FIRST INVESTORS
FIRST INVESTORS
SPECIAL BOND FUND, INC.
ANNUAL REPORT
DECEMBER 31, 1995
[LOGO]
LIF007
Portfolio Manager's Letter
FIRST INVESTORS SPECIAL BOND FUND, INC.
Dear Investor:
1995 was a very good year for investors in the U.S.
financial markets. The broad stock market averages
repeatedly closed at record highs, and bond prices
surged as long-term interest rates fell almost two
percent. Several general factors contributed to this
strong performance. First, the U.S. economy grew at
a moderate pace throughout the year. Second, the
rate of inflation declined, reaching its lowest level
since the 1960s. Third, the Federal Reserve began
lowering short-term interest rates during the second
half of the year. Finally, during the fourth quarter,
Congress and the President appeared close to reaching
an agreement to eliminate the Federal budget deficit
over the next seven years.
First Investors Special Bond Fund performed well
during 1995 returning 20.8% on a net asset value
basis. These returns compare favorably with a 16.4%
average return for high yield funds according to
Lipper Analytical Services, Inc.
Inflows to high yield mutual funds were fairly
consistent throughout 1995. AMG Data measured a
net $8.4 billion inflow to the funds, fueling a rally
that began early in the year. Led at first by lower-
rated and deferred coupon bonds, several industry
sectors that had underperformed in 1994 rebounded in
1995. The communications sector posted among the
highest returns of any industry. Gaming, one of the
worst performers of 1994, showed a strong
turnaround driven particularly by improvement in the
Atlantic City market. Other industries that generally
outperformed the overall market were finance, media,
energy, healthcare services, and home building.
These industries benefited from lower interest rates,
regulatory developments, and/or consolidation. The
retail and restaurant groups showed continued
weakness for the second year in a row.
The improving interest rate environment caused the
net new supply of high yield bonds to increase
significantly in 1995 compared to 1994.
Approximately 60% of the new issuance occurred in
the second half of 1995 amid signs of a slowing
economy. Accordingly, market leadership began to
rotate away from economically sensitive industries
such as metals, chemicals, and forest products as the
volume growth and pricing power these industries
recently enjoyed reached a cyclical peak. The overall
credit quality of the high yield market continued to
improve. Growth in issuance of credits rated split BB
or better resulted in a greater participation from better
quality and crossover investors, thus bidding up the
prices in that tier of the market.
The Special Bond Fund's performance benefited from
its holdings of more liquid and higher-rated bonds in
industries where cash flows are perceived to be stable
or growing or where significant consolidation is
occurring. Examples of sector choices which aided
performance include a heavy weighting in the media,
telecommunications (notably Echostar deferred coupon
bonds), and forest products industries. Also, the
Fund gained from an underweighting in the retail
industry, where we avoided several bankruptcies such
as Caldor, Bradlee's and Grand Union. Additionally,
the Fund's deferred-pay holdings helped performance,
both by virtue of their increased interest-rate
sensitivity and by solid credit improvements by many
of them.
We believe that high yield bonds are positioned to
perform well versus fixed income alternatives in
1996. While we expect some modest short-term
interest rate reduction to stimulate the economy in this
election year, we are unlikely to see the magnitude of
interest rate decline that occurred in 1995. In a stable
to moderately declining interest rate environment,
high yield bonds tend to outperform fixed income
alternatives by virtue of their higher income. We
expect that our credit-oriented strategy of
concentrating on stable to improving bonds will
continue to reward Fund shareholders.
As always we appreciate the opportunity to serve your
investment needs.
Sincerely,
/s/George V. Ganter
George V. Ganter
Portfolio Manager
January 31, 1996
[GRAPHIC LINE CHART]
Cumulative Performance Information
FIRST INVESTORS SPECIAL BOND FUND, INC.
Comparison of change in value of $10,000 investment in the First
Investors Special Bond Fund, Inc. and the First Boston High Yield Index.
