FIRST INVESTORS
FIRST INVESTORS
SPECIAL BOND FUND, INC.
ANNUAL REPORT
DECEMBER 31, 1996
The following appears at the bottom left of the first page:
First Investors Logo
A MEMBER OF THE
FIRST INVESTORS
FINANCIAL NETWORK
LIF007
Portfolio Manager's Letter
FIRST INVESTORS SPECIAL BOND FUND, INC.
Dear Investor:
The current economic expansion extended to its fifth
year in 1996. The economy grew by 3.4% during the
year with the core rate of consumer price inflation
increasing 2.6%, its slowest pace since the mid-
1960's. The combination of moderate growth and
low inflation provided a positive background for the
financial markets. The broad stock market averages
made new highs during 1996 while long-term interest
rates moved somewhat higher during the year.
Besides the economy, the markets benefited from
strong demand for U.S. securities. Individual
investors bought a record amount of stock mutual
funds, while foreign investors bought a record amount
of U.S. Treasury bonds.
1996 was a year of incredible activity in fixed income
markets and for high yield bonds in particular. The
net result was positive for the high yield market and
the First Investors Special Bond Fund. Junk bond
market returns of 13.7% and 12.4% as measured by
the Lipper Analytical Services average of fund returns
and Credit Suisse First Boston, respectively, were
sharply higher than the 0.1% total return for ten year
Treasury notes. Buoyant capital markets, led by
rising equity valuations, created an environment in
which credit sensitive bonds as a group, especially
junk bonds, outperformed Treasury securities of
equivalent maturities. Investors who observed this
profit potential and who were willing to assume the
credit risk inherent in high yield issuers responded by
directing tens of billions of dollars into the high yield
bond market. In spite of record new issuance, there
has still been market wide competition for new
investments. High yield issuers thus had more
flexibility with which to bolster liquidity, implement
growth plans, reduce their costs of capital and
improve their credit strength. The greatest benefit of
this flexibility generally accrued to the lowest rated
companies in the junk bond pecking order - weak
single B or split rated single B/CCC+ - companies
with the least room for error. Consequently, many of
those bonds outperformed higher quality issuers,
which tended to be more affected by rising interest
rates.
During 1996, First Investors Special Bond Fund
returned on a net asset value basis 13.1% compared
with 13.7% for the average of all high yield funds as
measured by Lipper Analytical Services, Inc. Our
strategy has been to emphasize companies with
managements intent on - and capable of - paying their
obligations and improving their credit ratings. As
noted above, the best relative performance in 1996
often came from companies employing much more
aggressive and risky financial and operating strategies.
Nevertheless, the Fund had several investments which
exceeded market expectations and delivered
exceptional performance such as: WCI Steel,
Affiliated News, Synthetic Industries and Mediq/PRN.
A few of these are no longer held because the
companies bought back their bonds at above market
prices that we simply could not refuse. The Fund has
a material investment in Bell Cablemedia and
Videotron Holdings because of their strong location
and strategy. They have become a major force in
Cable TV and deregulated telephone service in Great
Britain. Their bonds have appreciated because these
companies are being acquired by a much larger
investment grade U.K. company. A low
concentration in gaming slowed performance in the
first half of 1996 and enhanced it later in the year as
investors realized that the industry's expansion phase
was ending and more intense competition was
beginning. The market wide default rate declined
from 3.1% in 1995 to 1.4% in 1996; however, the
Fund experienced no defaults. We elected to sell at
moderate discounts a few holdings where credit
deterioration appeared likely.
Investors who buy bond funds -- whether for income
or total return -- should be aware that the value of
their investment fluctuates as interest rates change.
For example, a 1% increase in yield on a ten year
bond results in roughly a 7% decrease in that bond's
price. In each of the last five years, ten year Treasury
bond yields have moved more than 1%. In addition,
the value of a fund can fluctuate based on changes in
the credit quality of the bonds which it holds. In
particular, high yield funds invest in lower-rated debt
obligations which are more sensitive than higher-rated
investments to adverse economic changes or
individual corporate developments, and thus can be
subject to a higher incidence of default. Investors
should be aware of these risks and recognize that
successful investing generally requires a long-term
commitment to the market.
As 1997 begins, it is important to recognize that high
yield bonds are very much intertwined with
valuations that prevail throughout the capital markets.
