First Investors Life Variable Annuity Fund A
Individual Variable Annuity Contracts
Offered By
First Investors Life Insurance Company
95 Wall Street, New York, New York 10005/(212) 858-8200
This Prospectus describes the Variable Annuity Contracts (the "Contracts")
offered by First Investors Life Insurance Company ("First Investors Life") for
nonqualified retirement programs and deferred compensation plans for individuals
("Annuitants"). The Contracts offered are deferred annuity contracts under which
annuity payments will begin on a selected future date. A penalty may be assessed
on early withdrawals. See "Federal Income Tax Status." The Contracts contain a
10-day revocation right. See "Variable Annuity Contracts--Ten-Day Revocation
Right." The Contracts provide for the accumulation of values on a variable
basis. Payment of annuity benefits will be on a variable basis, unless a fixed
basis or a combination of variable and fixed bases is selected by the
Contractowner. Although the Contracts do not meet the requirements applicable to
tax qualified plans, the tax status of the Annuitant is determined by the
provisions of the plan (see "Federal Income Tax Status"). Unless otherwise
stated, this Prospectus describes only the variable aspects of the Contracts.
The Contracts contain information on the fixed aspects.
Contractowners' purchase payments less certain deductions ("net purchase
payments") are paid into a unit investment trust, First Investors Life Variable
Annuity Fund A ("Separate Account A"). The assets of Separate Account A are
invested at net asset value in shares of First Investors Special Bond Fund, Inc.
(the "Fund"), an open-end, diversified management investment company.
This Prospectus sets forth the information about Separate Account A that a
prospective investor should know before investing and should be kept for future
reference. A Statement of Additional Information, dated April 29, 1996, has been
filed with the Securities and Exchange Commission and is incorporated herein by
reference in its entirety. (See page 17 of this Prospectus for the Table of
Contents of the Statement of Additional Information.) The Statement of
Additional Information is available at no charge upon request to First Investors
Life at the address or telephone number indicated above.
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.
THIS PROSPECTUS IS VALID ONLY WHEN ATTACHED TO THE CURRENT
PROSPECTUS OF FIRST INVESTORS SPECIAL BOND FUND, INC.
The date of this Prospectus is April 29, 1996
<PAGE>
PROSPECTUS
TABLE OF CONTENTS
GLOSSARY OF SPECIAL TERMS................................................. 3
FEE TABLE................................................................. 4
CONDENSED FINANCIAL INFORMATION........................................... 4
GENERAL DESCRIPTION....................................................... 5
First Investors Life Insurance Company................................. 5
Separate Account A..................................................... 5
The Fund............................................................... 5
Adviser................................................................ 6
Underwriter............................................................ 6
Voting Rights.......................................................... 6
PURCHASES, DEDUCTIONS, CHARGES AND EXPENSES............................... 7
Purchase Payments...................................................... 7
Deductions from Purchase Payments...................................... 7
Deduction Table........................................................ 7
Exchange Privilege..................................................... 7
Mortality and Expense Risk Charges..................................... 8
Administrative Charge.................................................. 8
Other Charges.......................................................... 8
Expenses............................................................... 9
VARIABLE ANNUITY CONTRACTS................................................ 9
Deferred Variable Annuities--Accumulation Period....................... 9
Annuity Period......................................................... 9
Death Benefit During the Accumulation Period........................... 11
Surrender and Termination (Redemption) During
the Accumulation Period.............................................. 12
Death of Contractowner................................................. 12
Ten-Day Revocation Right............................................... 13
FEDERAL INCOME TAX STATUS................................................. 13
PERFORMANCE INFORMATION................................................... 15
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION.............. 17
APPENDIX I - STATE AND LOCAL TAXES........................................ 17
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GLOSSARY OF SPECIAL TERMS
Accumulated Value - The value of all the Accumulation Units credited to the
Contract.
Accumulation Period - The period between the date of issue of a Contract
and the Annuity Commencement Date.
Accumulation Unit - A unit used to measure the value of a Contractowner's
interest in Separate Account A prior to the Annuity Commencement Date.
Additional Payment - A purchase payment made to First Investors Life after
issuance of a deferred annuity.
Annuitant - The person designated to receive or the person who is actually
receiving annuity payments under a Contract.
Annuity Commencement Date - The date on which annuity payments are to
commence.
Annuity Unit - A unit used to determine the amount of each annuity payment
after the first.
Beneficiary - The person designated to receive any benefits under a
Contract upon the death of the Annuitant in accordance with the terms of the
Contract.
Contract - An individual variable annuity contract offered by this
Prospectus.
Contractowner - The person or entity with legal rights of ownership of the
Contract.
Fixed Annuity - An annuity with annuity payments which remain fixed as to
dollar amount throughout the payment period.
General Account - All assets of First Investors Life other than those
allocated to Separate Account A (or other segregated investment accounts of
First Investors Life).
Joint Annuitant - The designated second person under joint and survivor
life annuity.
Separate Account A - The segregated investment account entitled "First
Investors Life Variable Annuity Fund A," established by First Investors Life
pursuant to applicable law and registered as a unit investment trust under the
Investment Company Act of 1940, as amended.
Single Payment - A one-time purchase payment made to First Investors Life
to purchase a deferred annuity.
Valuation Date - Any date on which the New York Stock Exchange is open for
trading, and at such other times as the Directors of First Investors Life deem
necessary, provided there is a sufficient degree of trading in Separate Account
A's investments which may affect its net asset value.
Valuation Period - The period beginning on the date after any Valuation
Date and ending on the next Valuation Date.
Variable Annuity - An annuity with annuity payments varying in amount in
accordance with the net investment experience of Separate Account A.
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FEE TABLE
The following table has been prepared to assist the investor in
understanding the various costs and expenses a Contractowner will directly or
indirectly bear. The table reflects expenses of Separate Account A as well as
the Fund.
CONTRACTOWNER TRANSACTION EXPENSES
Sales Load Imposed on Purchases
(As a percentage of purchase payments) ............................ 7.00%
SEPARATE ACCOUNT ANNUAL EXPENSES
(As a percentage of average account value)
Mortality and Expense Risk Fees ................................... 0.75%
Total Separate Account Annual Expenses ................................ 0.75%
FUND ANNUAL EXPENSES
(As a percentage of Fund average net assets)
Management Fees ................................................... 0.75%
Other Expenses .................................................... 0.13%
Total Fund Operating Expenses ..................................... 0.88%
EXAMPLE
<TABLE>
<CAPTION>
If you surrender your Contract at
the end of the applicable time period: 1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses
on a $1,000 investment, assuming 5%
annual return on assets: .................. $85 $118 $152 $250
</TABLE>
The Example is based on expense data for the Fund's fiscal year ended December
31, 1995. For more complete descriptions of the various costs and expenses shown
in the table, please refer to "Purchases, Deductions, Charges and Expenses." An
administrative charge may be deducted if the Accumulated Value of a Deferred
Annuity Contract is less than $1,500 (see "Administrative Charge"). In addition,
premium taxes may be applicable (see "Other Charges"). The expenses in the
Example should not be considered a representation of past or future expenses.
Actual expenses in future years may be greater or less than those shown.
CONDENSED FINANCIAL INFORMATION
Accumulation Unit Values
The following shows the accumulation unit values and the number of
accumulation units outstanding for Separate Account A for the last ten fiscal
years:
Accumulation Number of
As of: Unit Value($) Accumulation Units
----------------- ------------- ------------------
December 31, 1986 1.84460 12,417,659.9
December 31, 1987 1.88094 23,227,139.1
December 31, 1988 2.13623 32,388,317.9
December 31, 1989 2.08689 40,781,044.9
December 31, 1990 1.88053 28,318,605.0
December 31, 1991 2.53391 19,910,946.0
December 31, 1992 2.88323 15,144,947.0
December 31, 1993 3.38150 12,724,736.0
December 31, 1994 3.31907 11,057,783.2
December 31, 1995 3.97815 9,552,100.7
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<PAGE>
GENERAL DESCRIPTION
First Investors Life Insurance Company. First Investors Life Insurance
Company, 95 Wall Street, New York, New York 10005 ("First Investors Life"), a
stock life insurance company incorporated under the laws of the State of New
York in 1962, writes life insurance, annuities and accident and health
insurance. First Investors Consolidated Corporation ("FICC") owns all of the
voting common stock of First Investors Management Company, Inc. ("FIMCO" or
"Adviser") and all of the outstanding stock of First Investors Life, First
Investors Corporation ("FIC" or "Underwriter") and the Transfer Agent. Mr. Glenn
O. Head controls FICC and, therefore, controls the Adviser.
Separate Account A. First Investors Life Variable Annuity Fund A ("Separate
Account A") was established on September 11, 1979 under the provisions of the
New York Insurance Law. The assets of Separate Account A are held separately
from the assets of First Investors Life and for that portion of such assets
having a value equal to, or approximately equal to, such reserves and contract
liabilities are not chargeable with liabilities arising out of any other
business of First Investors Life. Separate Account A is registered as a unit
investment trust under the Investment Company Act of 1940, as amended (the "1940
Act"), but such registration does not involve any supervision of the management
or investment practices or policies of Separate Account A.
The assets of Separate Account A are invested at net asset value in shares
of First Investors Special Bond Fund, Inc. (the "Fund"). The Fund's Prospectus
describes the risks attendant to an investment in the Fund.
Income, gains and losses, whether or not realized, from assets allocated to
Separate Account A are, in accordance with the applicable Contracts, credited to
or charged against Separate Account A without regard to other income, gains or
losses of First Investors Life. The obligations under the Contracts are
obligations of First Investors Life.
Any and all distributions received from the Fund will be paid in Fund
shares or if in cash, will be reinvested in additional Fund shares at net asset
value. Accordingly, no cash distributions will be made to Contractowners.
Deductions and redemptions from Separate Account A may be effected by redeeming
the number of applicable Fund shares, at net asset value, necessary to satisfy
the amount to be deducted or redeemed. Shares of the Fund will be valued at
their net asset value.
