... $ 36,725,083
Net Assets Consist of:
Capital paid in .......................................................... $ 58,807,036
Undistributed net investment income ...................................... 307,141
Accumulated net realized loss on investment transactions ................. (19,621,233)
Net unrealized depreciation in value of investments ...................... (2,767,861)
------------
Total .................................................................... $ 36,725,083
------------
Net Asset Value, Offering Price and Redemption Price Per Share
($36,725,083 divided by 3,329,503 shares outstanding),
<PAGE>
25,000,000 shares authorized, $1.00 par value (Note 2) ................... $11.03
------------
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
FIRST INVESTORS SPECIAL BOND FUND, INC.
Year Ended December 31, 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income
Income:
Interest ................................................$ 3,922,367
Consent fees ............................................ 56,596
Dividends ............................................... 43,000
-----------
Total income .............................................. $ 4,021,963
Expenses:
Advisory fee (Note 4) ................................... 294,179
Professional fees ....................................... 26,426
Reports and notices to shareholders ..................... 9,146
Other expenses .......................................... 11,448
-----------
Total expenses ............................................ 341,199
-----------
Net investment income ..................................... 3,680,764
Realized and Unrealized Gain (Loss) on Investments (Note 3):
Net realized gain on investments .......................... 702,669
Net unrealized depreciation of investments ................ (4,824,981)
-----------
Net loss on investments ................................... (4,122,312)
-----------
Net Decrease in Net Assets Resulting from Operations ...... $ (441,548)
-----------
See notes to financial statements
</TABLE>
<TABLE>
<PAGE>
<CAPTION>
Statement of Changes in Net Assets
FIRST INVESTORS SPECIAL BOND FUND, INC.
- ---------------------------------------------------------------------------------------------------
Year Ended December 31 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets from Operations
Net investment income ........................................ $ 3,680,764 $ 4,106,596
Net realized gain on investments ............................. 702,669 1,935,640
Net unrealized appreciation (depreciation) of investments .... (4,824,981) 1,228,902
------------ -----------
Net increase (decrease) in net assets resulting from operations (441,548) 7,271,138
------------ -----------
Dividends to Shareholders from:
Net investment income ........................................ (3,465,637) (4,340,494)
------------ -----------
Capital Share Transactions (a)
Issued ....................................................... 385,945 402,565
Issued on reinvestment ....................................... 3,465,637 4,340,494
Redeemed ..................................................... (6,275,104) (8,734,275)
------------ -----------
Net decrease in net assets resulting from share transactions (2,423,522) (3,991,216)
------------ -----------
Total decrease in net assets ................................. (6,330,707) (1,060,572)
Net Assets
Beginning of year ............................................ 43,055,790 44,116,362
------------ -----------
End of year (including undistributed net investment income of
$307,141 and $92,014, respectively) ........................ $36,725,083 $43,055,790
=========== ============
(a)Capital Shares Issued and Redeemed
Issued ....................................................... 33,791 34,124
Issued on reinvestment ....................................... 305,954 362,231
Redeemed ..................................................... (546,626) (738,147)
------------ -----------
Net decrease in capital shares ............................... (206,881) (341,792)
=========== ============
See notes to financial statements
</TABLE>
Notes to Financial Statements
<PAGE>
FIRST INVESTORS SPECIAL BOND FUND, INC.
1. Significant Accounting Policies - The Fund is registered under the
Investment Company Act of 1940 (the "1940 Act") as a diversified, open-end
management investment company.
A. Security Valuation - Except as provided below, a security listed or
traded on an exchange or the NASDAQ National Market System is valued at its
last sale price on the exchange or system where the security is principally
traded, and lacking any sales, the security is valued at the mean between
the closing bid and asked prices. Each security traded in the
over-the-counter market (including securities listed on exchanges whose
primary market is believed to be over-the-counter) is valued at the mean
between the last bid and asked prices based upon quotes furnished by a
market maker for such securities. Securities may also be priced by a
pricing service. The pricing service uses quotations obtained from
investment dealers or brokers, information with respect to market
transactions in comparable securities and other available information in
determining value. Short-term corporate notes which are purchased at a
discount are valued at amortized cost. Securities for which market
quotations are not readily available are valued on a consistent basis at
fair value as determined in good faith by or under the supervision of the
Fund's officers in a manner specifically authorized by the Board of
Directors.
B. Federal Income Taxes - No provision has been made for federal income
taxes on net income or capital gains, since it is the policy of the Fund to
continue to comply with the special provisions of the Internal Revenue Code
applicable to investment companies and to make sufficient distributions of
income and capital gains (in excess of any available capital loss
carryovers) to relieve it from all, or substantially all, such taxes. At
December 31, 1994, the Fund had capital loss carryovers of $19,621,233, of
which $16,599,362 expires in 1998 and $3,021,871 expires in 1999.
C. Other - Security transactions are accounted for on the date the
securities are purchased or sold. Cost is determined, and gains and losses
are based, on the identified cost basis for both financial statement and
federal income tax purposes. Dividend income is recorded on the ex-dividend
date. Interest income and estimated expenses are accrued daily. Dividends
from net investment income are declared daily and paid monthly.
2. Capital Stock - Shares of the Fund are sold only through the purchase of
annuity contracts issued by First Investors Life Variable Annuity Fund A.
3. Security Transactions - For the year ended December 31, 1994, purchases
and sales of investment securities, other than United States Government
obligations and short-term corporate notes, aggregated $20,232,779 and
$21,725,665, respectively.
At December 31, 1994, the cost of investments for federal income tax
purposes was $38,554,411. Accumulated net unrealized depreciation on
investments was $2,767,861, consisting of $505,644 gross unrealized
appreciation and $3,273,505 gross unrealized depreciation.
4. Advisory Fee and Other Transactions With Affiliates - Certain officers
<PAGE>
and directors of the Fund are officers and directors of its investment
adviser, First Investors Management Company, Inc. ("FIMCO") and its transfer
agent, Administrative Data Management Corp. Officers and directors of the
Fund received no remuneration from the Fund for serving in such capacities.
Their remuneration (together with certain other expenses of the Fund) is
paid by FIMCO or First Investors Corporation.
The Investment Advisory Agreement provides as compensation to FIMCO an
annual fee, payable monthly, at the rate of .75% on the first $250 million
of the Fund's average daily net assets, declining by .03% on each $250
million thereafter, down to .66% on average daily net assets over $750
million.
Pursuant to certain state regulations, FIMCO has agreed to reimburse the
Fund if and to the extent that the Fund's aggregate operating expenses,
including the advisory fee but generally excluding interest, taxes,
brokerage commissions and extraordinary expenses, exceed any limitation on
expenses applicable to the Fund in those states (unless waivers of such
limitations have been obtained). The amount of any such reimbursement is
limited to the yearly advisory fee. For the year ended December 31, 1994, no
reimbursement was required pursuant to these provisions.
5. Rule 144A Securities - Under Rule 144A, certain restricted securities are
exempt from the registration requirements of the Securities Act of 1933 and
may only be resold to qualified institutional investors. At December 31,
1994, the Fund held one 144A security with a aggregate value of $820,000
representing 2.2% of the Fund's net assets. These securities are valued as
set forth in Note 1A.
6. Concentration of Credit Risk - The Fund's investment in high yield
securities, whether rated or unrated, may be considered speculative and
subject to greater market fluctuations and risk of loss of income and
principal than lower yielding, higher rated, fixed income securities. The
risk of loss due to default by the issuer may be significantly greater for
the holders of high yielding securities, because such securities are
generally unsecured and are often subordinated to other creditors of the
issuer. At December 31, 1994, the Fund held two defaulted securities with a
value aggregating $447,250 representing 1.2% of the Fund's net assets.
<PAGE>
Independent Auditor's Report
To the Shareholders and Board of Directors of
First Investors Special Bond Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
First Investors Special Bond Fund, Inc., including the portfolio of
investments, as of December 31, 1994, and the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended and financial highlights
for each of the ten years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights 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 and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements.
Our procedures included confirmation of securities owned as of December 31,
1994, by correspondence with the custodian. 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 and financial highlights referred
to above present fairly, in all material respects, the financial position of
First Investors Special Bond Fund, Inc. at December 31, 1994, and the
results of its operations, changes in its net assets and financial
highlights for each of the respective years presented, in conformity with
generally accepted accounting principles.
Tait, Weller & Baker
Philadelphia, Pennsylvania
January 31, 1995
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant represents that this Amendment
meets all the requirements for effectiveness pursuant to Rule 485(b) under the
Securities Act of 1933, and has duly caused this Post-Effective Amendment to
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New York, on the
17th day of April, 1995.