This means that the health of the equity market is
every bit as important as the direction of interest rates
in understanding the overall direction of our market.
We do not rely on yield declines to continue to drive
portfolio appreciation as in the last couple of years.
Instead, we emphasize basic "blocking and tackling" -
investment research that perceives big picture industry
trends, identifies management capability, and locks in
on strategies and business plans that will work for
bondholders. This will be key in delivering value -
superior yield that compensates the Fund for the
higher risks assumed by investing in the junk bond
market.
Looking forward, the factors that benefited the
markets in 1996 appear likely to continue in 1997:
moderate growth, low inflation, and strong demand
for financial assets. A significant risk to the market
is that inflation may increase due to the length of the
economic expansion. This could lead the Federal
Reserve to raise interest rates, hurting both the bond
and stock markets. On the other hand, the markets
may be positively surprised by legislation from the
President and Congress to eliminate the federal budget
deficit. We will continue to be alert to events that
may affect the value of your investments.
As always, we appreciate the opportunity to serve
your investment needs.
Sincerely,
/s/ George V. Ganter
George V. Ganter
Vice President
and Portfolio Manager
January 31, 1997
Cumulative Performance Information
FIRST INVESTORS SPECIAL BOND FUND, INC.
Comparison of change in value of $10,000 investment in the First Investors
Special Bond Fund, Inc. and the First Boston High Yield Index.
The following table is the source data for the line chart which
appears at this point in the printed document. This table is not part
of the original printed document and is shown for reference only.
The same is also true for this descriptive paragraph.
SPECIAL BOND FIRST BOSTON
Jan-87 $ 9,300 $10,000
Dec-87 9,588 12,319
Dec-88 10,905 14,001
Dec-89 10,745 14,054
Dec-90 9,767 13,157
Dec-91 13,259 18,914
Dec-92 15,189 22,065
Dec-93 17,962 26,237
Dec-94 17,767 25,983
Dec-95 21,454 30,498
Dec-96 24,265 34,286
**BOXED INFORMATION INSIDE GRAPH
Average Annual Total Return*
N.A.V. Only S.E.C. Standardized
One Year 13.10% 5.19%
Five Years 12.85% 11.22%
Ten Years 10.07% 9.27%
S.E.C. 30-Day Yield 7.09%
The graph compares a $10,000 investment in the First Investors Special Bond
Fund, Inc. beginning 1/1/87 with a theoretical investment in the First Boston
High Yield Index. The First Boston High Yield Index is designed to measure the
performance of the high yield bond market. The Index consists of 852 different
issues, 706 of which are cash pay, 127 of which are zero-coupon, 9 of which are
step bonds, 1 is a payment-in-kind bond and the remaining 9 are in default. The
bonds included in the Index have an average life of 7.8 years, an average
maturity of 7.8 years, an average duration of 4.2 years and an average coupon
of 10.6%. It is not possible to invest directly in the Index. In addition, the
Index does not take into account fees and expenses. For purposes of the graph
and the accompanying table, unless otherwise indicated, it has been assumed
that the maximum sales charge was deducted from the initial $10,000 investment
in the Fund and all dividends and distributions were reinvested.
*Average Annual Total Return figures (for the period ended 12/31/96) include
the reinvestment of all dividends and distributions "N.A.V. Only" returns are
calculated without sales charges. The "S.E.C. Standardized" returns shown are
based on the maximum sales charge of 7%. Results represent past performance and
do not indicate future results. Investment return and principal value of an
investment will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than the original cost. The unusually high current yields
offered reflect the substantial risks associated with investments in high yield
bonds. The issuers of the bonds pay higher interest rates because they have a
greater likelihood of financial difficulty, which could result in their
inability to repay the bonds fully when due. Prices of high yield bonds are
also subject to greater fluctuations. First Boston High Yield Index figures
from CS First Boston and all other figures from First Investors Management
Company, Inc.
Portfolio of Investments
FIRST INVESTORS SPECIAL BOND FUND, INC.