Subject to applicable law, First Investors Life reserves the right to make
certain changes if, in its judgment, they would best serve the interests of the
Contractowners and Annuitants or would be appropriate in carrying out the
purposes of the Contract. First Investors Life will obtain, when required, the
necessary Contractowner approval or regulatory approval. Examples of the changes
First Investors Life may make include, but are not limited to:
o To operate the Separate Account A in any form permitted under the 1940
Act or in any other form permitted by law.
o To add, delete, or substitute, for the Fund shares held in Separate
Account A, the shares of another investment company or series thereof,
or any other investment permitted by law.
o To make any amendments to the Contracts necessary for the Contracts to
comply with the provisions of the Internal Revenue Code or any other
applicable federal or state law.
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The Fund. First Investors Special Bond Fund, Inc. is a diversified open-end
management investment company registered under the 1940 Act. Registration of the
Fund with the Securities and Exchange Commission ("Commission") does not involve
supervision by the Commission of the management or investment practices or
policies of the Fund. The shares of the Fund are not sold directly to the
general public but are available only through the purchase of an annuity
contract issued by First Investors Life. The Fund reserves the right to offer
its shares to other separate accounts of First Investors Life or directly to
First Investors Life.
The Fund primarily seeks to earn a high level of current income without
undue risk to principal and secondarily seeks growth of capital. The Fund seeks
to achieve its objectives by investing at least 65% of its total assets in high
yield, high risk securities. Investments in high yield, high risk securities,
commonly referred to as "junk bonds," may entail risks that are different or
more pronounced than those involved in higher-rated securities. See "High Yield
Securities -- Risk Factors" in the Fund's Prospectus.
For more complete information about the Fund, including management fees and
other expenses, see the Fund's Prospectus, which is attached to this Prospectus.
It is important to read the Prospectus carefully before you decide to invest. No
offer will be made of a variable annuity contract funded by the underlying
mutual fund unless a current Prospectus of the Fund has been delivered.
Adviser. First Investors Management Company, Inc., an affiliate of First
Investors Life, supervises and manages the Fund's investments, supervises all
aspects of the Fund's operations and determines its portfolio transactions. The
Adviser is a New York corporation located at 95 Wall Street, New York, NY 10005.
Underwriter. First Investors Life and Separate Account A have entered into
an Underwriting Agreement with their affiliate, FIC, 95 Wall Street, New York,
New York 10005. First Investors Life has reserved the right in the Underwriting
Agreement to sell the Contracts directly. The Contracts are sold by insurance
agents licensed to sell variable annuities, who are registered representatives
of the Underwriter or broker-dealers who have sales agreements with the
Underwriter.
Voting Rights. In accordance with its view of present applicable law, First
Investors Life will vote the Fund shares held in Separate Account A at any
Special Meeting of Shareholders of the Fund in accordance with instructions
received from persons having the voting interest in Separate Account A. However,
if the 1940 Act or any regulation thereunder should be amended or if the present
interpretation thereof should change, and as a result First Investors Life
determines that it is permitted to vote the Fund shares in its own right, it may
elect to do so. The person having the voting interest shall be the
Contractowner. First Investors Life will vote, in its own right, Fund shares
that are not attributable to contracts.
Prior to the Annuity Commencement Date, the number of shares of the Fund
held in Separate Account A which is attributable to each Contractowner is
determined by dividing the Separate Account A Accumulated Value by the net asset
value of one share of the Fund. After the Annuity Commencement Date, the number
of Fund shares held in Separate Account A which is attributable to each Contract
is determined by dividing the reserve held in Separate Account A for the
variable annuity payment under such Contract by the net asset value of one share
of the Fund. As this reserve fluctuates, the number of votes fluctuates. The
number of votes which a person has the right to cast will be determined as of
the record date established by the Fund. Voting instructions will be solicited
by written communication prior to the date of the meeting at which votes are to
be cast.
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Shares of the Fund held in Separate Account A as to which no timely instructions
are received or are not otherwise attributable to Contractowners will be voted
by First Investors Life in proportion to the voting instructions which are
received with respect to all Contracts participating in Separate Account A. Each
person having a voting interest in Separate Account A will be sent reports and
other materials relating to the Fund.
PURCHASES, DEDUCTIONS, CHARGES AND EXPENSES
Purchase Payments. Investors in Separate Account A will be purchasing
Accumulation Units of Separate Account A only and not shares of the Fund in
which Separate Account A invests.
The minimum purchase payment is $2,000 for a Deferred Variable Annuity
Contract. Additional Payments under a Deferred Variable Annuity Contract in the
minimum amount of $200 may be made at any time after the issuance of the
Contract.
Purchase payments will be credited to a Contractowner's Account on the date
of receipt by First Investors Life of a completed application. Additional
payments will be credited to a Contractowner's Account on the date of receipt by
First Investors Life. In the event First Investors Life receives an incomplete
application, all required information shall be provided not later than five
business days following the receipt of such application or the purchase payment
will be returned to the applicant at the end of such five-day period. Purchase
payments, after deductions for sales expenses and any applicable premium taxes
(see "Deductions from Purchase Payments"), will be allocated to Separate Account
A.
Deductions from Purchase Payments. First Investors Life or FIC, as the
Underwriter, makes deductions, in accordance with the Deduction Table below,
from the purchase payment for expenses in connection with sales functions
relative to the Contracts. Reductions in sales charges are applicable to the
total amount of the purchase payment. In addition, any Additional Payment made
after the issuance of a Deferred Annuity Contract is subject to the sales charge
applicable to the total amount of all purchase payments previously made plus the
amount of the Additional Payment being made. The sales charge is intended to
cover all expenses relating to the sale of the Contracts, including commissions
paid to persons distributing the Contracts.
DEDUCTION TABLE
<TABLE>
<CAPTION>
Sales Charge as % of
-------------------------- Concession to
Offering Net Amount Dealers as % of
Amount of Investment Price* Invested Offering Price
- -------------------- -------- ---------- ---------------
<S> <C> <C> <C>
Less than $25,000....................................... 7.00% 7.53% 5.75%
$25,000 but under $50,000............................... 6.25 6.67 5.17
$50,000 but under $100,000.............................. 4.75 4.99 3.93
$100,000 but under $250,000............................. 3.50 3.63 2.90
$250,000 but under $500,000............................. 2.50 2.56 2.19
$500,000 but under $1,000,000........................... 2.00 2.04 1.67
$1,000,000 or over...................................... 1.50 1.52 1.24
</TABLE>
- ----------
* Assumes that no premium taxes have been deducted.
Exchange Privilege. First Investors Life Variable Annuity Fund C ("Separate
Account C") is a segregated investment account established by First Investors
Life which invests in shares of First Investors Life Series Fund, a mutual fund
composed of nine separate series. Contractowners of Separate Account A may
exchange their Separate Account A Contracts for Separate Account C Contracts.
The Accumulated Value of the Separate Account A Contract will be invested at net
asset
7
<PAGE>
value in one or more Subaccounts of Separate Account C. Although there is no
charge for this exchange, Contractowners will be required to execute a change of
contract form which, in part, states that First Investors Life deducts a daily
charge equal to an annual rate of 1.00% of the daily net asset value of the
Subaccounts as a charge for mortality and expense risk. Contractowners are
advised to read the Prospectus of Separate Account C, which may be obtained free
of charge from First Investors Life, before exchanging Separate Account A
Contracts for Separate Account C Contracts. This exchange privilege may be
modified or terminated at any time by First Investors Life.
Mortality and Expense Risk Charges. Although the amount of each variable
annuity payment made to an Annuitant will vary in accordance with the investment
performance of Separate Account A, the amount will not be affected by the
mortality experience (death rate) of persons receiving such payments or of the
general population. First Investors Life assumes this "mortality risk" by virtue
of annuity rates incorporated in the Contracts which cannot be changed.
The mortality risk assumed by First Investors Life arises from its
obligation to continue to make fixed or variable annuity payments, determined in
accordance with the annuity tables and other provisions of the Contracts, to
each Annuitant regardless of how long that person lives and regardless of how
long all payees as a group live. This assures an Annuitant that neither the
Annuitant's own longevity nor an improvement in life expectancy generally will
have any adverse effect on the variable annuity payments the Annuitant will
receive under the Contract, and relieves the Annuitant of the risk that the
Annuitant will outlive the funds that the Annuitant has accumulated for
retirement.
In addition, First Investors Life assumes the risk that the charges for
administrative expenses may not be adequate to cover such expenses and assures
that it will not increase the amount charged for administrative expenses. In
consideration for its assumption of these mortality and expense risks, First
Investors Life deducts an amount equal on an annual basis to 0.75% of the daily
net asset value of Separate Account A. Of such charge, approximately 0.60% is
for assuming the mortality risk and 0.15% is for assuming the expense risk.
If the charge is insufficient to cover the actual cost of the mortality and
expense risks, the loss will fall on First Investors Life; conversely, if the
deduction proves more than sufficient, the excess will be a profit to First
Investors Life. Any profits resulting to First Investors Life for over-estimates
of the actual costs of the mortality and expense risks can be used by First
Investors Life for any business purpose, including the payment of expenses of
distributing the contracts, and will not remain in Separate Account A.
Administrative Charge. An administrative charge of $7.50 may be deducted
annually by First Investors Life from the Accumulated Value of Deferred Annuity
Contracts which have an Accumulated Value of less than $1,500 due to partial
surrenders. These charges against Annuitant accounts are for the purpose of
compensating First Investors Life for expenses involved in administering small
dormant accounts. If the actual expenses exceed charges, First Investors Life
will bear the loss.
Other Charges. Some states assess premium taxes which presently range from
0% to 2.35% at the time Purchase Payments are made; others assess premium taxes
at the time of surrender or when annuity payments begin. First Investors Life
currently advances any premium taxes due at the time Purchase Payments are made
and then deducts premium taxes from the Accumulated Value of the contract at the
time of surrender, upon death of the annuitant or when annuity payments begin.