FIRST INVESTORS SPECIAL
BOND FUND, INC.
(Registrant)
By: /s/ Glenn O. Head
---------------------------
Glenn O. Head
President and Director
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, this Amendment to this Registration Statement
has been signed below by the following persons in the capacities and on the
dates indicated.
/s/ Glenn O. Head Principal Executive April 17, 1995
- ---------------------- Officer and Director
Glenn O. Head
/s/ Joseph I. Benedek Principal Financial April 17, 1995
- ---------------------- and Accounting Officer
Joseph I. Benedek
/s/ Kathryn S. Head Director April 17, 1995
- ----------------------
Kathryn S. Head
/s/ James J. Coy Director April 17, 1995
- ----------------------
James J. Coy
/s/ F. William Ortman Director April 17, 1995
- ----------------------
F. William Ortman, Jr.
<PAGE>
/s/ Roger L. Grayson Director April 17, 1995
- ----------------------
Roger L. Grayson
/s/ Herbert Rubinstein Director April 17, 1995
- ----------------------
Herbert Rubinstein
/s/ James M. Srygley Director April 17, 1995
- ----------------------
James M. Srygley
/s/ John T. Sullivan Director April 17, 1995
- ----------------------
John T. Sullivan
/s/ Rex R. Reed Director April 17, 1995
- ----------------------
Rex R. Reed
/s/ Robert F. Wentworth Director April 17, 1995
- ----------------------
Robert F. Wentworth
*By: /s/ Larry R. Lavoie
-------------------------
Larry R. Lavoie
Attorney-in-fact
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Financial Statements are set forth in Part B, Statement of Additional
Information.
(b) Exhibits:
(1) Articles of Restatement
(2) Amended and Restated By-laws
(3) Not Applicable
(4)(1) Specimen Certificate
(5) Investment Advisory Agreement between Registrant and First
Investors Management Company, Inc.
(6) Not Applicable
(7) Not Applicable
(8)a.(1) Custodian Agreement between Registrant and Irving Trust
Company
b.(4) Supplement to Custodian Agreement between Registrant and The
Bank of New York
(9)(1) Administration Agreement between Registrant, First Investors
Management Company, Inc., First Investors Corporation and
Administrative Data Management Corp.
(10)(3) Opinion of Counsel
(11)a. Consent of independent accountants
b.(2) Powers of Attorney
(12) Not Applicable
(13) Not Applicable
(14) Not Applicable
C-1
<PAGE>
(15) Not Applicable
(16) Not Applicable
- --------------------
(1) Incorporated by reference from Registrant's Registration Statement (File
No. 2-66294)
(2) Incorporated by reference from Post-Effective Amendment No. 12 to
Registrant's Registration Statement (File No. 2-66294) filed on April 29,
1993.
(3) Incorporated by reference from Registrant's Rule 24f-2 Notice for its
fiscal year ending December 31, 1994 filed on February 21, 1995.
(4) Incorporated by reference from Post-Effective Amendment No. 13 to
Registrant's Registration Statement (File No. 2-66294) filed on April 29,
1994.
Item 25. Persons Controlled by or under common control with Registrant
There are no persons controlled by or under common control with the
Registrant.
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Number of Record
Holders as of
Title of Class February 28, 1995
---------------- -------------------
<S> <C>
Common Stock 1
($1.00 par value)
</TABLE>
Item 27. Indemnification
Article X, Section 1 of the By-Laws of Registrant provides as follows:
Section 1. Every person who is or was an officer or director of the
Corporation (and his heirs, executors and administrators) shall be indemnified
by the Corporation against reasonable costs and expenses incurred by him in
connection with any action, suit or proceeding to which he may be made a party
by reason of his being or having been a director or officer of the Corporation,
except in relation to any action, suit or proceeding in which he has been
adjudged liable because of negligence or misconduct, which shall be deemed to
include willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office. In the absence of an
adjudication which expressly absolves the director or officer of
C-2
<PAGE>
liability to the Corporation or its stockholders for negligence or misconduct,
within the meaning thereof as used herein, or in the event of a settlement, each
director or officer (and his heirs, executors and administrators) shall be
indemnified by the Corporation against payments made, including reasonable costs
and expenses, provided that such indemnity shall be conditioned upon the prior
determination by a resolution of two-thirds of the Board of Directors, who are
not involved in the action, suit or proceeding that the director or officer has
no liability by reason of negligence or misconduct within the meaning thereof as
used herein, and provided further that if a majority of the members of the Board
of Directors of the Corporation are involved in the action, suit or proceeding,
such determination shall have been made by a written opinion of independent
counsel. Amounts paid in settlement shall not exceed costs, fees and expenses
which would have been reasonably incurred if the action, suit or proceeding had
been litigated to a conclusion. Such a determination by the Board of Directors
or by independent counsel, and the payment of amounts by the Corporation on the
basis thereof, shall not prevent a stockholder from challenging such
indemnification by appropriate legal proceedings on the grounds that the person
indemnified was liable to the Corporation or its security holders by reason of
negligence or misconduct within the meaning thereof as used herein. The
foregoing rights and indemnification shall not be exclusive of any other rights
to which any officer or director (or his heirs, executors and administrators)
may be entitled to according to law.
The Registrant's Investment Advisory Agreement provides as follows:
The Manager shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Company or any Series in connection with
the matters to which this Agreement relate except a loss resulting from the
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement. Any person, even though also an officer,
partner, employee, or agent of the Manager, who may be or become an officer,
Board member, employee or agent of the Company shall be deemed, when rendering
services to the Company or acting in any business of the Company, to be
rendering such services to or acting solely for the Company and not as an
officer, partner, employee, or agent or one under the control or direction of
the Manager even though paid by it.
Reference is hereby made to the Maryland Corporations and Associations
Annotated Code, Sections 2-417, 2-418 (1986).
The general effect of this Indemnification will be to indemnify the
officers and directors of the Registrant from costs and expenses arising from
any action, suit or proceeding to which they may be made a party by reason of
their being or having been a
C-3
<PAGE>
director or officer of the Registrant, except where such action is determined to
have arisen out of the willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the director's or
officer's office.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling the Registrant pursuant to the foregoing provisions, the Registrant
has been informed that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is therefore unenforceable. See Item 32 herein.
Item 28. Business and Other Connections of Investment Adviser
First Investors Management Company, Inc., the Registrant's Investment
Adviser, also serves as Investment Adviser to:
First Investors Cash Management Fund, Inc.
First Investors Series Fund
First Investors Fund For Income, Inc.
First Investors Government Fund, Inc.
First Investors High Yield Fund, Inc.
First Investors Global Fund, Inc.
First Investors Life Series Fund
First Investors Multi-State Insured Tax Free Fund
First Investors New York Insured Fund, Inc.
First Investors Insured Tax Exempt Fund, Inc.
First Investors Tax-Exempt Money Market Fund, Inc.
First Investors U.S. Government Plus Fund
First Investors Series Fund II, Inc.
Affiliations of the officers and directors of the Investment Adviser
are set forth in Part B, Statement of Additional Information, under "Directors
and Officers."
Item 29. Principal Underwriters
Not Applicable
Item 30. Location of Accounts and Records
Physical possession of the books, accounts and records of the
Registrant are held by First Investors Management Company, Inc. and its
affiliated companies, First Investors Corporation and Administrative Data
Management Corp., at their corporate headquarters, 95 Wall Street, New York, NY
10005 and administrative offices, 10 Woodbridge Center Drive, Woodbridge, NJ
C-4
<PAGE>
07095, except for those maintained by the Registrant's Custodian, The Bank of
New York, 48 Wall Street, New York, NY 10286.
Item 31. Management Services
Inapplicable
Item 32. Undertakings
The Registrant undertakes to carry out all indemnification provisions
of its Articles of Incorporation and Advisory Agreement in accordance with
Investment Company Act Release No. 11330 (September 4, 1980) and successor
releases.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions under Item 27 herein, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The Registrant hereby undertakes to furnish a copy of its latest
annual report to shareholders, upon request and without charge, to each person
to whom a prospectus is delivered.
C-5
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
1 Articles of Restatement
2 Amended By-Laws
5 Advisory Agreement
11(a) Consent of Independent Accountants
11(b) Power of Attorney
<PAGE>
ARTICLES OF RESTATEMENT
OF
FIRST INVESTORS SPECIAL BOND FUND, INC.