December 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Principal Amount
Amount, Invested
Shares For Each
or $10,000 of
Warrants Security Value Net Assets
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE BONDS--87.7%
Aerospace/Defense--.9%
$ 300M Moog Inc., 10%, 2006 $ 317,250 $ 86
- --------------------------------------------------------------------------------------------------
Automotive--6.6%
500M Aftermarket Technology Corp., 12%, 2004 561,250 152
500M Collins & Aikman Products Co., 11 1/2%, 2006 547,500 148
750M Exide Corp., 10%, 2005 780,000 211
500M SPX Corp., 11 3/4%, 2002 561,250 152
- --------------------------------------------------------------------------------------------------
2,450,000 663
- --------------------------------------------------------------------------------------------------
Building Materials--2.8%
1,000M Interface Flooring Systems, Inc., 9 1/2%, 2005 1,030,000 279
- --------------------------------------------------------------------------------------------------
Chemicals--5.3%
475M Harris Chemical North America, Inc., 10 3/4%, 2003 494,000 134
800M Rexene Corp., 11 3/4%, 2004 904,000 244
500M Synthetic Industries, Inc., 12 3/4%, 2002 553,750 150
- --------------------------------------------------------------------------------------------------
1,951,750 528
- --------------------------------------------------------------------------------------------------
Consumer Non-Durables--4.9%
700M Hines Horticulture, Inc., 11 3/4%, 2005 749,000 203
400M Plastic Containers, Inc., 10%, 2006 (Note 5) 410,000 111
1,000M Semi-Tech Corp., 0%-11 1/2%, 2003 650,000 176
- --------------------------------------------------------------------------------------------------
1,809,000 490
- --------------------------------------------------------------------------------------------------
Containers--4.1%
700M Owens Illinois, Inc., 11%, 2003 782,250 212
700M U.S. Can Corp., 10 1/8%, 2006 (Note 5) 738,500 200
- --------------------------------------------------------------------------------------------------
1,520,750 412
- --------------------------------------------------------------------------------------------------
Electrical Equipment--4.4%
725M Essex Group, Inc., 10%, 2003 750,375 203
221M Thermadyne Industries, Inc., 10 1/4%, 2002 228,182 62
618M Thermadyne Industries, Inc., 10 3/4%, 2003 631,905 171
- --------------------------------------------------------------------------------------------------
1,610,462 436
- --------------------------------------------------------------------------------------------------
Energy--6.3%
1,000M Clark R & M Holdings, Inc., 0%, 2000 725,000 196
600M Falcon Drilling Co., Inc., 9 3/4%, 2001 621,000 168
900M United Meridian Corp., 10 3/8%, 2005 985,500 267
- --------------------------------------------------------------------------------------------------
2,331,500 631
- --------------------------------------------------------------------------------------------------
Food/Beverage/Tobacco--4.9%
250M Doane Products Co., 10 5/8%, 2006 263,750 71
750M Keebler Corp., 10 3/4%, 2006 794,063 215
700M TLC Beatrice International Holdings, Inc., 11 1/2%, 2005 745,500 202
- --------------------------------------------------------------------------------------------------
1,803,313 488
- --------------------------------------------------------------------------------------------------
Gaming/Lodging--2.1%
800M Showboat, Inc., 9 1/4%, 2008 790,000 214
- --------------------------------------------------------------------------------------------------
Healthcare--7.7%
870M Abbey Healthcare Group, Inc., 9 1/2%, 2002 915,675 248
900M Integrated Health Services, Inc., 9 5/8%, 2002 936,000 253
900M Tenet Healthcare Corp., 10 1/8%, 2005 997,875 270
- --------------------------------------------------------------------------------------------------
2,849,550 771
- --------------------------------------------------------------------------------------------------
Industrial Services--1.4%
500M Mettler Toledo, Inc., 9 3/4%, 2006 527,500 143
- --------------------------------------------------------------------------------------------------
Media/Cable Television--14.2%
1,500M Affiliated Newspaper Investments, 0%-13 1/4%, 2006 1,237,500 335
500M Allbritton Communications Corp., 9 3/4%, 2006 490,000 133
1,000M Bell Cablemedia PLC, 0%-11.95%, 2004 880,000 238
500M Sinclair Broadcasting Group, 10%, 2005 512,500 139
1,400M Videotron Holdings, PLC, 0%-11 1/8%, 2004 1,211,000 328
900M World Color Press, Inc., 9 1/8%, 2003 924,750 250
- --------------------------------------------------------------------------------------------------
5,255,750 1,423
- --------------------------------------------------------------------------------------------------