First Investors Life, however, reserves the right to deduct premium taxes when
incurred. See Appendix I for premium tax table.
8
<PAGE>
Expenses. The total expenses of Separate Account A for the fiscal year
ended December 31, 1995 amounted to $287,884 or 0.77% of its average net assets.
There are deductions from and expenses paid out of the assets of the Fund that
are described in the Prospectus for the Fund.
VARIABLE ANNUITY CONTRACTS
This Prospectus offers Individual Deferred Variable Annuity Contracts under
which annuity payments will begin on a selected future date. First Investors
Life is offering the Contracts in states where it has the authority to issue the
Contracts. The Individual Variable Annuity Contracts offered by this Prospectus
are designed to provide lifetime annuity payments to Annuitants in accordance
with the plan adopted by the Contractowner. The amount of annuity payments will
vary with the investment performance of Separate Account A. The Contracts
obligate First Investors Life to make payments for the lifetime of the Annuitant
in accordance with the annuity rates contained in the Contract, regardless of
actual mortality experience (see "Annuity Period"). Upon the death of the
Annuitant under a Contract before the Annuity Commencement Date, First Investors
Life will pay a death benefit to the beneficiary designated by the Annuitant.
For a discussion of the amount and manner of payment of this benefit, see "Death
Benefit During the Accumulation Period."
All or a portion of the Accumulated Value may be withdrawn during the
Accumulation Period. For a discussion on withdrawals during the Accumulation
Period, see "Surrender and Termination (Redemption) During the Accumulation
Period." For Federal income tax consequences of a withdrawal, see "Federal
Income Tax Status." The exercise of contract rights herein described, including
the right to make a withdrawal during the Accumulation Period, will be subject
to the terms and conditions of any qualified trust or plan under which the
Contracts are purchased. This Prospectus contains no information concerning such
trust or plans.
First Investors Life reserves the right to amend the Contracts to meet the
requirements of the 1940 Act or other applicable Federal or state laws or
regulations.
Contractowners with any inquiries concerning their account should write to
First Investors Life Insurance Company at its Executive office, 95 Wall Street,
New York, New York 10005.
Deferred Variable Annuities--Accumulation Period
Crediting Accumulation Units. During the Accumulation Period, net purchase
payments on Deferred Annuity Contracts, after deductions for sales expenses and
any premium taxes, where applicable (see "Deductions from Purchase Payments"),
are credited to the Contractowner's Account in the form of Accumulation Units.
The number of Accumulation Units credited to a Contractowner for Separate
Account A is determined by dividing the net purchase payment by the value of an
Accumulation Unit for Separate Account A for the Valuation Period during which
the purchase payment is received at the Executive Office of First Investors Life
or other designated office. The value of the Contractowner's Individual Account
varies with the value of the assets of Separate Account A. The investment
performance of the Fund, expenses and deduction of certain charges affect the
value of an Accumulation Unit. There is no assurance that the value of a
Contractowner's Individual Account will equal or exceed purchase payments. The
value of a Contractowner's Individual Account for a Valuation Period can be
determined by multiplying the total number of Accumulation Units credited to the
account for Separate Account A by the value of an Accumulation Unit for Separate
Account A for the Valuation Period.
Annuity Period
Commencement Date. Annuity payments will begin on the Annuity Commencement
Date selected by the Contractowner. Not later than 30 days prior to the Annuity
Commencement Date, the Contractowner may elect in writing to advance or defer
the Annuity Commencement Date. The
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<PAGE>
Annuity Commencement Date may not be deferred beyond the first day of the
calendar month following the Annuitant's 85th birthday. If no other date is
elected, annuity payments will commence on the first day of the calendar month
following the Annuitant's 85th birthday.
If the Net Accumulated Value on the Annuity Commencement Date is less than
$2,000, First Investors Life may pay such value in one sum in lieu of annuity
payments. If the Net Accumulated Value is not less than $2,000 but the variable
annuity payments provided for would be or become less than $20, First Investors
Life may change the frequency of annuity payments to such intervals as will
result in payments of at least $20.
Assumed Investment Rate. A 3.5% assumed investment rate is built into the
Annuity Tables in the Contract. This is based on First Investors Life's opinion
that it is the average result to be expected from a diversified portfolio of
common stocks during a relatively stable economy. A higher assumption would mean
a higher initial payment but more slowly rising and more rapidly falling
subsequent variable annuity payments. A lower assumption would have the opposite
effect. If the actual net investment rate of Separate Account A is at the annual
rate of 3.5%, the variable annuity payments will be level. A fixed annuity is an
annuity with annuity payments which remain fixed as to dollar amount throughout
the payment period and is based on an assumed interest rate of 3.5% per year
built into the Annuity Tables in the Contract.
Annuity Options. The Contractowner may, at any time at least 30 days prior
to the Annuity Commencement Date upon written notice to First Investors Life at
its Executive Office or other designated office, elect to have payments made
under any one of the Annuity Options provided in the Contract. If no election is
in effect on the Annuity Commencement Date, annuity payments will be made on a
variable basis only under Annuity Option 3 below, Life Annuity with 120 Monthly
Payments Guaranteed, which is the Basic Annuity.
The material factors that determine the level of annuity benefits are (i)
the value of a Contractowner's Individual Account determined in the manner
described in this Prospectus before the Annuity Commencement Date, (ii) the
Annuity Option selected by the Contractowner, (iii) the sex and adjusted age of
the Annuitant and any Joint Annuitant at the Annuity Commencement Date and (iv)
in the case of a variable annuity, the investment performance of the Fund.
On the Annuity Commencement Date, First Investors Life shall apply the
Accumulated Value, reduced by any applicable premium taxes not previously
deducted, to provide the Basic Annuity or, if an Annuity Option has been
elected, to provide one of the Annuity Options described below.
The Contracts provide for the six Annuity Options described below:
Option 1 - Life Annuity - An annuity payable monthly during the lifetime of
the Annuitant, ceasing with the last payment due prior to the death of the
Annuitant. If this Option is elected, annuity payments terminate automatically
and immediately on the death of the Annuitant without regard to the number or
total amount of payments received.
Option 2a - Joint and Survivor Life Annuity - An annuity payable monthly
during the joint lifetime of the Annuitant and the Joint Annuitant and
continuing thereafter during the lifetime of the survivor, ceasing with the last
payment due prior to the death of the survivor.
Option 2b - Joint and Two-Thirds to Survivor Life Annuity - An annuity
payable monthly during the lifetime of the Annuitant and the Joint Annuitant and
continuing thereafter during the lifetime of the survivor at an amount equal to
two-thirds of the joint annuity payment, ceasing with the first payment due
prior to the death of the survivor.
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<PAGE>
Option 2c - Joint and One-Half to Survivor Life Annuity - An annuity
payable monthly during the joint lifetime of the Annuitant and the Joint
Annuitant and continuing thereafter during the lifetime of the survivor at an
amount equal to one-half of the joint annuity payment, ceasing with the last
payment due prior to the death of the survivor.
Under Annuity Options 2a, 2b and 2c, annuity payments terminate
automatically and immediately on the deaths of both the Annuitant and the Joint
Annuitant without regard to the number or total amount of payments received.
Option 3 - Life Annuity with 60, 120 or 240 Monthly Payments Guaranteed -
An annuity payable monthly during the lifetime of the Annuitant with the
guarantee that if, upon the death of the Annuitant, payments have been made for
less than 60, 120 or 240 monthly periods, as elected, payments will be made as
follows:
1. Any guaranteed annuity payments will be continued during the
remainder of the selected period to the Beneficiary. The Beneficiary may,
at any time, elect to have the present value of the guaranteed number of
annuity payments computed in the manner specified in (2) below, paid in a
lump sum.
2. If a Beneficiary receiving annuity payments under this Option dies
after the death of the Annuitant, the present value, computed as of the
Valuation Period in which notice of death of the Beneficiary is received by
First Investors Life at its Executive Office or other designated office, of
the guaranteed number of annuity payments remaining after receipt of such
notice and to which such deceased Beneficiary would have been entitled had
the Beneficiary not died, computed at the effective annual interest rate,
assumed in determining the Annuity Tables, shall be paid in a lump sum in
accordance with the Contract.
Option 4 - Unit Refund Life Annuity - An annuity payable monthly during the
lifetime of the Annuitant, terminating with the last payment due prior to the
death of the Annuitant. An additional annuity payment will be made to the
Beneficiary equal to the Annuity Unit Value of Separate Account A as of the date
that notice of death in writing is received by First Investors Life at its
Executive Office or other designated office, multiplied by the excess, if any,
of (a) over (b) where (a) is the Net Accumulated Value allocated to Separate
Account A and applied under the option at the Annuity Commencement Date, divided
by the corresponding Annuity Unit Value as of the Annuity Commencement Date, and
(b) is the product of the number of Annuity Units applicable under Separate
Account A represented by each annuity payment and the number of annuity payments
made. (For an illustration of this calculation, see Appendix II, Example A, in
the Statement of Additional Information.)
Allocation of Annuity. The Contractowner may elect to have the Net
Accumulated Value applied at the Annuity Commencement Date to provide a Fixed
Annuity, a Variable Annuity, or any combination thereof. After the Annuity
Commencement Date, no transfers or redemptions are allowed. Such elections must
be made in writing to First Investors Life at its Executive Office or other
designated office, at least 30 days prior to the Annuity Commencement Date. In
the absence of an election, annuity payments will be made on a variable basis
only under Annuity Option 3 above, Life Annuity with 120 monthly payments
guaranteed, which is the Basic Annuity.
Death Benefit During the Accumulation Period
If the Annuitant dies prior to the Annuity Commencement Date, First
Investors Life will pay a Death Benefit to the Beneficiary designated by the
Contractowner upon receipt of a death certificate or similar proof of the death
of the Annuitant. The value of the Death Benefit will be
11
<PAGE>
determined as of the Valuation Date on or next following the date on which
written notice of death is received by First Investors Life at its Executive
Office or other designated office.