To the State Department
of Assessments and Taxation
State of Maryland
Pursuant to the provisions of Section 2-608 of the Maryland General
Corporation Law, First Investors Special Bond Fund, Inc. (the "corporation"), a
Maryland corporation having its principal office in Baltimore City, hereby
certifies that:
FIRST: The corporation desires to restate its charter as currently in
effect.
SECOND: The provisions hereinafter set forth in the Articles of
Restatement are all the provisions of the charter of the corporation as
currently in effect.
THIRD: The restatement of the charter of the corporation has been approved
by a majority of the entire Board of Directors of the corporation.
FOURTH: The charter of the corporation is not amended by these Articles of
Restatement.
FIFTH: The current address of the principal office of the corporation in
the State of Maryland is c/o The Prentice-Hall Corporation System, Maryland, 11
East Chase Street, Baltimore, Maryland 21202.
SIXTH: The name and the address of the current resident agent of the
corporation in the State of Maryland are The Prentice-Hall
<PAGE>
Corporation System, Maryland, 11 East Chase Street, Baltimore, Maryland 21202.
SEVENTH: The number of directors of the corporation is nine, and the names
of the directors of the corporation currently in office are Glenn O. Head, James
J. Coy, Roger L. Grayson, Kathryn S. Head, F. William Ortman, Jr., Rex R. Reed,
Herbert Rubinstein, John T. Sullivan and Robert F. Wentworth.
ARTICLES OF RESTATEMENT
OF
FIRST INVESTORS SPECIAL BOND FUND, INC.
SECOND: The name of the corporation is
FIRST INVESTORS SPECIAL BOND FUND, INC.
(hereinafter called the "Corporation").
THIRD: The purposes for which the Corporation is formed and the
business to be carried on and promoted by it are as follows:
To engage generally in the business of an incorporated investment
company of the management type, investing and reinvesting its assets in all
forms of securities and other personal and real property, of every kind and
description, all as more specifically set forth herein, subject to the
provisions of these Articles of Incorporation and the By-Laws of the
Corporation; to consolidate or merge with, to acquire and take over the assets
of, and to assume the liabilities of, any other corporation or trust with
similar powers, to make contracts, and, generally, to do any or all acts and
things necessary or desirable in furtherance of any of the corporate purposes or
designed to protect, preserve, or enhance the value of the corporate assets, or
to the extent permitted to business corporations authorized under the laws of
the State of Maryland as now or may in the future be enforced; and to do any or
all of the things in furtherance of the above purposes as natural persons might
do.
To subscribe for, receive, purchase and otherwise acquire, own, hold,
sell, exchange, transfer, mortgage, pledge, hypothecate and otherwise dispose
of, and generally deal in and with all or any of the following (hereinafter
sometimes referred to collectively as "securities" or individually as
"security") namely: All kinds of shares, stocks, voting trust certificates,
trust certificates, bonds, debentures, mortgages, trust receipts, notes and
other securities, obligations, contracts, certificates of interest, choses in
action and evidences of indebtedness generally of any corporation, association,
<PAGE>
partnership, syndicate, entity, person, or governmental, municipal or public
authority, domestic or foreign, and evidences of any interest therein or in
respect thereto, subject to such restrictions as may be set forth from time to
time in the By-Laws of the Corporation; to acquire or become interested in any
such securities by original subscription, underwriting, participation in
syndicates or otherwise and while the owner or holder of any such securities to
exercise all the rights, powers and privileges of ownership or interest in
respect thereof.
To purchase, acquire, hold, exchange, sell, deal in and dispose of,
alone or in syndicates or otherwise in conjunction with others, commodities and
other personal property of every kind, character and description whatsoever and
wheresoever situated, and any interest therein.
To conduct researches, investigations, enterprises, and otherwise
transact all kinds of business relating to the gathering, publishing and
distribution of financial and investment information and statistics or such
business as may be carried on in connection therewith throughout the world.
To enter into, make and perform contracts of every lawful kind,
without limitation as to amount, except as expressly provided to the contrary in
the By-Laws, with any person, firm, association, partnership, corporation or
entity including but not by way of limitation, agreements for the disposition or
acquisition of the corporate stock of the Corporation, agreements for the
management, supervision and overseeing of its assets or activities, and the
rendering of services with reference thereto, agreements for the holding or
custody of its assets, the acquisition and disposition of its securities,
agreements for the conduct of administrative, accounting or other activities,
and agreements relating to borrowing or repayment of money.
The foregoing statements of objects and purposes except as otherwise
expressly provided shall not be held to limit or restrict in any manner the
powers of the Corporation, and are in furtherance of, and in addition to, and
not in limitation of the general powers conferred upon the Corporation by the
laws of the State of Maryland or otherwise.
FOURTH: The post office address of the principal office of the
Corporation in this State is c/o The Prentice-Hall Corporation System, Maryland,
11 East Chase Street, Baltimore, Maryland 21202. The name of the resident agent
of the Corporation in this State is The Prentice-Hall Corporation System,
Maryland, a corporation of the State of Maryland, and the post office address of
the resident agent is 11 East Chase Street, Baltimore, Maryland 21202.
FIFTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is twenty-five million (25,000,000)
shares of capital stock of the par value of one dollar ($1.00) each, having an
aggregate par value of $25,000,000.
<PAGE>
SIXTH: The number of directors of the Corporation shall be nine
(9), which number may be increased or decreased as may be provided by the By-
Laws, but in no case shall the number be less than three (3) or more than
fifteen (15). The names of the directors who shall act until their successors
are duly chosen and qualified are:
Herbert Rubinstein
James J. Coy
Roger L. Grayson
Glenn O. Head
F. William Ortman, Jr.
John T. Sullivan
Robert F. Wentworth
Kathryn S. Head
Rex R. Reed
SEVENTH: In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized.
To make, alter or repeal the By-Laws of the Corporation except as
therein provided.
To set apart out of any of the funds of the Corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any such
reserves in the manner in which it was created. Such reserve or reserves may be
invested and reinvested by the Board of Directors in the same way and subject to
the same restrictions as are provided for the investment and reinvestment of the
capital of the Corporation. When and only when the Board of Directors shall
decide that it is advisable or necessary to pay dividends out of the reserve,
shall such funds be subject to the payment of dividends.
To specify by the By-Laws the number of directors constituting the
whole Board of Directors, which number shall not be less than three (3) and
which may be increased or decreased as provided in the By-Laws; and if there be
a vacancy on the Board of Directors by reason of death, resignation or otherwise
to fill such vacancy for the unexpired term by a majority vote of the remaining
directors; and to fill a vacancy created by an increase in the number of
directors by a majority vote of the entire Board of Directors. A director
elected by the Board of Directors to fill a vacancy shall be elected to hold
office until the next annual meeting of stockholders or until his successor is
elected and qualifies. Notwithstanding the foregoing, any such election by the
Board of Directors is subject to the restrictions relating thereto set forth in
the By-Laws.
To designate one or more committees, each committee to consist of two
or more of the directors of the Corporation, which to the extent provided in the
Resolution or Resolutions of the Board of Directors or in the By-Laws of the
Corporation, shall have and may exercise the powers of the Board of Directors in
the management of the business and
<PAGE>
affairs of the Corporation, except the power to declare dividends, to issue
stock or to recommend to stockholders any action requiring stockholders'
approval, and have the power to authorize the seal of the Corporation to be
affixed to all papers which may require it.
Subject to all applicable provisions of the By-Laws, and of the
Federal Investment Company Act of 1940 and the Rules and Regulations thereunder,
to authorize the Corporation to enter into a written agreement with any person,
firm or corporation to act as manager, investment adviser, underwriter,
distributor, fiscal agent, depository or custodian of the Corporation.
From time to time to offer for subscription or otherwise issue or
sell, for such consideration as the Board of Directors may determine and which
may be permitted by law at any time of such subscription, any or all of the
authorized stock of the Corporation not then issued or which may have been
issued and reacquired by the Corporation and any or all of any increased stock
that may hereafter be authorized.
EIGHTH: The holders of the capital stock of this Corporation shall
have no preemptive or preferential rights to subscribe for, purchase or receive
any part of any new or additional issues of any stock or any bonds or other
obligations of the Corporation convertible into stock whether now or hereafter
authorized. The Board of Directors of the Corporation may in its discretion
from time to time grant rights to stockholders to subscribe to or purchase
additional shares or bonds of the Corporation. Stockholders shall have no right
to cumulative voting.