Mining/Metals--3.7%
600M Commonwealth Aluminum Corp., 10 3/4%, 2006 624,000 169
700M Euramax International, PLC., 11 1/4%, 2006 (Note 5) 724,500 196
- --------------------------------------------------------------------------------------------------
1,348,500 365
- --------------------------------------------------------------------------------------------------
Miscellaneous--1.6%
550M Pierce-Leahy Corp., 11 1/8%, 2006 603,625 163
- --------------------------------------------------------------------------------------------------
Paper/Forest Products--5.5%
500M Container Corp., 11 1/4%, 2004 543,750 147
700M Rainy River Forest Products Co., Inc., 10 3/4%, 2001 763,000 207
700M Stone Container Corp., 9 7/8%, 2001 710,500 192
- --------------------------------------------------------------------------------------------------
2,017,250 546
- --------------------------------------------------------------------------------------------------
Telecommunications--8.8%
850M Cencall Communications Corp., 0%-10 1/8%, 2004 582,250 158
350M Centennial Cellular, 8 7/8%, 2001 337,750 91
1,000M MFS Communications, Inc., 0%-9 3/8%, 2004 870,000 235
500M Paging Network, Inc., 10%, 2008 (Note 5) 509,375 138
900M Paging Network, Inc., 11 3/4%, 2002 969,750 262
- --------------------------------------------------------------------------------------------------
3,269,125 884
- --------------------------------------------------------------------------------------------------
Transportation--2.5%
900M Eletson Holdings, Inc., 9 1/4%, 2003 911,250 247
- --------------------------------------------------------------------------------------------------
Total Value of Corporate Bonds (cost $30,619,662) 32,396,575 8,769
- --------------------------------------------------------------------------------------------------
COMMON STOCKS--.9%
Electrical Equipment--.0%
684 *Thermadyne Holdings Corp. 19,494 5
- --------------------------------------------------------------------------------------------------
Media/Cable Television--.6%
1,500 *Affiliated Newspaper Investments, Inc. 82,500 22
5,676 *EchoStar Communications Corp. - Class "A" 124,872 34
- --------------------------------------------------------------------------------------------------
207,372 56
- --------------------------------------------------------------------------------------------------
Paper/Forest Products--.3%
17,394 *Gaylord Container Corp. - Class "A" 106,538 29
- --------------------------------------------------------------------------------------------------
Total Value of Common Stocks (cost $73,375) 333,404 90
- --------------------------------------------------------------------------------------------------
PREFERRED STOCKS--4.0%
Consumer Staples--1.0%
322 Time Warner Inc., 10 1/4% 350,980 95
- --------------------------------------------------------------------------------------------------
Financial Services--3.0%
10,000 California Federal Bank, 10 5/8%, Series "B" 1,112,500 301
- --------------------------------------------------------------------------------------------------
Total Value of Preferred Stocks (cost $1,322,960) 1,463,480 396
- --------------------------------------------------------------------------------------------------
WARRANTS--.1%
Gaming/Lodging--.0%
850 *Goldriver Finance Corp., Liquidating Trust 5,950 2
- --------------------------------------------------------------------------------------------------
Paper/Forest Products--.1%
5,000 *Gaylord Container Corp. (expiring 11/1/02) 30,938 8
- --------------------------------------------------------------------------------------------------
Total Value of Warrants (cost $7,498) 36,888 10
- --------------------------------------------------------------------------------------------------
SHORT-TERM CORPORATE NOTES--5.5%
$ 1,000M Brown-Forman Corp., 5.55%, 1/9/97 998,767 270
350M S.C. Johnson & Sons, Inc., 7%, 1/2/97 349,932 95
700M Laclede Gas, 5.6%, 1/21/97 698,257 189
- --------------------------------------------------------------------------------------------------
Total Value of Short-Term Notes (cost $2,046,956) 2,046,956 554
- --------------------------------------------------------------------------------------------------
Total Value of Investments (cost $34,070,451) 98.2% 36,277,303 9,819
Other Assets, Less Liabilities 1.8 670,548 181
- --------------------------------------------------------------------------------------------------
Net Assets 100.0% $ 36,947,851 $ 10,000
- --------------------------------------------------------------------------------------------------
*Non-income producing
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
FIRST INVESTORS SPECIAL BOND FUND, INC.
