As filed with the Securities and Exchange Commission on April 10, 1997
Registration No. 2-66294
811-2981
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 16 X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 16 X
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FIRST INVESTORS SPECIAL BOND FUND, INC.
(Exact name of Registrant as specified in charter)
Ms. Concetta Durso
Secretary and Vice President
First Investors Special Bond Fund, Inc.
95 Wall Street
New York, New York 10005
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement
It is proposed that this filing will become effective on April 30, 1997 pursuant
to paragraph (b) of Rule 485.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
previously elected to register an indefinite number of shares of common stock,
par value $1.00 per share, under the Securities Act of 1933. Registrant filed a
Rule 24f-2 Notice for its fiscal year ending December 31, 1996 on February 27,
1997.
<PAGE>
FIRST INVESTORS SPECIAL BOND FUND, INC.
CROSS-REFERENCE SHEET
N-1A Item No. Location
PART A: PROSPECTUS
1. Cover Page....................................... Cover Page
2. Synopsis......................................... Not Applicable
3. Condensed Financial Information.................. Financial Highlights
4. General Description of Registrant................ Investment Objectives
and Policies;
Investment
Restrictions
5. Management of the Fund........................... Management
5A. Management's Discussion of
Fund Performance............................... Not Applicable
6. Capital Stock and Other Securities............... General Information;
Dividends and
Other Distributions;
Determination of
Net Asset Value
7. Purchase of Securities Being Offered............. Purchase of Shares
8. Redemption or Repurchase......................... Redemption of Shares
9. Pending Legal Proceedings........................ Not Applicable
PART B: STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page....................................... Cover Page
11. Table of Contents................................ Table of Contents
12. General Information and History.................. General Information
13. Investment Objectives and Policies............... Investment Objectives
and Policies;
Investment
Restrictions
14. Management of the Fund........................... Directors and Officers
15. Control Persons and Principal Holders
of Securities.................................... Not Applicable
16. Investment Advisory and Other Services........... Investment Adviser
17. Brokerage Allocation............................. Allocation of
Portfolio Brokerage
18. Capital Stock and Other Securities............... Determination of Net
Asset Value
19. Purchase, Redemption and Pricing of
Securities Being Offered...................... Determination of Net
Asset Value
20. Tax Status....................................... Not Applicable
21. Underwriters..................................... Not Applicable
22. Performance Data................................. Not Applicable
23. Financial Statements............................. Financial Statements;
Report of
Independent
Accountants
PART C: OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
item so numbered, in Part C hereof.
<PAGE>
FIRST INVESTORS SPECIAL BOND FUND, INC.
95 Wall Street, New York, N.Y. 10005/(212) 858-8200
This is a Prospectus for First Investors Special Bond Fund, Inc. ("Fund"),
an open-end diversified management investment company. Investments in the Fund
are 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 30, 1997 (which is incorporated by reference
herein), has been filed with the Securities and Exchange Commission. The SAI is
available at no charge upon request to the Fund at the address or telephone
number indicated above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is April 30, 1997
<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
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<TABLE>
<CAPTION>
------------------------------------------------------------------------
Year Ended December 31
------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year............... $12.23 $11.03 $12.18 $11.38 $11.05 $9.16 $11.47
------- ------- ------- ------- ------- -------- -------
Income from Investment Operations
Net investment income............................ 1.17 1.20 1.09 1.14 1.27 1.26 1.32
Net realized and unrealized
gain (loss) on investments...................... .37 1.02 (1.22) .86 .29 1.86 (2.30)
------- ------- ------- ------- ------- -------- -------
Total from Investment Operations.............. 1.54 2.22 (.13) 2.00 1.56 3.12 (.98)
------- ------- ------- ------- ------- -------- -------
Less Distributions from:
Net investment income......................... 1.02 1.02 1.02 1.20 1.23 1.23 1.33
Net realized gain from investments............ - - - - - - -
Capital surplus............................... - - - - - - -
------- ------- ------- ------- ------- -------- -------
Total Distributions........................... 1.02 1.02 1.02 1.20 1.23 1.23 1.33
------- ------- ------- ------- ------- -------- -------
Net Asset Value, End of Year..................... $12.75 $12.23 $11.03 $12.18 $11.38 $11.05 $9.16
======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(%)+................................. 13.10 20.76 (1.00) 18.15 14.56 35.76 (9.18)
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RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (in thousands)........... $36,948 $38,037 $36,725 $43,056 $44,116 $50,914 $53,328
Ratios to Average Net Assets (%)
Expenses......................................... .86 .88 .87 .85 .88 .89 .86
Net investment income............................ 9.31 10.17 9.38 9.54 10.95 11.99 12.57
Portfolio Turnover Rate (%)...................... 29 45 54 79 65 47 37
<CAPTION>
----------------------------
Year Ended December 31
----------------------------
1989 1988 1987
---- ---- ----
<S> <C> <C> <C>
Net Asset Value, Beginning of Year............... $13.19 $12.99 $14.37
------- ------- -------
Income from Investment Operations
Net investment income............................ 1.57 1.61 1.57
Net realized and unrealized
gain (loss) on investments...................... (1.73) .20 (1.15)
------- ------- -------
Total from Investment Operations.............. (.16) 1.81 .42
------- ------- -------
Less Distributions from:
Net investment income......................... 1.56 1.61 1.58
Net realized gain from investments............ - - .19
Capital surplus............................... - - .03
------- ------- -------
Total Distributions........................... 1.56 1.61 1.80
------- ------- -------
Net Asset Value, End of Year..................... $11.47 $13.19 $12.99
======= ======= =======
TOTAL RETURN(%)+................................. (1.60) 14.43 2.74
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RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (in thousands)........... $85,719 $69,641 $43,965
Ratios to Average Net Assets (%)
Expenses......................................... .82 .84 .86
Net investment income............................ 12.38 11.96 11.16
Portfolio Turnover Rate (%)...................... 34 51 71
</TABLE>
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+ The effect of fees and charges incurred at the separate account level are not
reflected in these performance figures.