NINTH: Each holder of the capital stock of the Corporation, upon
request to the Corporation accompanied by surrender of the appropriate stock
certificate or certificates in proper form for transfer, shall be entitled to
require the Corporation to redeem all or any part of the shares of capital stock
standing in the name of such holder on the books of the Corporation, at a
redemption price determined in accordance with the provisions set forth in the
By-Laws of the Corporation. The method prescribed in the By-Laws for
determining the redemption price shall be based on the net value of the
Corporation's assets determined in accordance with applicable public law and
regulatory authority. Notwithstanding the foregoing, the Board of Directors may
temporarily suspend the redemption of shares in accordance with the provisions
of applicable public law and regulatory authority. The Board of Directors shall
have authority to fix from time to time a charge for the privilege of redemption
not in excess of one per cent (1%) of the net asset value of the shares to be
redeemed, as set forth in the By-Laws.
TENTH: The Corporation is to have perpetual existence.
ELEVENTH: The Corporation reserves the right from time to time to make
any amendment of these Articles of Incorporation, now or hereafter authorized by
law, including any amendment which alters contract rights, as expressly set
forth in these Articles of Incorporation, of any outstanding shares. Any
amendment to these
<PAGE>
Articles of Incorporation may be adopted at either an annual or special
meeting of the stockholders upon receiving an affirmative vote of a majority
of all votes entitled to be cast thereon. The Board of Directors may,
without a shareholder vote, order the filing of Articles Supplementary
increasing or decreasing the aggregate number of shares or the number of
shares of any class that the corporation has authority to issue, establishing
new classes and describing shares thereof or taking any such other action now
or hereafter authorized by law.
IN WITNESS WHEREOF, First Investors Special Bond Fund, Inc., has caused
these presents to be signed in its name and on its behalf by its Vice President
and attested by its Assistant Secretary on September 14, 1994.
FIRST INVESTORS SPECIAL BOND
FUND, INC.
ATTEST:
/s/C. Durso
------------------------------
Concetta Durso, Vice President
/s/Carol R. Lerner
- ------------------------------------
Carol R. Lerner,
Assistant Secretary
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
I HEREBY CERTIFY that on the 14th day of September, 1994, before me
the subscriber, a Notary Public of the State of New York, personally appeared
CONCETTA DURSO, Vice President of First Investors Special Bond Fund, Inc., a
Maryland corporation, and in the name and on behalf of said corporation
acknowledged the foregoing Articles of Restatement to be the corporate act of
said corporation and further made oath in due form of law that the matters and
facts set forth in the said Articles of Restatement with respect to the approval
thereof are true to the best of his knowledge, information and belief.
WITNESS, my hand and notarial seal, the day and year above written.
/s/Dale Kaplan
-------------------------
Notary Public
(SEAL) Dale Kaplan
Notary Public, State of New York
No. 31-4504204
Qualified in New York County
Commission Expires August 31, 1995
<PAGE>
AMENDED AND RESTATED BY-LAWS
OF
FIRST INVESTORS SPECIAL BOND FUND, INC.
*******
ARTICLE I
OFFICES
SECTION 1. The principal office of the Corporation shall be in the
City of Baltimore, State of Maryland. The Corporation may also have offices at
such other places both within and without the State of Maryland as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
STOCKHOLDERS
SECTION 1. The annual meeting of stockholders shall be held on such
day during the month of April or on such other date and at such time and place
within or without the State of Maryland as may be fixed by the Board of
Directors for the purpose of electing directors and of transacting such other
business as may properly be brought before the meeting; PROVIDED, however, that
an annual meeting of stockholders shall not be required to be held in any year
in which none of the following is required, under the Investment Company Act
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of 1940, to be acted on by the stockholders: election of directors; approval of
the investment advisory agreement; ratification of independent public
accountants or approval of a distribution agreement.
SECTION 2. Special meetings of the stockholders for any purpose or
purposes may be called by the Board of Directors or by the President, and must
be called at the written request of stockholders owning not less than
twenty-five percent of the stock then outstanding and entitled to vote. Any
such meeting shall be held at such time and such place within or without the
State of Maryland as may be stated in the call and notice.
SECTION 3. Written or printed notice of every annual or special
meeting of stockholders, stating the time and place thereof and the general
nature of the business proposed to be transacted at any such meeting, shall be
delivered personally or mailed at least ten days previous thereto to each
stockholder of record entitled to vote at the meeting at his address as the same
appears on the books of the Corporation. Such further notice shall be given as
may be required by law. Meetings may be held without notice if all of the
stockholders entitled to vote are present or represented at the meeting, or if
notice is waived in writing, either before or after the meeting, by those not
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present or represented at the meeting. No notice of an adjourned meeting of
stockholders other than an announcement of the time and place thereof at the
preceding meeting shall be required.
SECTION 4. At every meeting of stockholders the holders of record of
a majority of the outstanding shares of the stock of the Corporation entitled to
vote at the meeting, whether present in person or represented by proxy, shall,
except as otherwise provided by law, constitute a quorum. If at any meeting
there shall be no quorum, the holders of record, entitled to vote at the
meeting, of a majority of such shares so present or represented may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall have been obtained when any business may be
transacted which might have been transacted at the meeting as first convened had
there been a quorum.
SECTION 5. Each stockholder entitled to vote at any meeting shall
(except as otherwise provided in the Articles of Incorporation) have one vote in
person or by proxy for each share of stock held by him. No share shall be
entitled to vote if any installment payable thereon is overdue and unpaid. All
elections of directors shall be held and all questions, except as otherwise
provided by law or by the Articles of Incorporation or by these By-Laws shall be
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decided by a majority of the votes cast by stockholders present or represented
and entitled to vote thereat in person or by proxy.
SECTION 6. Meetings of the stockholders shall be presided over by the
Chairman of the Board, if he is not present, by the President or a Vice
President or in their absence, by a Chairman to be chosen at the meeting. The
Secretary of the Corporation, or, if he is not present, an Assistant Secretary
of the Corporation or, if neither is present, a secretary to be chosen at the
meeting shall act as secretary of the meeting.
SECTION 7. The vote on the election of directors, and other questions
properly brought before any meeting, need not be by ballot except when so
demanded by a majority vote of the shares present in person or by proxy and
entitled to vote thereon, or when so ordered by the Chairman of such meeting.
The Chairman of each meeting at which directors are to be elected by ballot or
at which any question is to be voted on shall, at the request of any stockholder
present or represented by proxy at the meeting and entitled to vote at such
election or on such question, appoint two inspectors of election. No director
or candidate for the office of director shall be appointed as such inspector.
Inspectors shall first take and subscribe an oath or affirmation
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faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of their ability, and shall take
charge of the polls and after the balloting shall make a certificate of the
result of the vote taken.
SECTION 8. The Board of Directors may close the stock transfer books
of the Corporation for a period not exceeding twenty days preceding the date of
any meeting of stockholders, or the date for the payment of any dividend or the
date for the allotment of rights, or the date when any change or conversion or
exchange of stock shall go into effect; or in lieu of closing the stock transfer
books, the Board of Directors may fix in advance a date, not exceeding forty
days and not less than ten days preceding the date of any meeting of
stockholders, and not exceeding forty days preceding the date for the payment of
any dividend or the date for the allotment of rights, or the date when any
change or conversion or exchange of stock shall go into effect, or a date in
connection with the obtaining of any consent, as a record date, for the
determination of the stockholders entitled to notice of, and to vote at any such
meeting and at any adjournments thereof, or entitled to receive payment of any
such dividend, or to any such allotment of rights, or to exercise the rights in
respect of any such change, conversion or exchange of stock, or to give consent
and in such case
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such stockholders, and only such stockholders, as shall be stockholders of
record on the date so fixed, shall be entitled to such notice of, and to vote
at, such meeting and any adjournment thereof, or to receive payment of such
dividend, or to receive such allotment of rights, or to exercise such rights,
or to give such consent as the case may be, notwithstanding any transfer of
any stock on the books of the corporation after any such record date fixed as
aforesaid.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. The Board of Directors of the Corporation shall consist of
not less than three nor more than fifteen persons. The number of directors
(within the above limits) shall be determined by the Board of Directors from
time to time as it sees fit, by vote of a majority of the whole Board. Each
director shall hold office until such time as less than a majority of the
directors then holding office have been elected by the stockholders or upon the
occurrence of any of the conditions described under Section 16 of the Investment
Company Act of 1940, as amended. At such time, a meeting of the stockholders
shall be called for the purpose of electing the Board of Directors and the terms
of office of the directors then in office shall terminate upon the
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election and qualification of such Board of Directors. Directors need not be
stockholders. A majority of the whole Board, but in no event less than three,
shall constitute a quorum for the transaction of business, but if at any
meeting of the Board there shall be less than a quorum present, a majority of
the directors present may adjourn the meeting from time to time, until a
quorum shall have been obtained where any business may be transacted which
might have been transacted at the meeting as first convened had there been a
quorum. No notice of an adjourned meeting of the directors other than an
announcement of the time and place thereof at the preceding meeting shall be
required. The acts of the majority of the directors present at any meeting
at which there is a quorum, shall, except as otherwise provided by law, by
the Articles of Incorporation or by the By-Laws, be the acts of the Board.