December 31, 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments in securities, at value (identified cost $34,070,451) (Note 1A) $ 36,277,303
Cash 175,124
Interest Receivable 540,964
Other assets 4,373
-----------
Total Assets 36,997,764
Liabilities
Payable for capital stock redeemed $ 11,191
Accrued advisory fee 22,552
Accrued expenses 16,170
----------
Total Liabilities 49,913
-----------
Net Assets $ 36,947,851
===========
Net Assets Consist of:
Capital paid in $ 53,674,165
Undistributed net investment income 1,229,471
Accumulated net realized loss on investment transactions (20,162,637)
Net unrealized appreciation in value of investments 2,206,852
-----------
Total $ 36,947,851
===========
Net Asset Value, Offering Price and Redemption Price Per Share
($36,947,851 divided by 2,896,822 shares outstanding),
25,000,000 shares authorized, $1.00 par value (Note 2) $12.75
===========
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
FIRST INVESTORS SPECIAL BOND FUND, INC.
Year Ended December 31, 1996
- ---------------------------------------------------------------------------------
<S> <C> <C>
Investment Income
Income:
Interest $ 3,524,639
Dividends 130,082
Consent fees and other income 26,000
----------
Total income $ 3,680,721
Expenses (Notes 1 and 4):
Advisory fee 271,569
Professional fees 23,567
Custodian fees 7,777
Reports and notices to shareholders 2,172
Other expenses 6,763
----------
Total expenses 311,848
Less: Custodian fees paid indirectly (2,311)
----------
Net expenses 309,537
----------
Net investment income 3,371,184
Realized and Unrealized Gain (Loss) on Investments
(Note 3):
Net realized loss on investments (253,500)
Net unrealized appreciation of investments 1,368,848
----------
Net gain on investments 1,115,348
----------
Net Increase in Net Assets Resulting from Operations $ 4,486,532
==========
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
FIRST INVESTORS SPECIAL BOND FUND, INC.
- ----------------------------------------------------------------------------------------
Year Ended December 31 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets from Operations
Net investment income $ 3,371,184 $ 3,766,024
Net realized loss on investments (253,500) (287,903)
Net unrealized appreciation of investments 1,368,848 3,605,865
------------ ------------
Net increase in net assets resulting
from operations 4,486,532 7,083,986
------------ ------------
Dividends to Shareholders from:
Net investment income (2,988,275) (3,226,603)
------------ ------------
Capital Share Transactions (a)
Proceeds from shares sold 779,652 736,623
Value of dividends reinvested 2,988,275 3,226,603
Cost of shares redeemed (6,355,337) (6,508,688)
------------ ------------
Net decrease in net assets resulting from
share transactions (2,587,410) (2,545,462)
------------ ------------
Net increase (decrease) in net assets (1,089,153) 1,311,921
Net Assets
Beginning of year 38,037,004 36,725,083
------------ ------------
End of year (including undistributed net
investment income of $1,229,471 and
$846,562, respectively) $ 36,947,851 $ 38,037,004
============ ============
(a)Capital Shares Issued and Redeemed
Sold 63,299 64,445
Issued for dividends reinvested 241,157 273,019
Redeemed (516,532) (558,069)
------------ ------------
Net decrease in capital shares (212,076) (220,605)
============ ============
See notes to financial statements
</TABLE>
Notes to Financial Statements
FIRST INVESTORS SPECIAL BOND FUND, INC.
1. Significant Accounting Policies - The
Fund is registered under the Investment Company Act
of 1940 (the "1940 Act") as a diversified, open-end
management investment company. The investment
objective of the Fund is to seek high current income
without undue risk to principal and secondarily to
seek growth of capital.
A. Security Valuation - Except as provided below, a
security listed or traded on an exchange or the
NASDAQ National Market System is valued at its
last sale price on the exchange or system where the
security is principally traded, and lacking any sales,
the security is valued at the mean between the closing
bid and asked prices. Each security traded in the
over-the-counter market (including securities listed on
exchanges whose primary market is believed to be
over-the-counter) is valued at the mean between the
last bid and asked prices based upon quotes furnished
by a market maker for such securities. Securities
may also be priced by a pricing service. The pricing
service uses quotations obtained from investment
dealers or brokers and other available information in
determining value. Short-term corporate notes which
are purchased at a discount are valued at amortized
cost. Securities for which market quotations are not
readily available are valued on a consistent basis at
fair value as determined in good faith by or under the
supervision of the Fund's officers in a manner
specifically authorized by the Board of Directors.