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<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.
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.
4
<PAGE>
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 1996 fiscal year, computed on a monthly basis, are set forth
below. This information reflects the average composition of the Fund's assets
during the 1996 fiscal year and is not necessarily representative of the Fund as
of the end of its 1996 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
---------------- -------------------------
AA 0.16% 0%
Ba 19.16 0
B 66.62 0.76
Caa 3.12 0
Ca 0.01 0
------- -----
Total 89.07% 0.76%
DESCRIPTION OF CERTAIN SECURITIES, OTHER INVESTMENT POLICIES AND RISK FACTORS
CONVERTIBLE SECURITIES. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or
dividends paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Convertible securities have unique investment
characteristics in that they generally (1) have higher yields than common
stocks, but lower yields than comparable non-convertible securities, (2) are
less subject to fluctuation in value than the underlying stock because they have
fixed income characteristics, and (3) provide the potential for capital
appreciation if
5
<PAGE>
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. Credit risk is
the risk that adverse changes in economic conditions can affect an issuer's
ability to pay principal and interest. See Appendix A for a description of
corporate bond ratings.
DEEP DISCOUNT SECURITIES. 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 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
6
<PAGE>
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
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
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<PAGE>
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 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.
8
<PAGE>
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."
For a discussion of pricing practices when FIC's Woodbridge offices are unable
to open for business due to an emergency, see the SAI.
HOW TO REDEEM SHARES
Shares of the Fund may be redeemed at the direction of Contractowners, in
accordance with the terms of the Contracts. Redemptions will be made at the next
determined net asset value of the Fund upon receipt of a proper request for
redemption or repurchase. Payment will be made by check as soon as possible but
within seven days after presentation. However, the Fund's Board of Directors may
suspend the right of redemption or postpone the date of payment during any
period when (a) trading on the NYSE is restricted as determined by the
Securities and Exchange Commission ("SEC"), or the NYSE is closed for other than
weekends and holidays, (b) the SEC has by order permitted such suspension, or
(c) an emergency, as defined by rules of the SEC, exists during which time the
sale or valuation of portfolio securities held by the Fund is not reasonably
practicable.
MANAGEMENT
BOARD OF DIRECTORS. The Fund's Board of Directors, as part of its overall
management responsibility, oversees various organizations responsible for the
Fund's day-to-day management.
ADVISER. First Investors Management Company, Inc. supervises and manages
the Fund's investments, determines the Fund's portfolio transactions and
supervises all aspects of the Fund's operations. The Adviser is a New York
corporation located at 95 Wall Street, New York, NY 10005. The Adviser presently
acts as investment adviser to 14 mutual funds. First Investors Consolidated
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, 1996,
the Fund's advisory fees were 0.75% of its average daily net assets.
The Fund bears all expenses of its operations other than those incurred by
the Adviser under the terms of its advisory agreement. Fund expenses include,
but are not limited to: the advisory fee; shareholder servicing fees and
expenses; custodian fees and expenses; legal and auditing fees; expenses of
communicating to existing shareholders, including preparing, printing and
mailing prospectuses and shareholder reports to such shareholders; and proxy and
shareholder meeting expenses.
PORTFOLIO MANAGER. George V. Ganter has been Portfolio Manager for the
Fund since 1986. Mr. Ganter joined FIMCO in 1985 as an Analyst. Since 1989, he
has been 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.