SECTION 2. The Board of Directors, by a vote of a majority of the
whole Board, may elect directors to fill vacancies in the Board resulting from
an increase in the number of Directors or from any other cause. A director so
chosen shall hold office until the next meeting of stockholders or their
respective successors are elected and qualify, unless sooner displaced pursuant
to law or these By-Laws. The stockholders, at any meeting called for the
purpose, may, with or without cause, remove any director by
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the affirmative vote of the holders of a majority of the votes entitled to be
cast and at any meeting called for that purpose, fill the vacancy in the
Board thus caused.
SECTION 3. Meetings of the Board of Directors shall be held at such
place, within or without the State of Maryland, as may from time to time be
fixed by resolution of the Board as may be specified in the call of any meeting.
Regular meetings of the Board of Directors shall be held at such times as may
from time to time be fixed by resolution of the Board, and special meetings may
be held at any time upon the call of a majority of the persons constituting the
Board of Directors or by the President or the Secretary, by oral, telephonic,
telegraphic or written notice, duly served on or sent or mailed to each director
at least twenty-four hours before the meeting. The notice of any special
meeting shall specify the purposes thereof. Notice need not be given of regular
meetings of the Board held at times fixed by resolution of the Board. Meetings
may be held at any time without notice if all of the directors are present or if
notice is waived in writing, either before or after the meeting of those not
present.
SECTION 4. Meetings of the Board of Directors shall be presided over
by the Chairman of the Board or the President, or if neither of the above is
present, by a
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<PAGE>
Chairman to be chosen at the meeting; and the Secretary or, if he is not
present, an Assistant Secretary, or if neither is present, a Secretary to be
chosen at the meeting shall act as Secretary of the Meeting.
SECTION 5. Except as otherwise provided by law or in the Articles of
Incorporation, a director of the Corporation shall, not in the absence of fraud,
be disqualified by his office from dealing or contracting with the Corporation
either as a vendor, purchaser or otherwise, nor in the absence of fraud shall
any transaction or contract of the Corporation be void or voidable or affected
by reason of the fact that any director, or any firm of which any director is a
member, or any corporation of which any director is an officer, director or
stockholder, is in any way interested in such transaction or contract; provided
that at the meeting of the Board of Directors, authorizing or confirming said
contract or transaction, the existence of an interest of such director, firm or
corporation is disclosed or made known and there shall be present a quorum of
the Board of Directors, and such contract or transaction shall be approved by a
majority of such quorum, which majority shall consist of directors not so
interested or connected. Nor shall any director be liable to account to the
Corporation for any profit realized by him or through any such transaction or
contract of the Corporation ratified or approved as
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<PAGE>
aforesaid, by reason of the fact that he or any firm of which he is a member,
or any corporation of which he is an officer, director or stockholder, was
interested in such transaction or contract. Directors so interested may be
counted when present at meetings of the Board of Directors for purposes of
determining the existence of a quorum. Any contract, transaction or act of
the Corporation or of the Board of Directors (whether or not approved or
ratified as hereinabove provided) which shall be ratified by a majority in
interest of a quorum of the stockholders having voting power at any annual
meeting or any special meeting called for such purpose or approved in writing
by a majority in interest of the stockholders having voting power without a
meeting shall, except as otherwise provided by law, be valid and as binding
as though ratified by every stockholder of the Corporation.
SECTION 6. The Board of Directors may, by resolution or resolutions,
passed by a majority of the whole Board, designate one or more of the directors
of the Corporation, which, to the extent permitted by law and provided in said
resolution or resolutions, shall have and may exercise the powers of the Board
over the business and affairs of the Corporation and may have power to authorize
the seal of the Corporation to be affixed to all papers which may require it.
Such committee or committees shall have such name or names as may be determined
from time to time by resolution adopted by
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<PAGE>
the Board of Directors. A majority of the members of such committee may
determine its action and fix the time and place of its meetings unless the
Board of Directors shall otherwise provide. The Board of Directors shall have
the power at any time to change the membership of, or to fill vacancies in,
or to dissolve any such committees.
SECTION 7. The Board may, from time to time, elect one or more
persons to the position of Director Emeritus, which election need not be
submitted for stockholder approval. Such person(s) shall be non-voting honorary
directors who shall not be considered in determining whether a quorum exists,
shall have no right to vote and shall not be responsible for the actions of the
Board.
ARTICLE IV
OFFICERS
SECTION 1. The Board of Directors shall appoint a President of the
Corporation and a Secretary and a Treasurer, and may appoint one or more Vice
Presidents, Assistant Secretaries and Assistant Treasurers and, from time to
time, any other officers and agents as it may deem proper. The President shall
be selected from among the Directors. Any two of the above-mentioned offices,
except those of President and a Vice President, may be held by the same person,
but no
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officer shall execute, acknowledge or verify any instrument in more than one
capacity if such instrument be required by law or by these By-Laws to be
executed, acknowledged or verified by any two or more officers.
SECTION 2. The term of office of all officers shall be one year until
their respective successors are chosen; but any officer or agent chosen or
appointed by the Board of Directors may be removed, with or without cause, at
any time, by the affirmative vote of a majority of the members of the Board then
in office.
SECTION 3. Subject to such limitations as the Board of Directors may
from time to time prescribe, the officers of the Corporation shall each have
such powers and duties as generally appertain to their respective offices, as
well as such powers and duties as from time to time may be conferred by the
Board of Directors. Any officer, agent, or employee of the Corporation may be
required by the Board of Directors to give bond for the faithful discharge of
his duties, in such sum and of such character as the Board may from time to time
prescribe.
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<PAGE>
ARTICLE V
CERTIFICATES OF STOCK
SECTION 1. The Board of Directors of the Corporation may authorize
the issuance of some or all of the shares of any or all of its classes or series
without certificates. In the event a certificate shall be issued, such
certificate shall present the number of shares of stock of such class or series
of the Corporation owned by the stockholder, which certificate or certificates
shall be in such form as the Board of Directors may from time to time prescribe
by a recording of each stockholder's interest on the records of the
Corporation's Transfer Agent. The certificates for shares of stock of the
Corporation shall bear the signature, either manual or facsimile, of the
President or a Vice President and the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, and shall be sealed with the seal of the
Corporation or bear a facsimile of such seal. The validity of any stock
certificate shall not be affected if any officer whose signature appears thereon
ceases to be an officer of the Corporation before such certificate is issued.
SECTION 2. The shares of stock of the Corporation shall be
transferable on the books of the Corporation by the holder thereof in person or
by a duly authorized attorney,
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upon surrender for cancellation of a certificate or certificates for a like
number of shares, with a duly executed assignment and power of transfer
endorsed thereon or attached thereto, and with such proof of the authenticity
of the signatures as the Corporation or its agent may reasonably require.
SECTION 3. No certificate for shares of stock of the Corporation
shall be issued in place of any certificate alleged to have been lost, stolen,
mutilated or destroyed, except upon production of such evidence of the loss,
theft, mutilation or destruction, and upon indemnification of the Corporation
and its agents to such extent and in such manner as the Board of Directors may
from time to time prescribe.
ARTICLE VI
CORPORATE BOOKS
SECTION 1. The books of the Corporation, except the original or a
duplicate stock ledger, may be kept outside the State of Maryland at such place
or places as the Board of Directors may from time to time determine.
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ARTICLE VII
SIGNATURES
SECTION 1. Except as otherwise provided in these By-Laws or as the
Board of Directors may generally or in particular cases authorize the execution
thereof in some other manner, all deeds, leases, transfers, contracts, bonds,
notes, checks, drafts and other obligations made, accepted or endorsed by the
Corporation and all endorsements, assignments, transfers, stock powers or other
instruments of transfer of securities owned by or standing in the name of the
Corporation shall be signed or executed by two officers of the Corporation who
shall be the President or a Vice President and a Vice President, the Secretary
or the Treasurer.
SECTION 2. The President of the Corporation or, in his absence or
disability or at his request, a Vice President of the Corporation may authorize
from time to time the signature and issuance of proxies to vote upon shares of
stock of other corporations owned by the Corporation unless otherwise provided
by the Board of Directors. All proxies for shares held in the name of the
Corporation shall be signed in the name of the Corporation by two officers of
the Corporation, who shall be the President or a Vice President and a Vice
President, the Secretary or the Treasurer.