If payment of the Death Benefit under one of the Annuity Options was not
elected by the Contractowner prior to the Annuitant's death, the Beneficiary may
elect to have the Death Benefit paid in a single sum or applied to provide an
annuity under one of the Annuity Options or as otherwise permitted by First
Investors Life. If a single sum settlement is requested, the proceeds will be
paid within seven days of receipt of such election and due proof of death. If an
Annuity Option is desired, election may be made by the Beneficiary during a
ninety-day period commencing with the date of receipt of notification of death.
If such an election is not made, a single sum settlement will be made to the
Beneficiary at the end of such ninety-day period. If any Annuity Option is
elected, the Annuity Commencement Date shall be the date specified in the
election but no later than ninety days after receipt by First Investors Life of
notification of death.
The amount of the Death Benefit will be the greater of (1) the gross
purchase payments (prior to any deductions or charges) made under an Individual
Contract less any amount of purchase payments surrendered, or (2) the
Accumulated Value.
Surrender and Termination (Redemption) During the Accumulation Period
A Contractowner may elect, at any time before the earlier of the Annuity
Commencement Date or the death of the Annuitant, to surrender the Contract for
all or any part of the Contractowner's Individual Account. In the event of a
termination of the Contract, First Investors Life will, upon due surrender of
the Contract at the Executive Office of First Investors Life or other designated
office, pay to the Contractowner the Accumulated Value of the Contract. If only
a portion of the amount of the Contractowner's Individual Account is requested,
the amount so requested shall be deducted from Separate Account A resulting in a
corresponding reduction in the number of Accumulation Units credited to the
Contractowner in Separate Account A. All Accumulated Values described in this
section will be determined as of the end of the Valuation Period during which
the written request is received by First Investors Life at its Executive Office
or other designated office. First Investors Life may defer any such payment for
a period of not more than 7 days. However, First Investors Life may postpone
such payment during any period when (a) trading on the New York Stock Exchange
is restricted as determined by the Securities and Exchange Commission or such
Exchange is closed for other than weekends and holidays, (b) the Securities and
Exchange Commission has by order permitted such suspension or (c) an emergency,
as defined by the rules of the Securities and Exchange Commission, exists during
which time the sale of portfolio securities or calculation of securities is not
reasonably practicable. For information as to Federal tax consequences resulting
from surrenders, see "Federal Income Tax Status." For information as to State
premium tax consequences, see "Other Charges" and "Appendix I."
Maturity Date Exchange Privilege. If this Contract is liquidated during the
one-year period preceding its maturity date, the proceeds can be used to
purchase Class A shares of First Investors mutual funds without incurring a
sales charge.
Death of Contractowner
If the Contractowner dies before the entire interest in the Contract has
been distributed, the value of the Contract must be distributed to the
Beneficiary as provided below so that the Contract qualifies as an annuity under
Section 72(s) of the Internal Revenue Code of 1986, as amended (the "Code").
If the death of the Contractowner occurs prior to the Annuity Commencement
Date, the entire interest in the Contract will be (1) distributed to the
Beneficiary within five years, or (2) distributed
12
<PAGE>
under an Annuity Option beginning within one year which provides that annuity
payments will be made over a period not longer than the life or life expectancy
of the Beneficiary. If the Contract is payable to (or for the benefit of) the
Contractowner's surviving spouse, no distributions will be required and the
Contract may be continued with the surviving spouse as the new Contractowner. If
the Contractowner is also the Annuitant, such spouse shall have the right to
become the Annuitant under the Contract. Likewise, if the Annuitant dies and the
Contractowner is not a natural person, the Annuitant's surviving spouse shall
have the right to become the Contractowner and the Annuitant.
Ten-Day Revocation Right
A Contractowner may, within ten days from the date the Contract is
delivered to the Contractowner, elect to cancel the Contract. First Investors
Life will, upon surrender of the Contract, together with a written request for
cancellation, at the Executive Office of First Investors Life or other
designated office, pay to the Contractowner an amount equal to the Accumulated
Value of the Contract on the date of surrender plus the amount of any sales
charges deducted from the initial purchase payment. The amount refunded to
Contractowners may be more or less than their initial purchase payment depending
on the investment results of Separate Account A. In those states where a full
refund of premiums is required if the Contractowner elects to exercise to cancel
the Contract under the ten-day revocation right, such Contractowner shall be
entitled to a full refund of premiums paid upon such cancellation.
FEDERAL INCOME TAX STATUS
The Contracts are designed principally for use by individuals in retirement
plans which will not be qualified plans under the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"). In general, a Contract acquired
by a person who is not an individual will be treated as one which is not an
annuity to the extent of contributions made after February 28, 1986, and any
income credited to a Contractowner's Individual Account will accordingly be
includable in the Contractowner's gross income on a current basis in accordance
with that person's method of accounting. The preceding sentence will not apply
to any annuity contract that is (i) acquired by a decedent's estate by reason of
the decedent's death, (ii) held under a qualified pension, profit-sharing or
stock bonus plan described under Section 401(a) of the Code or an employee
annuity program described under Section 403(a) of the Code (or that is purchased
by an employer upon the termination of such plan or program and that is held by
the employer until all amounts under a Contract are distributed to the employee
for whom the Contract was purchased or the employee's beneficiary), (iii) held
under an individual retirement plan or an employee annuity program described
under Section 403(b) of the Code, or (iv) an immediate annuity (as defined in
Section 72(u)(4) of the Code).
The ultimate effect of Federal income taxes on Accumulated Values, on
annuity payments and on the economic benefit to the Contractowner, Annuitant or
Beneficiary depends on the tax status of both First Investors Life and the
individual concerned. The discussion contained herein is general in nature and
is not intended as tax advice. No attempt is made to consider any applicable
state or other tax laws. Moreover, the discussion herein is based upon First
Investors Life's understanding of Federal income tax laws as they are currently
interpreted. No representation is made regarding the likelihood of continuation
of current Federal income tax laws or the current interpretations of the
Internal Revenue Service. Prospective Contractowners should consult their tax
advisors as to the tax consequences of purchasing Contracts.
First Investors Life is taxed as a life insurance company under the Code.
Since Separate Account A is not a separate entity from First Investors Life and
its operation forms part of First Investors Life, it will not be taxed
separately as a "regulated investment company" under
13
<PAGE>
Subchapter M of the Code. Under existing Federal income tax law, investment
income of Separate Account A, to the extent that it is applied (after taking
into account the mortality risk and expense risk charges) to increase reserves
under the Contract, is not taxed and may be compounded through reinvestment
without additional tax to First Investors Life to the extent income is so
applied. Thus, the Fund may realize net investment income and pay dividends and
Separate Account A may receive and reinvest them on behalf of Contractowners,
all without Federal income tax consequences for Separate Account A or the
Contractowner.
Under current interpretations of the Code, the Contractowner is not subject
to income tax on increases in the value of the Contractowner's Individual
Account until payments are received by the Contractowner under the Contract.
Annuity payments received after the Annuity Commencement Date will be taxed to
the Contractowner as ordinary income in accordance with Section 72 of the Code.
However, that portion of each payment which represents the Contractowner's
investment in the Contract, as defined in Section 72, will be excluded from
gross income. The investment in the Contract, which is ordinarily the amount of
purchase payments made under the Contract with certain adjustments, is divided
by the Contractowner's life expectancy or other period for which annuity
payments are expected to be made to determine the annual exclusion. Annuity
payments received each year in excess of this annual exclusion are taxable as
ordinary income as provided in Section 72 of the Code.
In order that the Contracts be treated as annuities for Federal income tax
purposes, other than Contracts issued in connection with retirement plans that
are qualified under the Code, Separate Account A must satisfy certain
diversification requirements that are generally applicable to variable annuity
contract segregated asset accounts under Subchapter L of the Code. Ownership by
Separate Account A of shares of the Fund will not fail the diversification
requirements provided that the Fund is taxed as a regulated investment company
under Subchapter M of the Code, and that the Fund meets such diversification
requirements, and all shares of the Fund are owned only by Separate Account A
(and similar accounts of First Investors Life or other insurance companies), and
access to the Fund is available exclusively through the purchase of Contracts
(and additional variable annuity or life insurance products of First Investors
Life or other insurance companies). Fund shares also may be held by the Adviser
provided such shares are being held in connection with the creation or
management of the Fund. The Adviser does not intend to sell any Fund shares it
owns to the general public. It is expected that the Adviser will cause the
assets of the Fund to be invested in a manner that complies with the asset
diversification requirements.
The tax law does not currently provide guidance as to circumstances in
which a Contractowner may be said to have "control" over Separate Account A
assets and thus be subject to current taxation on income credited to the
Contractowner's Contract. The Treasury Department has said that it may provide
such guidance by a ruling or regulation. First Investors Life reserves the right
to amend the Contracts in any appropriate way necessary to avoid such current
taxation.
With respect to withdrawals before the start of annuity payments, the Code
currently provides that: (i) withdrawals from an annuity contract are taxable as
ordinary income in the year of receipt to the extent that income from investment
has been earned, (ii) a loan under, or an assignment or pledge of an annuity
contract is treated as a distribution, and (iii) a 10 percent penalty will be
assessed, subject to certain exceptions, on the taxable portion of withdrawals
made prior to the taxpayer's attainment of age 59 1/2.
In determining the amount of any distribution that is includable in gross
income, all annuity contracts issued by the same company to the same
Contractowner during any 12-month period will be treated as one annuity
contract. Contractowners should consult their tax advisors before purchasing
more than one Contract during any calendar year.
14
<PAGE>
Under the Code, income tax must generally be withheld from all "designated
distributions." A designated distribution includes the taxable portion of any
distribution or payment from an annuity. A partial surrender of an annuity
contract is considered a distribution subject to withholding.
The amount of withholding depends on the type of payment: "periodic" or
"non-periodic." For a periodic payment (e.g., an annuity payment), unless the
recipient files an appropriate withholding certificate, the tax withheld from
the taxable portion of the payment is based on a payroll withholding schedule
which assumes a married recipient claiming three withholding exemptions. For a
non-periodic payment distribution (e.g., a partial surrender of an annuity
contract), the tax withheld will generally be 10 percent of the taxable portion
of the payment.