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DETERMINATION OF NET ASSET VALUE
The net asset value of a Fund share is determined as of the close of
regular trading on the NYSE (generally 4:00 P.M., New York City time) on each
day the NYSE is open for trading, and at such other times as the Fund's Board of
Directors deems necessary, by dividing the market value of the securities held
by the Fund, plus any cash and other assets, less all liabilities, by the number
of shares outstanding. If there is no available market value, securities will be
valued at their fair value as determined in good faith pursuant to procedures
adopted by the Fund's Board of Directors. The NYSE currently observes the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
DIVIDENDS AND OTHER DISTRIBUTIONS
Dividends from net investment income are generally declared daily and paid
quarterly in additional Fund shares at net asset value (without sales charge)
generally determined as of the close of business on the first business day
immediately following the last business day of the quarter. If you redeem all of
your Fund shares at any time during the quarter, you are paid all dividends
declared through the day prior to the date of the redemption, together with the
proceeds of your redemption. Net investment income includes interest and
dividends, earned discount and other income earned on portfolio securities less
expenses. Distributions of substantially all of the Fund's net capital gain (the
excess of net long-term capital gain over net short-term capital loss) and net
short-term capital gain, if any, after deducting any available capital loss
carryovers, and any net realized gains from foreign currency transactions, are
declared annually and paid in additional Fund shares at the net asset value
(without sales charge) generally determined as of the close of business on the
business day immediately following the record date of the distribution.
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
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be represented
by one investment, no more than 70% by any two investments, no more than 80% by
any three investments and no more than 90% by any four investments. For this
purpose, all securities of the same issuer are considered a single investment,
and while each U.S. Government agency and instrumentality is considered a
separate issuer, a particular foreign government and its agencies,
instrumentalities and political subdivisions all will be considered the same
issuer. Section 817(h) provides, as a safe harbor, that a separate account will
be treated as being adequately diversified if the diversification requirements
under Subchapter M are satisfied and no more than 55% of the value of the
account's total assets are cash and cash items, government securities and
securities of other RICs. Failure of the Fund to satisfy the section 817(h)
requirements would result in taxation of First Investors Life and treatment of
the Contractholders other than as described in the Prospectus of Separate
Account A.
The foregoing is only a summary of some of the important Federal income
tax considerations generally affecting the Fund and its shareholders; see the
Statement of Additional Information for a more detailed discussion. Shareholders
are urged to consult their tax advisers.
GENERAL INFORMATION
ORGANIZATION. The Fund was incorporated in the State of Maryland on
November 14, 1979. The Fund is authorized to issue 25 million shares of common
stock, $1.00 par value per share. Shares of the Fund have equal dividend,
voting, liquidation and redemption rights. The Fund does not hold annual
shareholder meetings. If requested to do so by the holders of at least 10% of
the Fund's outstanding shares, the Board of Directors will call a special
meeting of shareholders for any purpose, including the removal of Directors.
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.
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APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS
STANDARD & POOR'S RATINGS GROUP
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
any audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default-capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization, or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.
AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C Debt rated "BB," "B," "CCC," "CC" and "C" is regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of speculation and
"C" the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "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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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 unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
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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.............................................................. 9
Determination of Net Asset Value........................................ 10
Dividends and Other Distributions....................................... 10
Taxes................................................................... 10
General Information..................................................... 11
Appendix A.............................................................. 12
<PAGE>
FIRST INVESTORS SPECIAL BOND FUND, INC.
PROSPECTUS
INVESTMENT ADVISER
First Investors Management Company, Inc.
95 Wall Street
New York, NY 10005
LEGAL COUNSEL
Kirkpatrick & Lockhart 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 30, 1997
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 30, 1997
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 30, 1997, 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............................................................ 9
Determination of Net Asset Value....................................... 10
Allocation of Portfolio Brokerage...................................... 11
Emergency Pricing Procedures........................................... 12
Taxes.................................................................. 12
General Information.................................................... 13
Appendix A............................................................. 14
Financial Statements................................................... 15
<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 GOVERNMENT OBLIGATIONS. The Fund may invest in foreign
government obligations, which generally consist of obligations supported by
national, state or provincial governments or similar political subdivisions.
Investments in foreign government debt obligations involve special risks. The
issuer of the debt may be unable or unwilling to pay interest or repay principal
when due in accordance with the terms of such debt, and the Fund may have
limited legal resources in the event of default. Political conditions,
especially a sovereign entity's willingness to meet the terms of its debt
obligations, are of considerable significance.