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ARTICLE VIII
FISCAL YEAR
SECTION 1. The fiscal year of the Corporation shall be the calendar
year or such other period as may be prescribed by the Board of Directors.
ARTICLE IX
CORPORATE SEAL
SECTION 1. The corporate seal of the Corporation shall consist of a
flat faced circular die with the word "Maryland" together with the name of the
Corporation, the year of its organization and such other appropriate legend as
the Board of Directors may from time to time determine, cut or engraved thereon.
In lieu of the corporate seal when so authorized by the Board of Directors or a
duly empowered committee thereof, a facsimile thereof may be impressed or
affixed or reproduced.
ARTICLE X
INDEMNIFICATION OF OFFICERS AND DIRECTORS
SECTION 1. Every person who is or was a director or officer of this
Corporation (and his heirs, executors and administrators) shall be indemnified
by the Corporation against reasonable costs and expenses incurred by him in
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connection with any action, suit or proceeding to which he may be made a party
to by reason of his being or having been a director or officer of the
Corporation, except in relation to any action, suit or proceeding in which he
has been adjudged liable because of negligence or misconduct, which shall be
deemed to include willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office. In the absence
of any adjudication which expressly absolves the director or officer of
liability to the Corporation or its stockholders for negligence or misconduct,
within the meaning thereof as used herein, or in the event of a settlement, each
director and officer (his heirs, executors and administrators) shall be
indemnified by the Corporation against payments made, including reasonable costs
and expenses, provided that such indemnity shall be conditioned upon the prior
determination by a resolution of two-thirds of those members of the Board of
Directors of the Corporation who are not involved in the action, suit or
proceeding that the director or officer has no liability by reason of negligence
or misconduct, within the meaning thereof as used herein, and provided further
that if a majority of the members of the Board of Directors of the Corporation
are involved in the action, suit or proceeding, such determination shall have
been made by a written opinion of independent counsel. Amounts paid in
settlement shall not exceed the costs, fees and expenses which would have been
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incurred had such action, suit or proceeding been litigated to a conclusion.
Such a determination by the Board of Directors or by independent counsel, and
the payments of amounts by the Corporation on the basis thereof shall not
prevent a stockholder from challenging such indemnification by appropriate legal
proceedings on the grounds that the person indemnified was liable to the
Corporation or its security holders by reason of negligence or misconduct,
within the meaning thereof as used herein. The foregoing right and
indemnification shall not be exclusive of any other rights to which any officer
or director (or his heirs, executors and administrators) may be entitled
according to law.
ARTICLE XI
INVESTMENT RESTRICTIONS
SECTION 1. Notwithstanding any of the foregoing provisions, the power
of the Corporation to invest and reinvest its assets and to hold, sell,
exchange, pledge, mortgage, hypothecate or otherwise dispose of or turn to
account or realize upon and generally deal in securities and investments of
every kind or description or in and with its own credit, shall be expressly
limited as follows.
(a) The Corporation shall not borrow money except from banks and only for
temporary or emergency purposes and then in amounts not in
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excess of 5% of its total assets taken at cost or value, whichever
is the lesser.
(b) The Corporation shall not engage in making loans to other persons,
except by the purchase of bonds, debentures, or similar obligations
which are publicly distributed or customarily purchased by
institutional investors. In addition, the Corporation's Board of
Directors may on request of broker-dealers or other institutional
investors, which it deems qualified, authorize the Corporation to lend
securities for the purpose of covering short positions of the
borrower, but only when the borrower pledges cash collateral to the
Corporation and agrees to maintain such collateral so that it amounts
at all times to at least 100% of the value of the securities. Such
security loans will not be made if as a result the aggregate of such
loans exceed 10% of the value of the Corporation's total assets.
(c) The Corporation shall not underwrite securities of other issuers.
(d) The Corporation shall not purchase or sell real estate or commodities
or commodity contracts.
(e) The Corporation shall not purchase any securities on margin.
(f) With respect to 75% of the Corporation's total assets, the Corporation
shall not purchase the securities of any issuer (other than
obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities) if, as a result, (1) more than 5% of the
Corporation's total assets would be invested in the securities of that
issuer, or (2) the Corporation would hold more than 10% of the
outstanding voting securities of that issuer.
(g) The Corporation shall not invest in companies for the purpose of
exercising control or management.
(h) The Corporation shall not purchase or retain in its portfolio the
securities of any issuer
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if, to the knowledge of the Corporation, any officer or director of
the Corporation, any person or organization which is an investment
adviser of the Corporation (as defined in the Investment Company
Act of 1940), or any officer, director, partner or trustee of, or
person owning of record more than 10% of the stock of, any such
investment adviser, owns beneficially more than 1/2 of 1% of the
outstanding securities of any class of such issuer and the persons
or organization so owning more than 1/2 of 1% of such securities
together own beneficially more than 5% of such securities.
(i) The Corporation will not invest in the securities of issuers which
have been in operation for less than three years (including the
operations of predecessors) if such investment at the time thereof
would cause more than 5% of the total assets of the Corporation, taken
at market, to be invested in securities of all such issuers.
(j) The Corporation shall not purchase the securities of other investment
companies except in connection with a merger of another investment
company.
(k) The Corporation shall not invest more than 25% of the value of its
assets in a particular industry at any one time.
(l) The Corporation shall require its officers and directors and any firm
or organization through which the Corporation issues its own shares
and with which the Corporation has contractual relations, not to take
a short position in the stock of the Corporation or to hold back
orders to purchase stock of the Corporation or to buy stock of the
Corporation in anticipation of orders to purchase such stock.
(m) The securities and all other investments of the corporation shall be
held by an independent custodian which shall be a bank or trust
company having not less than $2,000,000 aggregate capital and surplus.
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(n) The Corporation shall not pledge, mortgage or hypothecate any of its
assets.
(o) The Corporation intends to invest in such securities as are
permissible for investment under the Insurance Law of the State of New
York.
SECTION 2. The Corporation shall not purchase or sell any securities
(other then the capital stock of the Corporation) from or to any of the
following acting as principals, and shall not make any loan to (i) officers or
directors of the Corporation, (ii) any partnership of which any officer or
director of the Corporation is a member, (iii) any corporation or association of
which any officer or director of the Corporation is an officer, director or
trustee, except as permitted by applicable law or regulation; (iv) any person or
organization furnishing advisory or supervisory services to the Corporation, (v)
any officer, director, partner or trustee of, or person owning of record 10% or
more of the stock of, any person or organization furnishing such
advisory or supervisory services, (vi) any partnership of which any officer,
director, partner or trustee of, or person owning of record 10% or more of
the stock of, any person or organization furnishing such advisory or
supervisory services, is a member, or (vii) any corporation or association of
which any officer, director, partner or trustee of or person owning of record
10% or more of the stock of, any person or organization furnishing such
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advisory or supervisory services, is an officer or director or trustee;
provided, however, that nothing contained in (iii) or (vii) shall prevent the
purchase of additional securities from any corporation or association
referred to in such clauses upon the exercise of rights issued to the
Corporation as a part of a general offering to the holders of securities of
such corporation or association.
SECTION 3. The Corporation may enter into advisory or supervisory
contracts and other contracts with, and may otherwise do business with, First
Investors Management Company, Inc. and First Investors Corporation,
notwithstanding that the Board of Directors of the Corporation may be composed
in part of directors, officers or employees of said corporations and officers of
the Corporation may have been or may be or become directors, officers or
employees of said corporations, and notwithstanding that First Investors
Management Company, Inc. may act as investment advisor to other investment
companies investing in securities similar or identical with those owned by the
Corporation and may at or about the same time recommend, purchase or sell the
same securities to the Corporation and such other investment companies, and in
the absence of fraud the Corporation and said corporations may deal freely with
each other, and neither such advisory or supervisory contract nor any other
contract or transaction
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<PAGE>
between the Corporation and said corporations shall be invalidated or in any
manner affected thereby, nor shall any director or officer of the Corporation
be liable to the Corporation or any stockholder or creditor thereof or to any
other person for any loss incurred by it or him by reason of any such
contract or transaction; provided that nothing herein shall protect any
director or officer of the Corporation against any liability he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office; and provided always that such contracts or transactions shall have
been on terms that were not unfair at the time at which it was entered into.