A recipient may elect not to have the withholding rules apply. For periodic
payments, an election is effective for the calendar year for which it is made
and for each necessary year until amended or modified. For non-periodic
distributions, an election is effective only for the distribution for which it
is made. Payors must notify recipients of their right to elect to have taxes
withheld.
Insurers are required to report all designated distribution payments to the
Internal Revenue Service.
With respect to the Contracts issued in connection with retirement or
deferred compensation plans which do not meet the requirements applicable to tax
qualified plans, the tax status of the Annuitant is determined by the provisions
of the plan. In general, the Annuitant is not taxed until the Annuitant receives
annuity payments. The rules for taxation of payments under non-qualified plans
are, in general, similar to those for taxation of payments under a qualified
plan; however, the special income averaging treatment available for certain lump
sum payments under qualified plans is not available for similar payments under
non-qualified plans.
It should be noted that the laws and regulations with respect to the
foregoing tax matters are subject to change at any time by Congress and the
Treasury Department, respectively, and that the interpretations of such laws and
regulations now in effect are subject to change by judicial decision or by the
Treasury Department.
PERFORMANCE INFORMATION
From time to time, Separate Account A may advertise several types of
performance information, including yield, average annual total return and total
return. Each of these figures is based upon historical earnings and is not
necessarily representative of the future performance of Separate Account A.
Average annual total return and total return calculations measure the net
income of Separate Account A plus the effect of any realized or unrealized
appreciation or depreciation of the underlying investments in Separate Account A
for the period in question. Average annual total return will be quoted for one,
five and ten year periods, or for shorter time periods depending upon the length
of time during which Separate Account A has operated. Average annual total
return figures are annualized and, therefore, represent the average annual
percentage change in the value of an investment in Separate Account A over the
period in question. Total return figures are not annualized and represent the
actual percentage change over the period in question. Average annual total
return and total return figures will include the deduction of all expenses and
fees, including the payment of the maximum sales charge of 7.00% and the payment
of the Mortality and Expense Risk fee of 0.75%.
Yield is a measure of the net dividend and interest income earned over a
specific one month or 30-day period expressed as a percentage of the value of
Separate Accounts A's Accumulation Units.
15
<PAGE>
Yield is an annualized figure, which means that it is assumed that Separate
Account A generates the same level of net income over a one-year period which is
compounded on a semi-annual basis.
For further information on performance calculations, see "Performance
Information" in the Statement of Additional Information.
16
<PAGE>
TABLE OF CONTENTS
OF THE STATEMENT OF ADDITIONAL
INFORMATION
Item Page
---- ----
General Description................................................. 2
Services............................................................ 2
Purchase of Securities.............................................. 3
Deduction Table..................................................... 4
Annuity Payments.................................................... 4
Other Information................................................... 6
Performance Information............................................. 6
Relevance of Financial Statements................................... 9
Appendices.......................................................... 10
Financial Statements................................................ 15
APPENDIX I
STATE AND LOCAL TAXES*
Alabama............................................................ 1.00%
Alaska............................................................. --
Arizona............................................................ --
Arkansas........................................................... --
California......................................................... 2.35
Colorado........................................................... --
Connecticut........................................................ --
Delaware........................................................... --
District of Columbia............................................... 2.25
Florida............................................................ --
Georgia............................................................ --
Illinois........................................................... --
Indiana............................................................ --
Iowa............................................................... --
Kentucky........................................................... 2.00
Louisiana.......................................................... --
Maryland........................................................... --
Massachusetts...................................................... --
Michigan........................................................... --
Minnesota.......................................................... --
Mississippi........................................................ 2.00%
Missouri........................................................... --
Nebraska........................................................... --
New Jersey......................................................... --
New Mexico......................................................... --
New York........................................................... --
North Carolina..................................................... --
Ohio............................................................... --
Oklahoma........................................................... --
Oregon............................................................. --
Pennsylvania....................................................... 2.00
Rhode Island....................................................... --
South Carolina..................................................... --
Tennessee.......................................................... --
Texas.............................................................. --
Utah............................................................... --
Virginia........................................................... --
Washington......................................................... --
West Virginia...................................................... 1.00
Wyoming............................................................ 1.00
- ----------
Note: The foregoing rates are subject to amendment by legislation and the
applicability of the stated rates may be subject to administrative
interpretation.
* Includes local annuity premium taxation.
17
First Investors Special Bond Fund, Inc.
95 Wall Street, New York, N.Y. 10005/(212) 858-8200
This is a Prospectus for First Investors Special Bond Fund, Inc. ("Fund"),
an open-end diversified management investment company. Investments in the Fund
are only available through the purchase of Individual Variable Annuity Contracts
("Contracts") issued by First Investors Life Insurance Company ("First Investors
Life"). Purchase payments for the Contracts, net of certain expenses, are paid
into a unit investment trust, First Investors Life Variable Annuity Fund A
("Separate Account A"). Separate Account A uses these proceeds to purchase
shares of the Fund. Investments in the Fund are used to fund benefits under the
Contracts.
The Fund primarily seeks high current income without undue risk to
principal and secondarily seeks growth of capital by investing, under normal
market conditions, at least 65% of its total assets in high yield, high risk
securities. There can be no assurance the Fund will achieve its investment
objectives. Investments in high yield, high risk securities, commonly referred
to as "junk bonds," may entail risks that are different or more pronounced than
those involved in higher-rated securities. See "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 April 29, 1996 (which is incorporated by reference
herein), has been filed with the Securities and Exchange Commission. The SAI is
available at no charge upon request to the Fund at the address or telephone
number indicated above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is April 29, 1996
<PAGE>
FINANCIAL HIGHLIGHTS
The following table sets forth the per share operating performance data
for a share outstanding, total return, ratios to average net assets and other
supplemental data for each year indicated. 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.
2
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------
Year Ended December 31
-------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Per Share Data
Net Asset Value, Beginning of Year $11.03 $12.18 $11.38 $11.05 $9.16
-------- -------- -------- -------- -------
Income from Investment Operations
Net investment income 1.20 1.09 1.14 1.27 1.26
Net realized and unrealized
gain (loss) on investments 1.02 (1.22) .86 .29 1.86
-------- -------- -------- -------- -------
Total from Investment Operations 2.22 (.13) 2.00 1.56 3.12
-------- -------- -------- -------- -------
Less Distributions from:
Net investment income 1.02 1.02 1.20 1.23 1.23
Net realized gain from investments - - - - -
Capital surplus - - - - -
-------- -------- -------- -------- -------
Total Distributions 1.02 1.02 1.20 1.23 1.23
-------- -------- -------- -------- -------
Net Asset Value, End of Year $12.23 $11.03 $12.18 $11.38 $11.05
-------- -------- -------- -------- -------
Total Return(%)+ 20.76 (1.00) 18.15 14.56 35.76
Ratios/Supplemental Data
Net Assets, End of Year (in thousands) $38,037 $36,725 $43,056 $44,116 $50,914
Ratio to Average Net Assets:(%)
Expenses .88 .87 .85 .88 .89
Net investment income 10.15 9.38 9.54 10.95 11.99
Portfolio Turnover Rate(%) 45 54 79 65 47
+ The effect of fees and charges incurred at the separate account level are not
reflected in these performance figures.
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (CONTINUED)
FIRST INVESTORS SPECIAL BOND FUND, INC.
--------------------------------------------------------
Year Ended December 31
--------------------------------------------------------
1990 1989 1988 1987 1986
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Data
Net Asset Value, Beginning of Year $11.47 $13.19 $12.99 $14.37 $13.93
-------- -------- -------- -------- --------
Income from Investment Operations
Net investment income 1.32 1.57 1.61 1.57 1.61
Net realized and unrealized
gain (loss) on investments (2.30) (1.73) .20 (1.15) .92
-------- -------- -------- -------- --------
Total from Investment Operations (.98) (.16) 1.81 .42 2.53
-------- -------- -------- -------- --------
Less Distributions from:
Net investment income 1.33 1.56 1.61 1.58 1.61
Net realized gain from investments.. - - - .19 .48
Capital surplus - - - .03 -
-------- -------- -------- -------- --------
Total Distributions 1.33 1.56 1.61 1.80 2.09
-------- -------- -------- -------- --------
Net Asset Value, End of Year $9.16 $11.47 $13.19 $12.99 $14.37
-------- -------- -------- -------- --------
Total Return(%)+ (9.18) (1.60) 14.43 2.74 19.44
Ratios/Supplemental Data
Net Assets, End of Year (in thousands) $53,328 $85,719 $69,641 $43,965 $23,078
Ratio to Average Net Assets:(%)
Expenses .86 .82 .84 .86 1.04
Net investment income 12.57 12.38 11.96 11.16 11.01
Portfolio Turnover Rate(%) 37 34 51 71 112
+ The effect of fees and charges incurred at the separate account level are not
reflected in these performance figures.
See notes to financial statements
</TABLE>
3
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Fund primarily seeks high current income without undue risk to
principal and secondarily seeks growth of capital. The Fund seeks to achieve its
objectives by investing, under normal market conditions, at least 65% of its
total assets in high yield, high risk securities, commonly referred to as "junk
bonds" ("High Yield Securities"). High Yield Securities include the following
instruments: fixed, variable or floating rate debt obligations (including bonds,
debentures and notes) which are rated below Baa by Moody's Investors Service,
Inc. ("Moody's") or below BBB by Standard & Poor's Ratings Group ("S&P"), or are
unrated and deemed to be of comparable quality by the Adviser; preferred stocks
and dividend-paying common stocks that have yields comparable to those of high
yielding debt securities; any of the foregoing securities of companies that are
financially troubled, in default or undergoing bankruptcy or reorganization
("Deep Discount Securities"); and any securities convertible into any of the
foregoing.