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
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<PAGE>
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 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
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<PAGE>
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 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
4
<PAGE>
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 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 sale of
the 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, 1995 and 1996, the Fund's portfolio
turnover rate was 45% and 29%, 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
5
<PAGE>
to lend securities for the purpose of covering short positions of the borrower,
but only when the borrower pledges cash collateral to the Fund and agrees to
maintain such collateral so that it amounts at all times to at least 100% of the
value of the securities. Such security loans will not be made if as a result the
aggregate of such loans exceeds 10% of the value of the Fund's total assets. The
Fund may terminate such loans at any time and vote the proxies if a material
event affecting the investment is to occur. The market risk applicable to any
security loaned remains a risk of the Fund. The investment risk is that the
borrower will fail financially when the collateral is in its possession. The
borrower must add to collateral whenever the market value of the securities
rises above the level of such collateral. The primary objectives of such loaning
function is to supplement the Fund's income through investment of the cash
collateral in short-term interest bearing obligations. The purchase of a portion
of an issue of publicly distributed debt securities is not considered the making
of a loan.
(3) With respect to 75% of the Fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) if, as a 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 than1/2of 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
6
<PAGE>
payment of principal and interest within seven days and any securities that are
illiquid by virtue of legal or contractual restrictions on resale or the absence
of a readily available market. The Directors, or the Fund's investment adviser
acting pursuant to authority delegated by the Directors, may determine that a
readily available market exists for securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933, as amended, or any other applicable
rule, and therefore that such securities are not subject to the foregoing
limitation.
(2) The Fund will not pledge, mortgage or hypothecate any of its
assets, except that the Fund may pledge its assets to secure borrowings made in
accordance with fundamental investment restriction (1) above, provided the Fund
maintains asset coverage of at least 300% for all such borrowings.
The Fund has filed the following undertaking to comply with the
requirements of a certain state in which shares of the Fund are sold, which may
be changed without shareholder approval. The Fund will not invest in oil, gas or
other mineral leases or exploration or development programs.
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*+ (71), 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").
ROGER L. GRAYSON* (40), Director. Director, FIC and FICC; President and
Director, First Investors Resources, Inc.; Commodities Portfolio Manager.
KATHRYN S. HEAD*+ (41), Director, 581 Main Street, Woodbridge, NJ 07095.
President, FICC, EIMCO, ADM and FIMCO; Vice President, Chief Financial Officer
and Director, FIC and EIC; President and Director, First Financial Savings Bank,
S.L.A.
REX R. REED (75), Director, 259 Governors Drive, Kiawah Island, SC 29455.
Retired; formerly Senior Vice President, American Telephone & Telegraph Company.
HERBERT RUBINSTEIN (75), Director, 145 Elm Drive, Roslyn, NY 11576. Retired;
formerly President, Belvac International Industries, Ltd. and President, Central
Dental Supply.
NANCY SCHAENEN (65), Director, 56 Midwood Terrace, Madison, NJ 07940. Trustee,
Drew University and DePauw University.
JAMES M. SRYGLEY (64), Director, 33 Hampton Road, Chatham, NJ 07982. Principal,
Hampton Properties, Inc. (property investment company).
7
<PAGE>
JOHN T. SULLIVAN* (65), Director and Chairman of the Board; Director, FIMCO,
FIC, FICC and ADM; Of Counsel, Hawkins, Delafield & Wood, Attorneys.
ROBERT F. WENTWORTH (67), 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 (39), Treasurer, 581 Main Street, Woodbridge, NJ 07095.
Treasurer, FIC, FIMCO, EIMCO and EIC; Comptroller and Treasurer, FICC.
CONCETTA DURSO (62), Vice President and Secretary. Vice President, FIMCO, EIMCO
and ADM; Assistant Vice President and Assistant Secretary, FIC and EIC.
GEORGE V. GANTER (44), 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 14 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, School Financial Management Services, Inc.
and Specialty Insurance Group, 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, Route 33 Realty Corporation and Specialty
Insurance Group, Inc.
8
<PAGE>
The following table lists compensation paid to the Directors of the
Fund for the fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
PENSION OR ESTIMATED TOTAL COMPENSATION
RETIREMENT ANNUAL FROM FIRST INVESTORS
AGGREGATE BENEFITS ACCRUED BENEFITS UPON FAMILY OF FUNDS
COMPENSATION AS PART OF RETIREMENT PAID TO
DIRECTOR** FROM FUND* FUND EXPENSES 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-
Rex R. Reed 1,200 -0- -0- 37,200
Herbert Rubinstein 1,200 -0- -0- 37,200
James M. Srygley 1,100 -0- -0- 34,100
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.
** Nancy Schaenen was not a Director in 1996.
*** On March 27, 1997 Mr. Coy resigned as a Director of the Fund. Mr. Coy
did not resign due to a disagreement with the Fund's management on any matter
relating to the Fund's operations, policies or practices. Mr. Coy currently
serves as an emeritus Director.
MANAGEMENT
Investment advisory services to the Fund are provided by First
Investors Management Company, Inc. pursuant to an Investment Advisory Agreement
("Advisory Agreement") dated June 13, 1994. The Advisory Agreement was approved
by the Board of Directors of the Fund, including a majority of the Directors who
are not parties to the Advisory Agreement or "interested persons" (as defined in
the 1940 Act) of any such party ("Independent Directors"), in person at a
meeting called for such purpose and by a majority of the shareholders of the
Fund.