ARTICLE XII
ADDITIONAL PROVISIONS
SECTION 1. The books of account of the Corporation shall be examined
by an independent firm of public accountants, selected as required by law, at
the close of each fiscal year of the Corporation and at such other times, if
any, as may be directed by the Board of Directors of the Corporation. A report
to the shareholders based upon each such examination shall be mailed to each
shareholder of the Corporation, of record on such date with respect to each
report as may be determined by the Board of Directors, at his
-23-
<PAGE>
address as the same appears on the books of the Corporation. Each such
report shall show the assets and liabilities of the Corporation as of the
close of the period covered by the report, its income and expenses, the net
asset value of its outstanding shares, the securities in which the funds of
the Corporation were invested and such other matters as the Board of
Directors shall determine.
ARTICLE XIII
AMENDMENTS
SECTION 1. The By-Laws of the Corporation may be amended, added to,
rescinded or repealed at any meeting of the shareholders, or by a majority vote
of the directors then in office at any meeting of the Board of Directors,
provided notice of the substance of the proposed change is contained in the
notice of the meeting or any waiver thereof; except that after the initial issue
of any shares of capital stock of the Corporation, the provisions of Section 1
of Article XI hereof and this Article XIII, may be altered, amended or repealed
only upon the affirmative vote of the lesser of (i) more than fifty percent
(50%) of the outstanding shares of the capital stock of the Corporation, or
(ii) sixty-seven percent (67%) or more of the shares of capital stock present
at a meeting if more than fifty percent (50%) of the
-24-
<PAGE>
outstanding shares of capital stock of the Corporation are represented at the
meeting in person or by proxy.
-25-
<PAGE>
FIRST INVESTORS SPECIAL BOND FUND, INC.
INVESTMENT ADVISORY AGREEMENT
This Agreement is made as of June 13, 1994, by and between FIRST INVESTORS
SPECIAL BOND FUND, INC., a Maryland corporation ("Company"), and FIRST INVESTORS
MANAGEMENT COMPANY INC., a New York corporation ("Manager").
WHEREAS, the Company is registered under the Investment Company Act of 1940,
as amended ("1940 Act"), as an open-end, diversified management investment
company consisting of one or more separate series of shares ("Series"), each
having its own assets and investment policies; and
WHEREAS, the Manager is an investment adviser under the Investment Advisers
Act of 1940, as amended; and
WHEREAS, the Company desires to retain the Manager as investment adviser to
furnish investment advisory and portfolio management services to each Series of
the Company as now exists and to each such other Series of the Company
hereinafter established as agreed to from time to time by the parties hereto
(hereinafter, "Series" shall refer to each Series of the Company which is
subject to this Agreement), and the Manager is willing to furnish such services.
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Company hereby appoints the Manager as investment
adviser of the Company and each Series listed on Schedule A of this Agreement
(as such Schedule may be amended from time to time) for the period and on the
terms set forth in this Agreement. The Manager accepts such appointment and
agrees to render the services herein set forth for compensation as set forth on
Schedule A. In the performance of its duties, the Manager will act in the best
interests of the Company and the Series and will comply with (a) applicable laws
and regulations, including, but not limited to, the 1940 Act, (b) the terms of
this Agreement, (c) the Company's Articles of Incorporation, By-Laws and
currently effective registration statement under the Securities Act of 1933, as
amended, and the 1940 Act, and any amendments thereto, (d) relevant undertakings
to state securities regulators which also have been provided to the Manager, (e)
the stated investment objective(s), policies and restrictions of each applicable
Series, and (f) such other guidelines as the Company's Board of Directors
("Board") reasonably may establish.
2. DUTIES OF THE MANAGER.
(a) INVESTMENT PROGRAM. Subject to supervision by the Board, the
Manager will provide a continuous investment program for each Series and shall
determine what securities and other investments will be purchased, retained or
sold by each Series.
1
<PAGE>
The Manager will exercise full discretion and act for each Series in the same
manner and with the same force and effect as such Series itself might or
could do with respect to purchases, sales, or other transactions, as well as
with respect to all other things necessary or incidental to the furtherance
or conduct of such purchases, sales or other transactions.
(b) OTHER MANAGEMENT SERVICES. The Manager agrees to conduct the
business and details of the operation of the Series as shall be agreed to from
time to time by the parties hereto; provided, however, that the Manager shall
not act as custodian for Series assets. The Manager also agrees, at its own
cost, to provide the Series with certain executive, administrative and clerical
personnel and to provide the Series with office facilities and supplies.
(c) EXECUTION OF TRANSACTIONS. The Manager will place orders pursuant
to its investment determinations for each Series either directly with the issuer
or through any brokers or dealers. In the selection of brokers or dealers and
the placement of orders for the purchase and sale of portfolio investments for
each Series, the Manager shall use its best efforts to obtain for each Series
the most favorable price and execution available, except to the extent that it
may be permitted to pay higher brokerage commissions for brokerage or research
services as described below. In using its best efforts to obtain the most
favorable price and execution available, the Manager, bearing in mind each
Series' best interests at all times, shall consider all factors it deems
relevant, including by way of illustration, price, the size of the transaction,
the nature of the market for the security, the amount of the commission, the
timing of the transaction taking into account market prices and trends, the
reputation, experience and financial stability of the broker or dealer involved
and the quality of service rendered by the broker or dealer in other
transactions. Subject to such policies as the Board may determine, the Manager
shall not be deemed to have acted unlawfully or to have breached any duty
created by this Agreement or otherwise solely by reason of its having caused a
Series to pay a broker that provides brokerage or research services to the
Manager an amount of commission for effecting a portfolio investment transaction
in excess of the amount of commission another broker would have charged for
effecting that transaction if the Manager determines in good faith that such
amount of commission is reasonable in relation to the value of the brokerage or
research services provided by such broker or dealer, viewed in terms of either
that particular transaction or the Manager's overall responsibilities with
respect to such Series and to other clients of the Manager as to which the
Manager exercises investment discretion.
(d) REPORTS TO THE BOARD. Upon request, the Manager will provide the
Board with economic and investment analyses and reports and make available to
the Board any economic, statistical and investment services normally available
to institutional or other customers of the Manager.
2
<PAGE>
(e) DELEGATION OF AUTHORITY. Any of the foregoing duties specified in
this paragraph 2 with respect to one or more Series may be delegated by the
Manager, at the Manager's expense, to an appropriate party, subject to such
approval by the Board and shareholders of the applicable Series as may be
required by the 1940 Act. The Manager shall oversee the performance of
delegated duties by any such other party and shall furnish the Board with
periodic reports concerning the performance of delegated responsibilities by
such party.
3. SERVICES NOT EXCLUSIVE. The services furnished by the Manager hereunder
are not to be deemed exclusive and the Manager shall be free to furnish similar
services to others so long as its services under this Agreement are not impaired
thereby. Nothing in this Agreement shall limit or restrict the right of any
director, officer or employee of the Manager, who may also be a Director,
officer or employee of the Company, to engage in any other business or to devote
his or her time and attention in part to the management or other aspects of any
other business, whether of a similar nature or a dissimilar nature.
4. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Manager hereby agrees that all records which it
maintains for the Company are the property of the Company and further agrees to
surrender promptly to the Company any of such records upon the Company's
request. The Manager further agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act the records required to be maintained by Rule 31a-
1 under the 1940 Act.
5. EXPENSES.
(a) EXPENSES OF THE COMPANY. During the term of this Agreement, each
Series will bear all expenses not specifically assumed by the Manager incurred
in its operations and the offering of its shares. Expenses borne by each Series
will include, but not be limited to, the following (or each Series'
proportionate share of the following): brokerage commissions relating to
securities purchased or sold by the Series or any losses incurred in connection
therewith; fees payable to and expenses incurred on behalf of the Series by the
Manager; expenses of organizing the Series; filing fees and expenses relating to
the registration and qualification of the Series' shares under federal or state
securities laws and maintaining such registrations and qualifications;
distribution fees; fees and salaries payable to the members of the Board and
officers who are not officers or employees of the Manager; taxes (including any
income or franchise taxes) and governmental fees; costs of any liability,
uncollectible items of deposit and other insurance or fidelity bonds; any costs,
expenses or losses arising out of any liability of or claim for damage or other
relief asserted against the Company or Series for violation of any law; legal,
accounting and auditing expenses, including legal fees of special counsel for
the independent directors; charges of custodians, transfer agents and other
agents; costs of
3
<PAGE>
preparing share certificates; expenses of setting in type and printing
prospectuses and supplements thereto for existing shareholders, reports and
statements to shareholders and proxy materials; any extraordinary expenses
(including fees and disbursements of counsel) incurred by the Company or
Series; and fees and other expenses incurred in connection with membership in
investment company organizations.