The Fund may invest up to 5% of its total assets in debt securities issued
by foreign governments and companies located outside the United States and
denominated in U.S. or foreign currency. The Fund also may borrow money for
temporary or emergency purposes in amounts not exceeding 5% of its total assets,
make loans of portfolio securities and invest in zero coupon and pay-in-kind
securities. See the SAI for more information concerning these securities.
The Fund may invest up to 35% of its total assets in the following
instruments: common and preferred stocks, other than those considered to be High
Yield Securities; debt obligations of all types (including bonds, debentures and
notes) rated A or better by Moody's or S&P; securities issued by the U.S.
Government or its agencies or instrumentalities ("U.S. Government Obligations");
warrants and money market instruments consisting of prime commercial paper,
certificates of deposit of domestic branches of U.S. banks, bankers' acceptances
and repurchase agreements; purchase securities on a "when-issued" basis.
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, and to establish a long-term holding basis.
Because of the greater number of investment considerations involved in
investing in High Yield Securities, the achievement of the Fund's investment
objectives depends more on the Adviser's research abilities than would be the
case if the Fund were investing primarily in securities in the higher rated
categories. Because medium- to lower-rated securities generally involve greater
risks of loss of income and principal than higher-rated securities, investors
should consider carefully the relative risks associated with investments in
securities that carry medium to lower ratings or are unrated. See "High Yield
Securities--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 1995 fiscal year, computed on a monthly basis, are set forth
below. This information reflects the average composition of the Fund's assets
during the 1995 fiscal year and is not necessarily representative of the Fund as
of the end of its 1995 fiscal year, the current fiscal year or at any other time
in the future.
Comparable Quality
of Unrated Securities
Rated by Moody's to Bonds Rated by Moody's
---------------- -------------------------
Ba 22.49% 0%
B 60.52 0.21
Caa 4.38 2.48
Ca 0.99 0
------- -----
Total 88.38% 2.69%
Description of Certain Securities, Other Investment Policies and Risk Factors
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A
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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 inflationary
expectations, an increase in the rate of U.S. economic growth, an expansion in
the Federal budget deficit or an increase in the price of commodities such as
oil. In addition, the market value of debt securities is influenced by
perceptions of the credit risks associated with such securities. 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 these 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 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 would affect the value of such
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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 recent years and its growth paralleled a long economic
expansion. In the past, the prices of many lower-rated debt securities declined
substantially, reflecting an expectation that many issuers of such securities
might experience financial difficulties. As a result, the yields on lower-rated
debt securities rose dramatically. However, such higher yields did not reflect
the value of the income streams that holders of such securities expected, but
rather the risk that holders of such securities could lose a substantial portion
of their value as a result of the issuers' financial restructuring or default.
There can be no assurance that such declines in the below investment grade
market will not reoccur. The market for below investment grade bonds generally
is thinner and less active than that for higher quality bonds, which may limit
the Fund's ability to sell such securities at fair value in response to changes
in the economy or the financial markets. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may also decrease the
values and liquidity of lower rated securities, especially in a thinly traded
market.
Credit Ratings. The credit ratings issued by credit rating services may not
fully reflect the true risks of an investment. For example, credit ratings
typically evaluate the safety of principal and interest payments, not market
value risk, of High Yield Securities. Also, credit rating agencies may fail to
change on a timely basis a credit rating to reflect changes in economic or
company conditions that affect a security's market value. Although the Adviser
considers ratings of recognized rating services such as Moody's and S&P, the
Adviser primarily relies on its own credit analysis, which includes a study of
existing debt, capital structure, ability to service debt and to pay dividends,
the issuer's sensitivity to economic conditions, its operating history and the
current trend of earnings. The Fund may invest in securities rated as low as D
by S&P or C by Moody's or, if unrated, deemed to be of comparable quality by the
Adviser. Debt obligations with these ratings either have defaulted or 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
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<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.
Market Risk. The Fund is subject to market risk because it invests in
common stocks. Market risk is the possibility that common stock prices will
decline over short or even extended periods. The U.S. stock market tends to be
cyclical, with periods when stock prices generally rise and periods when stock
prices generally decline.
Money Market Instruments. Investments in commercial paper are limited to
obligations rated Prime-1 by Moody's or A-1 by S&P. Commercial paper includes
notes, drafts, or similar instruments payable on demand or having a maturity at
the time of issuance not exceeding nine months, exclusive of days of grace or
any renewal thereof. Investments in certificates of deposit will be made only
with domestic institutions with assets in excess of $500 million. See the SAI
for more information regarding money market instruments and Appendix A to the
SAI for a description of commercial paper ratings.
Preferred Stock. A preferred stock is a blend of the characteristics of a
bond and common stock. It can offer the higher yield of a bond and has priority
over common stock in equity ownership, but does not have the seniority of a bond
and, unlike common stock, its participation in the issuer's growth may be
limited. Preferred stock has preference over common stock in the receipt of
dividends and in any residual assets after payment to creditors should the
issuer be dissolved. Although the dividend is set at a fixed annual rate, in
some circumstances it can be changed or omitted by the issuer.
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, which the
Fund's Board of Directors or the Adviser has
8
<PAGE>
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 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 only available through purchases of the
Contracts offered by First Investors Life. Purchase payments for the Contracts,
net of certain expenses, are paid into a unit investment trust, Separate Account
A. Separate Account A 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."
Due to emergency conditions, such as snow storms, the Woodbridge offices of
First Investors Corporation ("FIC"), the underwriter of Separate Account A, and
Administrative Data Management Corp. (the "Transfer Agent") may not be open for
business on a day when the NYSE is open for regular trading and, therefore,
would be unable to accept purchase orders. Should this occur, purchase orders
will be executed at the net asset value determined at the close of regular
trading on the NYSE on the next business day that these offices are open for
business.
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
9
<PAGE>
("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.
Due to emergency conditions, such as snow storms, the Woodbridge offices of
FIC and the Transfer Agent may not be open for business on a day when the NYSE
is open for regular trading and, therefore, would be unable to accept redemption
orders. Should this occur, redemption orders will be executed at the net asset
value determined at the close of regular trading on the NYSE on the next
business day that these offices are open for business.
MANAGEMENT
Board of Directors. The Fund's Board of Directors, as part of its overall
management responsibility, oversees various organizations responsible for the
Fund's day-to-day management.
Adviser. First Investors Management Company, Inc. supervises and manages
the Fund's investments, determines the Fund's portfolio transactions and
supervises all aspects of the Fund's operations. The Adviser is a New York
corporation located at 95 Wall Street, New York, NY 10005. The Adviser presently
acts as investment adviser to 14 mutual funds. First Investors Consolidated
Corporation ("FICC") owns all of the voting common stock of the Adviser and all
of the outstanding stock of FIC and the Transfer Agent. Mr. Glenn O. Head
controls FICC and, therefore, controls the Adviser.
As compensation for its services, the Adviser receives an annual fee from
the Fund, which is payable monthly. For the fiscal year ended December 31, 1995,
the Fund's advisory fees were 0.75% of its average daily net assets. The SEC
staff takes the position that fees of 0.75% or greater are higher than those
paid by most investment companies.
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 Fund
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.
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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.
TAXES
The Fund intends to continue to qualify for treatment as a regulated
investment company ("RIC") under Subchapter M of the Internal Revenue Code of
1986, as amended ("Code"), so that it will be relieved of Federal income tax on
that part of its investment company taxable income (consisting generally of net
investment income, net short-term capital gain and net gains from certain
foreign currency transactions) and net capital gain that 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
11
<PAGE>
are cash and cash items, government securities and securities of other RICs.
Failure of the Fund to satisfy the section 817(h) requirements would result in
taxation of First Investors Life and treatment of the Contractholders other than
as described in the Prospectus of Separate Account A.
The foregoing is only a summary of some of the important Federal income tax
considerations generally affecting the Fund and its shareholders; see the
Statement of Additional Information for a more detailed discussion. Shareholders
are urged to consult their tax advisers.
GENERAL INFORMATION
Organization. The Fund was incorporated in the State of Maryland on
November 14, 1979. The Fund is authorized to issue 25 million shares of common
stock, $1.00 par value per share. Shares of the Fund have equal dividend,
voting, liquidation and redemption rights. The Fund does not hold annual
shareholder meetings. If requested to do so by the holders of at least 10% of
the Fund's outstanding shares, the Board of Directors will call a special
meeting of shareholders for any purpose, including the removal of Directors.
Custodian. The Fund has retained The Bank of New York, 48 Wall Street, New
York, New York 10286, to act as custodian of the securities and cash of the
Fund.
Transfer Agent. Administrative Data Management Corp., 581 Main Street,
Woodbridge, NJ 07095-1198, an affiliate of the Adviser and First Investors Life,
acts as transfer agent for the Fund and as dividend disbursing agent.
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,
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<PAGE>
suspended, or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default-capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization, or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.
AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C Debt rated "BB," "B," "CCC," "CC" and "C" is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal. "BB" indicates the least degree of speculation and "C" the
highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "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.
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<PAGE>
CCC Debt rated "CCC" has a currently identifiable vulnerability to default
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
CC The rating "CC" typically is applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.
C The rating "C" typically is applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI The rating "CI" is reserved for income bonds on which no interest is
being paid.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The "D" rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
categories.
MOODY'S INVESTORS SERVICE, INC.
Aaa Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat greater than the Aaa securities.
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
14
<PAGE>
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba Bonds which are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B Bonds which are rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa Bonds which are rated "Caa" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca Bonds which are rated "Ca" represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated "C" are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
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TABLE OF CONTENTS PAGE
Financial Highlights..................................................... 2
Investment Objectives and Policies....................................... 4
How to Buy Shares........................................................ 9
How to Redeem Shares..................................................... 9
Management............................................................... 10
Determination of Net Asset Value......................................... 10
Dividends and Other Distributions........................................ 11
Taxes.................................................................... 11
General Information...................................................... 12
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 LLP
1800 Massachussetts Avenue, N.W.
Washington, DC 20036
CUSTODIAN
The Bank of New York
48 Wall Street
New York, NY 10286
TRANSFER AGENT
Administrative Data Management Corp.