Pursuant to the Advisory Agreement, FIMCO shall supervise and manage
the Fund's investments, determine the Fund's portfolio transactions and
supervise all aspects of its operations, subject to review by the Directors. The
Advisory Agreement also provides that FIMCO shall provide the Fund with certain
executive, administrative and clerical personnel, office facilities and
supplies, conduct the business and details of the operation of the Fund and
assume certain expenses thereof, other than obligations or liabilities of the
Fund. The Advisory Agreement may be terminated at any time without penalty by
the Directors or by a majority of the outstanding voting securities of the Fund,
or by FIMCO, in each instance on not less than 60 days' written notice, and
shall automatically terminate in the event of its assignment (as defined in the
1940 Act). The Advisory Agreement also provides that it will continue in effect
for a period of over two years only if such continuance is approved annually
either by the Directors or by a majority of the outstanding voting securities of
the Fund, and, in either case, by a vote of a majority of the Independent
Directors voting in person at a meeting called for the purpose of voting on such
approval.
9
<PAGE>
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
The Adviser has an Investment Committee composed of George V. Ganter,
Margaret Haggerty, Glenn O. Head, Nancy W. Jones, Patricia D. Poitra, Michael
O'Keefe, Clark D. Wagner and Richard Guinnessey. The Committee usually meets
weekly to discuss the composition of the portfolio of each Fund and to review
additions to and deletions from the portfolios.
For the fiscal years ended December 31, 1994, 1995 and 1996, the Fund
paid the Adviser $294,179, $277,740 and $271,569, respectively, in advisory
fees.
DETERMINATION OF NET ASSET VALUE
Except as provided herein, a security listed or traded on an exchange
or the Nasdaq Stock Market is valued at its last sale price on the exchange or
market 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 ("OTC") market, including securities
listed on exchanges whose primary market is believed to be OTC, is valued at the
last bid and asked prices based upon quotes furnished by a market maker for such
securities. In the absence of market quotations, the Fund will determine the
value of bonds based upon quotes furnished by market makers, if available, or in
accordance with the procedures described herein. In that connection, the Fund's
Board of Directors has determined that the Fund may use an outside pricing
service. This service is provided by Interactive Data Corporation. The pricing
service uses quotations obtained from investment dealers or brokers 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 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 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 mean between the last bid and asked prices 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.
10
<PAGE>
The Fund's Board of Directors may suspend the determination of the
Fund's net asset value for the whole or any part of any period (1) during which
trading on the New York Stock Exchange ("NYSE") is restricted as determined by
the SEC or the NYSE is closed for other than weekend and holiday closings, (2)
when an emergency exists, as defined by the SEC, that makes it not reasonably
practicable for the Fund to dispose of securities owned by it or fairly to
determine the value of its net assets, or (3) for such other period as the SEC
has by order permitted.
ALLOCATION OF PORTFOLIO BROKERAGE
Purchases and sales of portfolio securities by the Fund may be
principal transactions. In principal transactions, portfolio securities are
normally purchased directly from the issuer or from an underwriter or market
maker for the securities. There will usually be no brokerage commission paid by
the Fund for such purchases. Purchases from underwriters will include the
underwriter's commission or concession and purchases from dealers serving as
market makers will include the spread between the bid and asked price. Certain
money market instruments may be purchased by the Fund directly from an issuer,
in which no commission or discounts are paid. The Fund may purchase fixed income
securities on a "net" basis with dealers acting as principal for its own account
without a stated commission, although the price of the security usually includes
a profit to the dealer.
The Fund may deal in securities which are not listed on a national
securities exchange or the Nasdaq national market system but are traded in the
OTC market. The Fund also may purchase listed securities through the "third
market." When transactions are executed in the OTC market, the Fund seeks to
deal with the primary market makers, but when advantageous they utilize the
services of brokers.
In effecting portfolio transactions for the Fund, the Adviser seeks
best execution of trades either (1) at the most favorable and competitive rate
of commission charged by any broker or member of an exchange, or (2) with
respect to agency transactions, at a higher rate of commission if reasonable in
relation to brokerage and research services provided to the Fund or the Adviser,
by such member or broker. In addition, upon the instruction of the Board of
Directors, the Adviser may use dealer concessions available in fixed-price
underwritings to pay for research services. Such services may include, but are
not limited to, any one or more of the following: information as to the
availability of securities for purchase or sale and statistical or factual
information or opinions pertaining to investments. The Adviser may use research
and services provided to it by brokers in servicing all the funds in First
Investors Group of Funds; however, not all such services may be used by the
Adviser in connection with the Fund. No portfolio orders are placed with an
affiliated broker, nor does any affiliated broker participate in these
commissions.