B. Federal Income Taxes - No provision has been
made for federal income taxes on net income or
capital gains, since it is the policy of the Fund to
continue to comply with the special provisions of the
Internal Revenue Code applicable to investment
companies and to make sufficient distributions of
income and capital gains (in excess of any available
capital loss carryovers) to relieve it from all, or
substantially all, such taxes. At December 31, 1996,
the Fund had capital loss carryovers of $20,162,637,
of which $16,599,362 expires in 1998, $3,021,871
in 1999, $287,903 in 2003 and $253,501 in 2004.
C. Distributions to Shareholders - Dividends to
shareholders from net investment income are declared
daily and paid quarterly. Distributions from net
realized capital gains are normally declared and paid
annually. Income dividends and capital gain
distributions are determined in accordance with
income tax regulations which may differ from
generally accepted accounting principles. These
differences are primarily due to differing treatments for
capital loss carryforwards and post October losses.
D. Use of Estimates - The preparation of the financial
statements in conformity with generally accepted
accounting principles requires management to make
estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the
financial statements and the reported amounts of
revenue and expense during the reporting period.
Actual results could differ from those estimates.
E. Other - Security transactions are accounted for on
the date the securities are purchased or sold. Cost is
determined, and gains and losses are based, on the
identified cost basis for both financial statement and
federal income tax purposes. Dividend income is
recorded on the ex-dividend date. Interest income and
estimated expenses are accrued daily. The Fund's
custodian has provided credits in the amount of
$2,311 against custodian charges based on the
uninvested cash balances of the Fund.
2. Capital Stock - Shares of the Fund are sold
only through the purchase of annuity contracts issued
by First Investors Life Variable Annuity Fund A.
3. Security Transactions - For the year ended
December 31, 1996, purchases and sales of
investment securities, other than United States
Government obligations and short-term corporate
notes, aggregated $10,005,574 and $11,860,366,
respectively.
At December 31, 1996, the cost of investments for
federal income tax purposes was $34,070,451.
Accumulated net unrealized appreciation on
investments was $2,206,852, consisting of
$2,367,667 gross unrealized appreciation and
$160,815 gross unrealized depreciation.
4. Advisory Fee and Other Transactions
With Affiliates - Certain officers and directors of
the Fund are officers and directors of its investment
adviser, First Investors Management Company, Inc.
("FIMCO") and its transfer agent, Administrative
Data Management Corp. Officers and directors of the
Fund received no remuneration from the Fund for
serving in such capacities. Their remuneration
(together with certain other expenses of the Fund) is
paid by FIMCO or First Investors Corporation.
The Investment Advisory Agreement provides as
compensation to FIMCO an annual fee, payable
monthly, at the rate of .75% on the first $250
million of the Fund's average daily net assets,
declining by .03% on each $250 million thereafter,
down to .66% on average daily net assets over $750
million.
5. Rule 144A Securities - Under Rule 144A,
certain restricted securities are exempt from the
registration requirements of the Securities Act of
1933 and may only be resold to qualified institutional
investors. At December 31, 1996, the Fund held four
144A securities with an aggregate value of $2,382,375
representing 6.4% of the Fund's net assets. These
securities are valued as set forth in Note 1A.
6. Concentration of Credit Risk - The Fund's
investment in high yield securities, whether rated or
unrated, may be considered speculative and subject
to greater market fluctuations and risk of loss of
income and principal than lower yielding, higher
rated, fixed income securities. The risk of loss due to
default by the issuer may be significantly greater for
the holders of high yielding securities, because such
securities are generally unsecured and are often
subordinated to other creditors of the issuer.
Independent Auditor's Report
To the Shareholders and Board of Directors of
First Investors Special Bond Fund, Inc.
We have audited the accompanying statement of
assets and liabilities of First Investors Special Bond
Fund, Inc., including the portfolio of investments, as
of December 31, 1996 and the related statement of
operations for the year then ended, the statement of
changes in net assets for each of the two years in the
period then ended and financial highlights for each of
the ten years presented. These financial statements
and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express
an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require
that we plan and perform the audit to obtain
reasonable assurance about whether the financial
statements and financial highlights are free of material
misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included
confirmation of securities owned as of December 31,
1996, by correspondence with the custodian. An audit
also includes assessing the accounting principles used
and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all
material respects, the financial position of First
Investors Special Bond Fund, Inc. as of December 31,
1996, and the results of its operations, changes in its
net assets and financial highlights for each of the ten
years presented, in conformity with generally accepted
accounting principles.