(b) FEE WAIVERS AND REIMBURSEMENTS. If the expenses borne by a Series
in any fiscal year exceed the applicable expense limitations imposed by the
securities regulations of any state in which shares are registered or qualified
for sale to the public, the Manager will waive its fee or reimburse such Series
for any excess up to the amount of the fee payable to it during that fiscal year
pursuant to paragraph 6 hereof.
6. COMPENSATION. For the services provided and the expenses assumed
pursuant to this Agreement with respect to each Series, the Company will pay the
Manager, effective from the date of this Agreement, a fee which is computed
daily and paid monthly from each Series' assets at the annual rates as
percentages of that Series' average daily net assets as set forth in the
attached Schedule A, which Schedule can be modified from time to time to reflect
changes in annual rates or the addition or deletion of a Series from the terms
of this Agreement, subject to appropriate approvals required by the 1940 Act.
If this Agreement becomes effective or terminates with respect to any Series
before the end of any month, the fee for the period from the effective date to
the end of the month or from the beginning of such month to the date of
termination, as the case may be, shall be prorated according to the proportion
that such period bears to the full month in which such effectiveness or
termination occurs.
7. LIMITATION OF LIABILITY OF THE MANAGER. The Manager shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Company or any Series in connection with the matters to which this Agreement
relate except a loss resulting from the willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement. Any person,
even though also an officer, partner, employee, or agent of the Manager, who may
be or become an officer, Board member, employee or agent of the Company shall be
deemed, when rendering services to the Company or acting in any business of the
Company, to be rendering such services to or acting solely for the Company and
not as an officer, partner, employee, or agent or one under the control or
direction of the Manager even though paid by it.
8. DURATION AND TERMINATION.
(a) EFFECTIVENESS. This Agreement shall become effective upon the date
hereinabove written, provided that, with respect to a Series, this Agreement
shall not take effect unless it has first been approved (i) by a vote of a
majority of those members of the
4
<PAGE>
Board who are not parties to this Agreement or interested persons of any such
party ("Independent Board Members") cast in person at a meeting called for
the purpose of voting on such approval, and (ii) by an affirmative vote of a
majority of the outstanding voting securities of such Series.
(b) RENEWAL. Unless sooner terminated as provided herein, this Agreement
shall continue in effect for two years from the above written date. Thereafter,
if not terminated, this Agreement shall continue automatically for successive
periods of twelve months each, provided that such continuance is specifically
approved at least annually (i) by a vote of a majority of the Independent Board
Members cast in person at a meeting called for the purpose of voting on such
approval, and (ii) by the Board or, with respect to any given Series, by an
affirmative vote of a majority of the outstanding voting securities of such
Series.
(c) TERMINATION. Notwithstanding the foregoing, with respect to any
Series, this Agreement may be terminated at any time by vote of the Board or by
vote of a majority of the outstanding voting securities of such Series on 60
days' written notice delivered or mailed by registered mail, postage prepaid, to
the Manager. The Manager may at any time terminate this Agreement on 60 days'
written notice delivered or mailed by registered mail, postage prepaid, to the
Company. This Agreement automatically and immediately will terminate in the
event of its assignment. Termination of this Agreement pursuant to this
paragraph 8 shall be without the payment of any penalty. Termination of this
Agreement with respect to a given Series shall not affect the continued validity
of this Agreement or the performance thereunder with respect to any other
Series.
9. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no material amendment of this Agreement
as to a given Series shall be effective until approved by vote of the holders of
a majority of the outstanding voting securities of such Series.
10. NAME OF COMPANY. The Company or any Series may use the name "First
Investors" only for so long as this Agreement or any extension, renewal or
amendment hereof remains in effect, including any similar agreement with any
organization which shall have succeeded to the business of the Manager. At such
time as such an agreement shall no longer be in effect, the Company and each
Series will (to the extent that it lawfully can) cease to use any name derived
from First Investors Management Company, Inc. or any successor organization.
11. GOVERNING LAW. This Agreement shall be construed in accordance with the
laws of the State of New York, without giving effect to the conflicts of laws
principles thereof, and in accordance with the 1940 Act. To the extent that the
applicable
5
<PAGE>
laws of the State of New York conflict with the applicable provisions of the
1940 Act, the latter shall control.
12. DEFINITIONS. As used in this Agreement, the terms "majority of the
outstanding voting securities," "interested person," and "assignment" shall have
the same meanings as such terms have in the 1940 Act.
13. SEVERABILITY. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors.
14. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
FIRST INVESTORS SPECIAL BOND
Attest: FUND, INC.
By: /s/C. Durso By: /s/Glenn O. Head
---------------------- ------------------------------
C. Durso, Secretary Glenn O. Head, President
FIRST INVESTORS MANAGEMENT
Attest: COMPANY, INC.
By: /s/Carol R. Lerner By: /s/Kathryn S. Head
---------------------- ------------------------------
Carol R. Lerner, Kathryn S. Head, President
Secretary
6
<PAGE>
FIRST INVESTORS SPECIAL BOND FUND, INC.
INVESTMENT ADVISORY AGREEMENT
SCHEDULE A
Compensation pursuant to Paragraph 6 of this First Investors Special Bond
Fund, Inc. Investment Advisory Agreement shall be calculated in accordance with
the following schedule:
<TABLE>
Advisory Fee as %
Average Daily of Average Daily
Net Assets Net Assets
------------------ -----------------
<S> <C>
Up to $250 million 0.75%
In excess of $250 million to $500 million 0.72%
In excess of $500 million to $750 million 0.69%
Over $750 million 0.66%
</TABLE>
Dated: June 13, 1994
7
<PAGE>
Consent of Independent Certified Public Accountants
First Investors Special Bond Fund, Inc.
95 Wall Street
New York, New York 10005
We consent to the use in Post-Effective Amendment No. 14 to the
Registration Statement on Form N-1A (File No. 2-66294) of our report dated
January 31, 1995 relating to the December 31, 1994 financial statements of First
Investors Special Bond Fund, Inc., which are included in said Registration
Statement.
/s/ Tait, Weller & Baker
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
April 11, 1995
<PAGE>
First Investors Special Bond Fund, Inc.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned officer and/or director
of First Investors Special Bond Fund, Inc. hereby appoints Larry R. Lavoie or
Glenn O. Head, and each of them, his true and lawful attorney to execute in his
name, place and stead and on his behalf a Registration Statement on Form N-1A
for the registration pursuant to the Securities Act of 1933 and the Investment
Company Act of 1940 of shares of common stock of said Maryland corporation and
any and all amendments to said Registration Statement (including post-effective
amendments), and all instruments necessary or incidental in connection therewith
and to file the same with the Securities and Exchange Commission. Said attorney
shall have full power and authority to do and perform in the name and on behalf
of the undersigned every act whatsoever requisite or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do, the undersigned hereby ratifying and approving all such acts of said
attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 19th
day of January, 1995.
/s/James M. Srygley
-------------------------------
James M. Srygley
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000314480
<NAME> FIRST INVESTORS SPECIAL BOND FUND, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 38554
<INVESTMENTS-AT-VALUE> 35787
<RECEIVABLES> 802
<ASSETS-OTHER> 201
<OTHER-ITEMS-ASSETS> 4
<TOTAL-ASSETS> 36794
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 69
<TOTAL-LIABILITIES> 69
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 58807
<SHARES-COMMON-STOCK> 3330
<SHARES-COMMON-PRIOR> 3336
<ACCUMULATED-NII-CURRENT> 307
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (19621)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2767)
<NET-ASSETS> 36725
<DIVIDEND-INCOME> 43
<INTEREST-INCOME> 3922
<OTHER-INCOME> 57
<EXPENSES-NET> 341
<NET-INVESTMENT-INCOME> 3681
<REALIZED-GAINS-CURRENT> 703
<APPREC-INCREASE-CURRENT> (4825)
<NET-CHANGE-FROM-OPS> (442)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3466)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 34
<NUMBER-OF-SHARES-REDEEMED> 547
<SHARES-REINVESTED> 306
<NET-CHANGE-IN-ASSETS> (6331)
<ACCUMULATED-NII-PRIOR> 92
<ACCUMULATED-GAINS-PRIOR> (20324)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 294
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 341
<AVERAGE-NET-ASSETS> 39223
<PER-SHARE-NAV-BEGIN> 12.18
<PER-SHARE-NII> 1.09
<PER-SHARE-GAIN-APPREC> (1.22)
<PER-SHARE-DIVIDEND> 1.02
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.03
<EXPENSE-RATIO> .87
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