The Adviser may combine transaction orders placed on behalf of the Fund
and any other fund in the First Investors Group of Funds, any series of
Executive Investors Trust and First Investors Life for the purpose of
negotiating brokerage commissions or obtaining a more favorable transaction
price; and where appropriate, securities purchased or sold may be allocated in
accordance with written procedures approved by the Board of Directors.
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
11
<PAGE>
$17,968. For the fiscal year ended December 31, 1995, the Fund did not pay
brokerage commissions. For the fiscal year ended December 31, 1996, the Fund
paid $1,408 in brokerage commissions. Of that amount $1,149 was paid in
brokerage commissions to brokers who furnished research services on portfolio
transactions in the amount of $209,005.
EMERGENCY PRICING PROCEDURES
In the event that the Fund must halt operations during any day that it
would normally be required to price under Rule 22c-1 under the Investment
Company of 1940 due to an emergency ("Emergency Closed Day"), the Fund will
apply the following procedures:
1. The Fund will make every reasonable effort to segregate orders
received on the Emergency Closed Day and give them the price that they would
have received but for the closing. The Emergency Closed Day price will be
calculated as soon as practicable after operations have resumed and will be
applied equally to sales, redemptions and repurchases that were in fact received
in the mail or otherwise on the Emergency Closed Day.
2. For purposes of paragraph 1, an order will be deemed to have been
received by the Fund on an Emergency Closed Day, even if neither the Fund nor
the Transfer Agent is able to perform the mechanical processing of pricing on
that day, under the following circumstances:
(a) In the case of a mail order, the order will be considered
received by the Fund when the postal service has delivered it to FIC's
Woodbridge offices prior to the close of regular trading on the NYSE,
or such other time as may be prescribed in the Fund's Prospectus; and
(b) In the case of a wire order, including a Fund/SERV order,
the order will be considered received when it is received in good form
by a FIC branch office or an authorized dealer prior to the close of
regular trading on the NYSE, or such other time as may be prescribed in
the Fund's Prospectus.
3. If the Fund is unable to segregate orders received on the Emergency
Closed Day from those received on the next day the Fund is open for business,
the Fund may give all orders the next price calculated after operations resume.
4. Notwithstanding the foregoing, on business days in which the NYSE is
not open for regular trading, the Fund may determine not to price its portfolio
securities if such prices would lead to a distortion of the net asset value for
the Fund and its shareholders.
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
12
<PAGE>
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 portion of 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 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.
TRADING BY PORTFOLIO MANAGERS AND OTHER ACCESS PERSONS. Pursuant to
Section 17(j) of the 1940 Act and Rule 17j-1 thereunder, the Fund and the
Adviser have adopted Codes of Ethics restricting personal securities trading by
portfolio managers and other access persons of the Fund. Among other things,
such persons, except the Directors: (a) must have all non-exempt trades
pre-cleared; (b) are restricted from short-term trading; (c) must have duplicate
statements and transactions confirmations reviewed by a compliance officer; and
(d) are prohibited from purchasing securities of initial public offerings.
13
<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.
14
<PAGE>
Financial Statements as of
December 31, 1996
Registrant incorporates by reference the financial statements and report of
independent auditors contained in the Annual Report to shareholders for the
fiscal year ended December 31, 1996 electronically filed with the Commission on
March 5, 1997 (Accession Number: 0000928816-97-000069.
15
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Financial Statements are set forth in Part B, Statement of
Additional Information.
(b) Exhibits:
(1)/2/ Articles of Restatement
(2)/2/ Amended and Restated By-laws
(3) Not Applicable
(4) Shareholders' rights are contained in Article II
of Registrant's Amended and Restated By-laws,
previously filed as Exhibit 99.B2 to
Registrant's Registration Statement.
(5)/2/ Investment Advisory Agreement between Registrant and
First Investors Management Company, Inc.
(6) Not Applicable
(7) Not Applicable
(8)a./3/ Custodian Agreement between Registrant and Irving Trust
Company
b./3/ Supplement to Custodian Agreement between Registrant
and The Bank of New York
(9)/3/ Administration Agreement between Registrant, First
Investors Management Company, Inc., First Investors
Corporation and Administrative Data Management Corp.
(10)/1/ Opinion of Counsel
(11)a. Consent of independent accountants
b./3/ Powers of Attorney
(12) Not Applicable
(13) No undertaking in effect
(14) Not Applicable
(15) Not Applicable
(16) Not Applicable
<PAGE>
(17) Financial Data Schedule (filed as Exhibit 27 for
electronic filing purposes)
(18) Not Applicable
- ----------
/1/ Incorporated by reference from Registrant's Rule 24f-2 Notice for its
fiscal year ending December 31, 1996 filed on February 27, 1997.
/2/ Incorporated by reference from Post-Effective Amendment No. 14 to
Registrant's Registration Statement (File No. 2-66294) filed on April 24,
1995.