As of December 31, 1995
Vertical bar reads:
$100,000
$10,000
$1,000
Horizonal bar reads:
Jan-86 Dec-87 Dec-89 Dec-91 Dec-93 Dec-95
Legend reads:
- ------Special Bond Fund ------First Boston Index
Average Annual Total Return*
N.A.V. Only S.E.C. Standardized
One Year 20.8% 12.3%
Five Years 17.0% 15.4%
Ten Years 10.7% 9.9%
Plot Points
SPECIAL BOND FIRST BOSTON
Jan-86 $ 9,300 $10,000
Dec-86 $11,091 $11,563
Dec-87 11438 12319
Dec-88 13009 14001
Dec-89 12819 14054
Dec-90 11651 13157
Dec-91 $15,817 $18,914
Dec-92 $18,120 $22,065
Dec-93 21427 26237
Dec-94 21195 25983
Dec-95 25594 30498
The graph compares a $10,000 investment made in the First Investors
Special Bond Fund, Inc. on 1/1/86 with a theoretical investment in the
First Boston High Yield Index. It is not possible to invest directly in
this Index. In addition, the Index does not take into account fees and
expenses. For purposes of the graph and the accompanying table, unless
otherwise indicated, it has been assumed that the maximum sales charge
was deducted from the initial $10,000 investment in the Fund and all
dividends and distributions were reinvested.
The First Boston High Yield Index is designed to measure the performance
of the high yield bond market. The Index consists of 687 different
issues, 574 of these are cash pay, 84 are zero-coupon, 20 are step
bonds, 5 are payment-in-kind bonds and the remaining 4 are in default.
The bonds included in the Index have an average life of 7.8 years, an
average maturity of 7.9 years, an average duration of 4.4 years and an
average coupon of 10.6%.
*Average Annual Total Return figures (for the period ended 12/31/95)
include the reinvestment of all dividends and distributions. "N.A.V.
Only" returns are calculated without sales charges. The "S.E.C.
Standardized" returns shown are based on the maximum sales charge of 7%.
Results represent past performance and do not indicate future results.
Investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
the original cost. The unusually high current yields offered reflect
the substantial risks associated with investments in high yield bonds.
The issuers of the bonds pay higher interest rates because they have a
greater likelihood of financial difficulty, which could result in their
inability to repay the bonds fully when due. Prices of high yield bonds
are also subject to greater fluctuations. First Boston High Yield Index
figures from CS First Boston and all other figures from First Investors
Management Company, Inc.
<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
- ----------------------------------------------------------------------------------------------------
<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
- ----------------------------------------------------------------------------------------------------
<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>
<TABLE>
Statement of Assets and Liabilities
FIRST INVESTORS SPECIAL BOND FUND, INC.
December 31, 1995
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
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>
<TABLE>
Statement of Operations
FIRST INVESTORS SPECIAL BOND FUND, INC.
Year Ended December 31, 1995
- ---------------------------------------------------------------------------------------------------
<CAPTION>
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>
<TABLE>
Statement of Changes in Net Assets
FIRST INVESTORS SPECIAL BOND FUND, INC.
- -----------------------------------------------------------------------------------------------
<CAPTION>
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>
<TABLE>
<CAPTION>
Financial Highlights
FIRST INVESTORS SPECIAL BOND FUND, INC.
The following table sets forth the operating performance data for a share of capital
stock outstanding, total return, ratios to average net asset for each year indicated.
-----------------------------------------------------------
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.
The following table sets forth the operating performance data for a share of capital
stock outstanding, total return, ratios to average net asset for each year indicated.
-------------------------------------------------------------
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>
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.
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.
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.
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
FIRST INVESTORS SPECIAL BOND FUND, INC.
Directors
James J. Coy
Roger L. Grayson
Glenn O. Head
Kathryn S. Head
Rex R. Reed
Herbert Rubinstein
James M. Srygley
John T. Sullivan
Robert F. Wentworth
Officers
Glenn O. Head
President
George V. Ganter
Vice President
Concetta Durso
Vice President and Secretary
Joseph I. Benedek
Treasurer
Carol Lerner Brown
Assistant Secretary
Shareholder Information
Investment Adviser
First Investors
Management Company, Inc.
95 Wall Street
New York, NY 10005
Custodian
The Bank of New York
48 Wall Street
New York, NY 10286
Transfer Agent
Administrative Data
Management Corp.
581 Main Street
Woodbridge, NJ 07095-1198
Legal Counsel
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, DC 20036
Auditors
Tait, Weller & Baker
Two Penn Center Plaza
Philadelphia, PA 19102
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 by any shareholder in writing or by
calling 800-423-4026. The Fund will ensure that
separate reports are sent to any shareholder who
subsequently changes his or her mailing address.
This report is authorized for distribution only to
existing shareholders, and, if given to prospective
shareholders, must be accompanied or preceded by
the Fund's prospectus.