Tait, Weller & Baker
Philadelphia, Pennsylvania
January 31, 1997
<TABLE>
<CAPTION>
Financial Highlights
FIRST INVESTORS SPECIAL BOND FUND, INC.
The following table sets forth the operating performance data for a share of capital stock outstanding,
total return, ratios to average net assets and other supplemental datafor each year indicated.
----------------------------------------------------------------------------------------
Year Ended December 31
----------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Data
Net Asset Value, Beginning of Year $12.23 $11.03 $12.18 $11.38 $11.05 $9.16 $11.47 $13.19 $12.99 $14.37
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income from Investment Operations
Net investment income 1.17 1.20 1.09 1.14 1.27 1.26 1.32 1.57 1.61 1.57
Net realized and unrealized
gain (loss) on investments 0.37 1.02 (1.22) .86 .29 1.86 (2.30) (1.73) .20 (1.15)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from Investment Operations 1.54 2.22 (.13) 2.00 1.56 3.12 (.98) (.16) 1.81 .42
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Less Distributions from:
Net investment income 1.02 1.02 1.02 1.20 1.23 1.23 1.33 1.56 1.61 1.58
Net realized gain from investments - - - - - - - - - .19
Capital surplus - - - - - - - - - .03
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions 1.02 1.02 1.02 1.20 1.23 1.23 1.33 1.56 1.61 1.80
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of Year $12.75 $12.23 $11.03 $12.18 $11.38 $11.05 $9.16 $11.47 $13.19 $12.99
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total Return(%)+ 13.10 20.76 (1.00) 18.15 14.56 35.76 (9.18) (1.60) 14.43 2.74
Ratios/Supplemental Data
Net Assets, End of Year
(in thousands) $36,948 $38,037 $36,725 $43,056 $44,116 $50,914 $53,328 $85,719 $69,641 $43,965
Ratio to Average Net Assets:(%)
Expenses .86 .88 .87 .85 .88 .89 .86 .82 .84 .86
Net investment income 9.31 10.17 9.38 9.54 10.95 11.99 12.57 12.38 11.96 11.16
Portfolio Turnover Rate(%) 29 45 54 79 65 47 37 34 51 71
+ The effect of fees and charges incurred at the separate account level are not reflected in these performance figures.
See notes to financial statements
</TABLE>
FIRST INVESTORS SPECIAL BOND FUND, INC.
Directors
- ---------------------------------------
James J. Coy
Roger L. Grayson
Glenn O. Head
Kathryn S. Head
Rex R. Reed
Herbert Rubinstein
James M. Srygley
John T. Sullivan
Robert F. Wentworth
Officers
- ---------------------------------------
Glenn O. Head
President
George V. Ganter
Vice President
Concetta Durso
Vice President and Secretary
Joseph I. Benedek
Treasurer
Carol Lerner Brown
Assistant Secretary
Gregory R. Kingston
Assistant Treasurer
Mark S. Spencer
Assistant Treasurer
Shareholder Information
- ---------------------------------------
Investment Adviser
First Investors
Management Company, Inc.
95 Wall Street
New York, NY 10005
Custodian
The Bank of New York
48 Wall Street
New York, NY 10286
Transfer Agent
Administrative Data
Management Corp.
581 Main Street
Woodbridge, NJ 07095-1198
Legal Counsel
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, DC 20036
Auditors
Tait, Weller & Baker
Two Penn Center Plaza
Philadelphia, PA 19102
It is the Fund's practice to mail only one copy of its
annual and semi-annual reports to any address at
which more than one shareholder with the same last
name has indicated that mail is to be delivered.
Additional copies of the reports will be mailed if
requested by any shareholder in writing or by calling
800-423-4026. The Fund will ensure that separate
reports are sent to any shareholder who subsequently
changes his or her mailing address.
This report is authorized for distribution only to
existing shareholders, and, if given to prospective
shareholders, must be accompanied or preceded by the
Fund's prospectus.