/3/ Incorporated by reference from Post-Effective Amendment No. 15 to
Registrant's Registration Statement (File No. 2-66294) filed on April 19,
1996.
Item 25. Persons Controlled by or under common control with Registrant
There are no persons controlled by or under common control with
the Registrant.
Item 26. Number of Holders of Securities
Number of Record
Holders as of
Title of Class February 9, 1996
-------------- ----------------
Common Stock 1
($1.00 par value)
Item 27. Indemnification
Article X, Section 1 of the By-Laws of Registrant provides as follows:
Section 1. Every person who is or was an officer or director of the
Corporation (and his heirs, executors and administrators) shall be indemnified
by the Corporation against reasonable costs and expenses incurred by him in
connection with any action, suit or proceeding to which he may be made a party
by reason of his being or having been a director or officer of the Corporation,
except in relation to any action, suit or proceeding in which he has been
adjudged liable because of negligence or misconduct, which shall be deemed to
include willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office. In the absence of an
adjudication which expressly absolves the director or officer of liability to
the Corporation or its stockholders for negligence or misconduct, within the
<PAGE>
meaning thereof as used herein, or in the event of a settlement, each director
or officer (and his heirs, executors and administrators) shall be indemnified by
the Corporation against payments made, including reasonable costs and expenses,
provided that such indemnity shall be conditioned upon the prior determination
by a resolution of two-thirds of the Board of Directors, who are not involved in
the action, suit or proceeding that the director or officer has no liability by
reason of negligence or misconduct within the meaning thereof as used herein,
and provided further that if a majority of the members of the Board of Directors
of the Corporation are involved in the action, suit or proceeding, such
determination shall have been made by a written opinion of independent counsel.
Amounts paid in settlement shall not exceed costs, fees and expenses which would
have been reasonably incurred if the action, suit or proceeding had been
litigated to a conclusion. Such a determination by the Board of Directors or by
independent counsel, and the payment of amounts by the Corporation on the basis
thereof, shall not prevent a stockholder from challenging such indemnification
by appropriate legal proceedings on the grounds that the person indemnified was
liable to the Corporation or its security holders by reason of negligence or
misconduct within the meaning thereof as used herein. The foregoing rights and
indemnification shall not be exclusive of any other rights to which any officer
or director (or his heirs, executors and administrators) may be entitled to
according to law.
The Registrant's Investment Advisory Agreement provides as follows:
The Manager shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Company or any Series in connection with the
matters to which this Agreement relate except a loss resulting from the willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement. Any person, even though also an officer, partner, employee, or agent
of the Manager, who may be or become an officer, Board member, employee or agent
of the Company shall be deemed, when rendering services to the Company or acting
in any business of the Company, to be rendering such services to or acting
solely for the Company and not as an officer, partner, employee, or agent or one
under the control or direction of the Manager even though paid by it.
Reference is hereby made to the Maryland Corporations and Associations
Annotated Code, Sections 2-417, 2-418 (1986).
The general effect of this Indemnification will be to indemnify the
officers and directors of the Registrant from costs and expenses arising from
any action, suit or proceeding to which they may be made a party by reason of
their being or having been a director or officer of the Registrant, except where
such action is determined to have arisen out of the willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the director's or officer's office.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the Registrant has been
informed that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable. See Item 32 herein.
Item 28. Business and Other Connections of Investment Adviser
<PAGE>
First Investors Management Company, Inc., the Registrant's Investment
Adviser, also serves as Investment Adviser to:
First Investors Cash Management Fund, Inc.
First Investors Series Fund
First Investors Fund For Income, Inc.
First Investors Government Fund, Inc.
First Investors High Yield Fund, Inc.
First Investors Global Fund, Inc.
First Investors Life Series Fund
First Investors Multi-State Insured Tax Free Fund
First Investors New York Insured Fund, Inc.
First Investors Insured Tax Exempt Fund, Inc.
First Investors Tax-Exempt Money Market Fund, Inc.
First Investors U.S. Government Plus Fund
First Investors Series Fund II, Inc.
Affiliations of the officers and directors of the Investment
Adviser are set forth in Part B, Statement of Additional Information, under
"Directors and Officers."
Item 29. Principal Underwriters
Not Applicable
Item 30. Location of Accounts and Records
Physical possession of the books, accounts and records of the Registrant
are held by First Investors Management Company, Inc. and its affiliated
companies, First Investors Corporation and Administrative Data Management Corp.,
at their corporate headquarters, 95 Wall Street, New York, NY 10005 and
administrative offices, 581 Main Street, Woodbridge, NJ 07095, except for those
maintained by the Registrant's Custodian, The Bank of New York, 48 Wall Street,
New York, NY 10286.