581 Main Street
Woodbridge, New Jersey 07095-1198
AUDITORS
Tait, Weller & Baker
Two Penn Center Plaza
Philadelphia, Pennsylvania 19102
PROSPECTUS
April 29, 1996
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 April 29, 1996
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 April 29, 1996, 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 the Fund
held in foreign countries. Because the Fund does not intend to hedge its foreign
investments against the risk of foreign currency fluctuations, changes in the
value of these currencies can significantly affect the Fund's share price.
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
2
<PAGE>
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 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.
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 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
3
<PAGE>
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 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
4
<PAGE>
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.
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, 1994 and 1995, the Fund's portfolio
turnover rate was 54% and 45%, respectively.
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.
5
<PAGE>
(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 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.
6
<PAGE>
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.
DIRECTORS AND OFFICERS
The following table lists the Directors and executive officers of the
Fund, their age, 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*+ (70), President and Director. Chairman of the Board and
Director, Administrative Data Management Corp. ("ADM"), FIMCO, Executive
Investors Management Company, Inc. ("EIMCO"), First Investors Corporation
("FIC"), Executive Investors Corporation ("EIC") and First Investors
Consolidated Corporation ("FICC").
James J. Coy (82), Director, 90 Buell Lane, East Hampton, NY 11937. Retired;
formerly Senior Vice President, James Talcott, Inc. (financial institution).
Roger L. Grayson* (39), Director. Director, FIC and FICC; President and
Director, First Investors Resources, Inc.; Commodities Portfolio Manager.
Kathryn S. Head*+ (40), Director, 581 Main Street, Woodbridge, NJ 07095.
President, FICC, EIMCO, FIMCO and ADM; Vice President, Chief Financial Officer
and Director, FIC and EIC; President and Director, First Financial Savings Bank,
S.L.A.
Rex R. Reed (74), Director, 1381 Fairway Oaks, Kiawah Island, SC 29455. Retired;
formerly Senior Vice President, American Telephone & Telegraph Company.
Herbert Rubinstein (74), Director, 145 Elm Drive, Roslyn, NY 11576. Retired;
formerly President, Belvac International Industries, Ltd. and President, Central
Dental Supply.
James M. Srygley (63), Director, 33 Hampton Road, Chatham, NJ 07982. Principal,
Hampton Properties, Inc. (property investment company).
John T. Sullivan* (64), Director and Chairman of the Board; Director, FIMCO,
FIC, FICC and ADM; Of Counsel, Hawkins, Delafield & Wood, Attorneys.
Robert F. Wentworth (66), 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 (38), Treasurer, 581 Main Street, Woodbridge, NJ 07095.
Treasurer, FIC FIMCO, EIMCO and EIC; Comptroller and Treasurer, FICC.
Concetta Durso (61), Vice President and Secretary. Vice President, FIMCO, EIMCO
and ADM; Assistant Vice President and Assistant Secretary, FIC and EIC.
7
<PAGE>
George V. Ganter (43), Vice President. Vice President, First Investors Asset
Management Company, Inc., First Investors High Yield Fund, Inc., and Executive
Investors Trust; Portfolio Manager, FIMCO.
- ----------
* 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 13 other registered investment companies in the First
Investors Family of Funds. 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, School Financial Management Services, Inc., First
Investors Credit Funding Corporation, N.A.K. Realty Corporation, Real Property
Development Corporation, First Investors Leverage Corporation and Route 33
Realty Corporation.
The following table lists compensation paid to the Directors of the Fund
for the fiscal year ended December 31, 1995.
<TABLE>
<CAPTION>
Total
Compensation
Pension or Estimated From First
Aggregate Retirement Benefits Annual Benefits Investors Family
Compensation Accrued as Part of Upon of Funds
Director From Fund* Fund Expenses Retirement Paid to Directors*
- -------- ------------ ------------------- ----------------- ------------------
<S> <C> <C> <C> <C>
James J. Coy $1,200 $-0- $-0- $37,200
Roger L. Grayson -0- -0- -0- -0-
Glenn O. Head -0- -0- -0- -0-
Kathryn S. Head -0- -0- -0- -0-
F. William Ortman, Jr.** 500 -0- -0- 15,500
Rex R. Reed 1,200 -0- -0- 37,200
Herbert Rubinstein 1,200 -0- -0- 37,200
James M. Srygley*** 1,200 -0- -0- 37,200
John T. Sullivan -0- -0- -0- -0-
Robert F. Wentworth 1,200 -0- -0- 37,200
</TABLE>
* Compensation to officers and interested Directors of the Fund is paid by
the Adviser. In addition, compensation to non-interested Directors of the
Fund is currently voluntarily paid by the Adviser.
** For the period January 1, 1995 through September 21, 1995.
*** For the period January 21, 1995 through December 31, 1995.
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
8
<PAGE>
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.
Under the Advisory Agreement, the Fund pays the Adviser an annual fee,
paid monthly, according to the following schedule:
Annual
Average Daily Net Assets Rate
- ------------------------ ----
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
For the fiscal years ended December 31, 1993, 1994 and 1995, the Fund paid
the Adviser $322,888, $294,179 and $277,740, 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
9
<PAGE>
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.
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
10
<PAGE>
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, 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 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. For the
fiscal year ended December 31, 1995, the Fund did not pay brokerage commissions.
TAXES
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the 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 and net short-term capital gain
and net gains from certain foreign currency transactions) 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 during the taxable
year, even if it receives no corresponding payment on them 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
11
<PAGE>
income, including any original issue discount and other non-cash income, 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. 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 or foreign currency positions, held for less than three months that
it might wish to sell in the ordinary course of its portfolio management.
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, 1995
14
<PAGE>
<TABLE>
Portfolio of Investments
FIRST INVESTORS SPECIAL BOND FUND, INC.
December 31, 1995
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS--87.4%
Apparel/Textiles--0%
$ 500M Linter Textiles Corp. Ltd., 13 3/4%, 2000 Defaulted $ 6,250 $ 2
- ----------------------------------------------------------------------------------------------------
Automotive--4.9%
500M Aftermarket Technology Corp., 12%, 2004 532,500 140
750M Exide Corp., 10%, 2005 805,312 212
500M SPX Corp., 11 3/4%,2002 532,500 140
- ----------------------------------------------------------------------------------------------------
1,870,312 492
- ----------------------------------------------------------------------------------------------------
Building Materials--2.7%
1,000M Interface, Inc., 9 1/2%, 2005 (Note 5) 1,026,250 270
- ----------------------------------------------------------------------------------------------------
Chemicals--6.6%
1,000M Huntsman Corp., 11%, 2004 1,151,250 303
800M Rexene Corp., 11 3/4%, 2004 850,000 223
500M Synthetic Industries, Inc., 12 3/4%, 2002 492,500 129
- ----------------------------------------------------------------------------------------------------
2,493,750 655
- ----------------------------------------------------------------------------------------------------
Consumer Non-Durables--1.9%
700M Hines Horticulture, Inc., 11 3/4%, 2005 (Note 5) 735,000 193
- ----------------------------------------------------------------------------------------------------
Containers--2.1%
700M Owens Illinois, Inc., 11%, 2003 793,625 209
- ----------------------------------------------------------------------------------------------------
Electrical Equipment--7.5%
725M Essex Group, Inc., 10%, 2003 717,750 189
1,000M IMO Industries, Inc., 12%, 2001 1,020,000 268
472M Thermadyne Industries, Inc., 10 1/4%, 2002 474,360 125
656M Thermadyne Industries, Inc., 10 3/4%, 2003 659,280 173
- ----------------------------------------------------------------------------------------------------
2,871,390 755
- ----------------------------------------------------------------------------------------------------
Energy--5.9%
1,000M Clark R & M Holdings, Inc., 0%,2000 667,500 175
600M Falcon Drilling Co., Inc., 9 3/4%, 2001 615,000 162
900M United Meridian Corp., 10 3/8%, 2005 956,250 251
- ----------------------------------------------------------------------------------------------------
2,238,750 588
- ----------------------------------------------------------------------------------------------------
Financial Services--1.7%
600M Olympic Financial Ltd. 13%, 2000 657,000 173
- ----------------------------------------------------------------------------------------------------
Food/Beverage/Tobacco--3.6%
700M Fleming Co., Inc., 10 5/8%, 2001 682,500 179
700M TLC Beatrice International Holdings, Inc.,11 1/2%, 2005 683,375 180
- ----------------------------------------------------------------------------------------------------
1,365,875 359
- ----------------------------------------------------------------------------------------------------
Gaming/Lodging--4.2%
900M GB Property Funding, Inc., 10 7/8%, 2004 789,750 208
800M Showboat, Inc., 9 1/4%, 2008 808,000 212
- ----------------------------------------------------------------------------------------------------
1,597,750 420
- ----------------------------------------------------------------------------------------------------
Healthcare--9.9%
870M Abbey Healthcare Group, Inc., 9 1/2%, 2002 926,550 244
900M Integrated Health Services, Inc., 9 5/8%, 2002 920,250 242
900M Mediq/PRN Life Support Services, Inc., 11 1/8%, 1999 900,000 237
900M Tenet Healthcare Corp., 10 1/8%, 2005 1,000,125 263
- ----------------------------------------------------------------------------------------------------
3,746,925 986
- ----------------------------------------------------------------------------------------------------
Media/Cable Television--16.4%
1,500M Affiliated Newspaper Investments, 0%-13 1/4%, 2006 892,500 235
1,000M Bell Cablemedia PLC., 0%-11.95%, 2004 707,500 186
1,675M Echostar Communications Corp., 0%-12 7/8%, 2004 1,130,625 297
700M PanAmSat Capital Corp., 9 3/4%, 2000 738,500 194
400M PanAmSat Capital Corp., 0%-11 3/8%, 2003 326,000 86
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments
FIRST INVESTORS SPECIAL BOND FUND, INC.
December 31, 1995
- ----------------------------------------------------------------------------------------------------
Principal Amount
Amount, Invested
Shares For Each
or $10,000 of
Warrants Security Value Net Assets
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Media/Cable Television (continued)
$ 500M Sinclair Broadcasting Group, 10%, 2005 $ 513,125 $ 135
1,400M Videotron Holdings, PLC., 0%-11 1/8%, 2004 980,000 258
900M World Color Press, Inc., 9 1/8%, 2003 931,500 245
- ----------------------------------------------------------------------------------------------------
6,219,750 1,636
- ----------------------------------------------------------------------------------------------------
Mining/Metals--1.8%
700M WCI Steel, Inc., 10 1/2%, 2002 680,750 179
- ----------------------------------------------------------------------------------------------------
Paper/Forest Products--5.2%
500M Container Corp., 11 1/4%, 2004 517,500 136
700M Rainy River Forest Products Co., Inc., 10 3/4%, 2001 772,625 203
700M Stone Container Corp., 9 7/8%, 2001 683,375 180
- ----------------------------------------------------------------------------------------------------
1,973,500 519
- ----------------------------------------------------------------------------------------------------
Retail-Food/Drug--3.3%
800M P&C Food Markets, Inc., 11 1/2%, 2001 784,000 206
500M Penn Traffic Company, 10 1/4%, 2002 479,375 126
- ----------------------------------------------------------------------------------------------------
1,263,375 332
- ----------------------------------------------------------------------------------------------------
Retail-General Merchandise--.5%
1M Barry's Jewelers, Inc., 12 5/8%, 1996 874 -
200M General Host Co., Inc., 11 1/2%, 2002 189,000 50
- ----------------------------------------------------------------------------------------------------
189,874 50
- ----------------------------------------------------------------------------------------------------
Telecommunications--3.5%
350M Centennial Cellular, 8 7/8%, 2001 345,625 91
900M Paging Network, Inc., 11 3/4%, 2002 997,875 262
- ----------------------------------------------------------------------------------------------------
1,343,500 353
- ----------------------------------------------------------------------------------------------------
Transportation--5.7%
850M Cencall Communications Corp., 0%-10 1/8%, 2004 484,500 127
900M Eletson Holdings, Inc., 9 1/4%, 2003 886,500 233
1,000M MFS Communications, Inc., 0%-9 3/8%, 2004 802,500 211
- ----------------------------------------------------------------------------------------------------
2,173,500 571
- ----------------------------------------------------------------------------------------------------
Total Value of Corporate Bonds (cost $32,865,964) 32,247,126 8,742
- ----------------------------------------------------------------------------------------------------
COMMON STOCKS--1.3%
Electrical Equipment--.1%
1,036 *Thermadyne Holdings Corp. 18,778 5
- ----------------------------------------------------------------------------------------------------
Gaming/Lodging--0%
8,500 *Goldriver Hotel & Casino Corp., Series "B 1,594 -
- ----------------------------------------------------------------------------------------------------
Media/Cable Television--.7%
1,500 *Affiliated Newspaper Investments 37,500 10
10,050 *Echostar Communications Class "A" 243,713 64
- ----------------------------------------------------------------------------------------------------
281,213 74
- ----------------------------------------------------------------------------------------------------
Paper/Forest Products--.4%
20,394 *Gaylord Container Corp., Class "A" 164,426 43
- ----------------------------------------------------------------------------------------------------
Retail-General Merchandise--.1%
5,354 *Barry's Jewelers, Inc. 21,415 6
- ----------------------------------------------------------------------------------------------------
Total Value of Common Stocks (cost $238,332) 487,426 128
- ----------------------------------------------------------------------------------------------------
PREFERRED STOCKS--2.8%
Financial Services
10,000 California Federal Bank, 10 5/8%, Series "B"
(cost $1,000,000) 1,085,000 285
- ----------------------------------------------------------------------------------------------------
WARRANTS--.4%
Gaming/Lodging--0%
850 *Goldriver Finance Corp., Liquidating Trust 12,750 3
- ----------------------------------------------------------------------------------------------------
Paper/Forest Products--.4%
18,332 *Gaylord Container Corp. (expiring 7/31/96) 137,490 36
- ----------------------------------------------------------------------------------------------------
Total Value of Warrants (cost $27,492) 150,240 39
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments
FIRST INVESTORS SPECIAL BOND FUND, INC.
December 31, 1995
- ----------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM CORPORATE NOTES--6.6%
$ 500M Appalachian Power, 6%, 1/2/96 $ 499,917 $ 131
2,000M Gannett Company, 5.85%, 1/8/96 1,997,400 525
- ----------------------------------------------------------------------------------------------------
Total Value of Short-Term Corporate Notes
(cost $2,497,317) 2,497,317 656
- ----------------------------------------------------------------------------------------------------
Total Value of Investments (cost $36,629,105) 98.5% 37,467,109 9,850
Other Assets, Less Liabilities 1.5 569,895 150
- ----------------------------------------------------------------------------------------------------
Net Assets 100.0% $38,037,004 $10,000
- ----------------------------------------------------------------------------------------------------
*Non-income producing
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
FIRST INVESTORS SPECIAL BOND FUND, INC.
December 31, 1995
- ------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Investments in securities, at value (identified cost $36,629,105) (Note 1A) $37,467,109
Cash 133,837
Receivables:
Interest $630,889
Capital shares sold 1,889 632,778
--------
Other assets 4,373
-----------
Total Assets 38,238,097
Liabilities
Payable for capital stock redeemed 157,383
Accrued advisory fee 23,329
Accrued expenses 20,381
--------
Total Liabilities . 201,093
-----------
Net Assets $38,037,004
===========
Net Assets Consist of:
Capital paid in .$56,261,574
Undistributed net investment income . 846,562
Accumulated net realized loss on investment transactions .(19,909,136)
Net unrealized appreciation in value of investments 838,004
-----------
Total .$38,037,004
===========
Net Asset Value, Offering Price and Redemption Price Per Share
($38,037,004 divided by 3,108,898 shares outstanding),
25,000,000 shares authorized, $1.00 par value (Note 2) $12.23
===========
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
FIRST INVESTORS SPECIAL BOND FUND, INC.
Year Ended December 31, 1995
- ---------------------------------------------------------------------------------------------------
Investment Income
Income:
<S> <C> <C>
Interest $3,894,925
Dividends 106,754
Consent fees and other income 83,892
-----------
Total income $4,085,571
Expenses (Notes 1 and 4):
Advisory fee 277,740
Professional fees 24,590
Custodian fees 7,220
Reports and notices to shareholders 3,904
Other expenses 12,903
-----------
Total expenses 326,357
Less: Custodian fees paid indirectly (6,810)
-----------
Net expenses 319,547
----------
Net investment income 3,766,024
Realized and Unrealized Gain (Loss) on Investments (Note 3):
Net realized loss on investments (287,903)
Net unrealized appreciation of investments 3,605,865
-----------
Net gain on investments 3,317,962
----------
Net Increase in Net Assets Resulting from Operations $7,083,986
==========
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
FIRST INVESTORS SPECIAL BOND FUND, INC.
- -----------------------------------------------------------------------------------------------
Year Ended December 31 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets from Operations
Net investment income $ 3,766,024 $ 3,680,764
Net realized gain (loss) on investments (287,903) 702,669
Net unrealized appreciation (depreciation) 3,605,865 (4,824,981)
----------- -----------
Net increase (decrease) in net assets resulting from operations 7,083,986 (441,548)
----------- ------------
Dividends to Shareholders from:
Net investment income (3,226,603) (3,465,637)
----------- -----------
Capital Share Transactions (a)
Proceeds from shares sold 736,623 385,945
Value of dividends reinvested 3,226,603 3,465,637
Cost of shares redeemed (6,508,688) (6,275,104)
----------- -----------
Net decrease in net assets resulting from share transactions (2,545,462) (2,423,522)
----------- -----------
Net increase (decrease) in net assets 1,311,921 (6,330,707)
Net Assets
Beginning of year 36,725,083 43,055,790
----------- -----------
End of year (including undistributed net investment income of
$846,562 and $307,141, respectively) $38,037,004 $36,725,083
=========== ===========
(a)Capital Shares Issued and Redeemed
Sold 64,445 33,791
Issued for dividends reinvested 273,019 305,954
Redeemed (558,069) (546,626)
----------- -----------
Net decrease in capital shares . (220,605) (206,881)
=========== ===========
See notes to financial statements
</TABLE>
<PAGE>
Notes to Financial Statements
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. The investment objective of the Fund is to seek high current
income without undue risk to principal and secondarily to seek growth of
capital.
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.
<PAGE>
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, 1995, the Fund had
capital loss carryovers of $19,909,136, of which $16,599,362 expires in 1998,
$3,021,871 expires in 1999, and $287,903 in 2003.
C. Distributions to Shareholders - Dividends to shareholders from net investment
income are declared daily and paid monthly. Distributions from net realized
capital gains are normally declared and paid annually. Income dividends and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for capital loss
carryforwards and post October losses.
D. 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. The fund's Custodian has provided
credits in the amount of $6,810 against custodian charges based on the
uninvested cash balances of the fund.
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, 1995, purchases and
sales of investment securities, other than United States Government obligations
and short-term corporate notes, aggregated $15,869,514 and $19,255,226,
respectively.
At December 31, 1995, the cost of investments for federal income tax purposes
was $36,629,105. Accumulated net unrealized depreciation on investments was
$838,004, consisting of $1,979,924 gross unrealized appreciation and $1,141,920
gross unrealized depreciation.
<PAGE>
4. Advisory Fee and Other Transactions With Affiliates - Certain officers 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, 1995, 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, 1995, the
Fund held two 144A securities with an aggregate value of $1,761,250 representing
4.6% 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, 1995, the
Fund held one defaulted security with a value of $6,250 representing less than
2/10 of 1% 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, 1995, 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, 1995, 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. as of December 31, 1995, 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, 1996