Item 31. Management Services
Inapplicable
Item 32. Undertakings
The Registrant undertakes to carry out all indemnification provisions of
its Articles of Incorporation and Advisory Agreement in accordance with
Investment Company Act Release No. 11330 (September 4, 1980) and successor
releases.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions under Item 27 herein, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or
<PAGE>
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The Registrant hereby undertakes to furnish a copy of its latest annual
report to shareholders, upon request and without charge, to each person to whom
a prospectus is delivered.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant represents that this Amendment
meets all the requirements for effectiveness pursuant to Rule 485(b) under the
Securities Act of 1933, and has duly caused this Post-Effective Amendment to
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New York, on the
9th day of April, 1997.
FIRST INVESTORS SPECIAL
BOND FUND, INC.
(Registrant)
By: /s/ Glenn O. Head
----------------
Glenn O. Head
President and Director
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, this Amendment to this Registration Statement
has been signed below by the following persons in the capacities and on the
dates indicated.
/s/Glenn O. Head Principal Executive April 9, 1997
- ------------------------- Officer and Director
Glenn O. Head
/s/Joseph I. Benedek Principal Financial April 9, 1997
- ------------------------- and Accounting Officer
Joseph I. Benedek
* Director April 9, 1997
- -------------------------
Kathryn S. Head
* Director April 9, 1997
- -------------------------
Roger L. Grayson
* Director April 9, 1997
- -------------------------
Herbert Rubinstein
* Director April 9, 1997
- -------------------------
Nancy Schaenen
* Director April 9, 1997
- -------------------------
James M. Srygley
* Director April 9, 1997
- -------------------------
John T. Sullivan
* Director April 9, 1997
- -------------------------
Rex R. Reed
* Director April 9, 1997
- -------------------------
Robert F. Wentworth
*By: /s/Larry R. Lavoie
------------------
Larry R. Lavoie
Attorney-in-fact
17
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
99.B11.1 Consent of accountants
99.B11.2 Power of Attorney
27 Financial Data Schedule
Consent of Independent Certified Public Accountants
First Investors Special Bond Fund, Inc.
95 Wall Street
New York, New York 10005
We consent to the use in Post-Effective Amendment No. 16 to the
Registration Statement on Form N-1A (File No. 2-66294) of our report dated
January 31, 1997 relating to the December 31, 1996 financial statements of First
Investors Special Bond Fund, Inc., which are included in said Registration
Statement.
/s/ Tait, Weller & Baker
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
April 10, 1997
First Investors Special Bond Fund, Inc.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned officer and/or
director of First Investors Special Bond Fund, Inc. hereby appoints Larry R.
Lavoie or Glenn O. Head, and each of them, his true and lawful attorney to
execute in his name, place and stead and on his behalf a Registration Statement
on Form N-1A for the registration pursuant to the Securities Act of 1933 and the
Investment Company Act of 1940 of shares of common stock of said Maryland
corporation and any and all amendments to said Registration Statement (including
post-effective amendments), and all instruments necessary or incidental in
connection therewith and to file the same with the Securities and Exchange
Commission. Said attorney shall have full power and authority to do and perform
in the name and on behalf of the undersigned every act whatsoever requisite or
desirable to be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do, the undersigned hereby ratifying and
approving all such acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
3rd day of April, 1997.
/s/ Nancy Schaenen
Nancy Schaenen
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000314480
<NAME> FIRST INVESTORS SPECIAL BOND FUND, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 32023
<INVESTMENTS-AT-VALUE> 34230
<RECEIVABLES> 541
<ASSETS-OTHER> 179
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 34950
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 50
<TOTAL-LIABILITIES> 50
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 53674
<SHARES-COMMON-STOCK> 2897
<SHARES-COMMON-PRIOR> 3109
<ACCUMULATED-NII-CURRENT> (464)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (19656)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2207
<NET-ASSETS> 36948
<DIVIDEND-INCOME> 130
<INTEREST-INCOME> 3525
<OTHER-INCOME> 26
<EXPENSES-NET> (310)
<NET-INVESTMENT-INCOME> 3371
<REALIZED-GAINS-CURRENT> (254)
<APPREC-INCREASE-CURRENT> 1369
<NET-CHANGE-FROM-OPS> 4486
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2988)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 122
<NUMBER-OF-SHARES-REDEEMED> 517
<SHARES-REINVESTED> 182
<NET-CHANGE-IN-ASSETS> (582)
<ACCUMULATED-NII-PRIOR> 847
<ACCUMULATED-GAINS-PRIOR> (19909)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (272)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (312)
<AVERAGE-NET-ASSETS> 36209
<PER-SHARE-NAV-BEGIN> 12.23
<PER-SHARE-NII> 1.170
<PER-SHARE-GAIN-APPREC> .370
<PER-SHARE-DIVIDEND> (1.020)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.75
<EXPENSE-RATIO> .86
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
