INDIVIDUAL VARIABLE ANNUITY CONTRACTS
OFFERED BY
FIRST INVESTORS LIFE INSURANCE COMPANY
("FIRST INVESTORS LIFE")
THROUGH
FIRST INVESTORS LIFE VARIABLE ANNUITY FUND A ("SEPARATE ACCOUNT A")
95 Wall Street, New York, New York 10005/(212) 858-8200
This Prospectus describes deferred Variable Annuity Contracts (the
"Contracts") that First Investors Life is offering you the opportunity to
accumulate capital, on a tax-deferred basis, for retirement or other long-term
purposes and thereafter to annuitize your accumulated cash value if you so
elect. If you so elect, the Contracts offer several options under which you can
receive annuity payments for life.
The Contracts invest, through Separate Account A, in the First Investors
Special Bond Fund, Inc. ("Special Bond Fund"). The amount you accumulate depends
upon the performance of Separate Account A. You bear all of the investment risk,
which means that you could lose money.
THE INTERNAL REVENUE SERVICE MAY ASSESS A PENALTY ON EARLY WITHDRAWAL. THE
CONTRACTS PROVIDE YOU WITH A 10-DAY REVOCATION RIGHT.
Please read this prospectus and keep it for future reference. It contains
important information that you should know before buying a Contract. We filed a
Statement of Additional Information ("SAI"), dated April 30, 1999, with the
Securities and Exchange Commission. We incorporate the SAI by reference into
this prospectus. See page 20 of this prospectus for the SAI Table of Contents.
You can get a free SAI by contacting us at the address or telephone number shown
above.
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
This prospectus is valid only if attached to the current prospectus of
First Investors Special Bond Fund, Inc. (the "Fund").
THE DATE OF THIS PROSPECTUS IS APRIL 30, 1999.
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TABLE OF CONTENTS*
VARIABLE ANNUITY PROSPECTUS
Item Page
---- ----
GLOSSARY OF SPECIAL TERMS.................................................3
FEE TABLE.................................................................4
CONDENSED FINANCIAL INFORMATION...........................................5
OVERVIEW..................................................................5
How the Contracts Work.................................................5
Who We Are.............................................................5
Who Should Consider Purchasing a Contract..............................6
Risk and Reward Considerations.........................................6
THE CONTRACTS IN DETAIL...................................................7
Purchase Payments......................................................7
Sales Charge Deducted from Purchase Payments...........................8
Mortality and Expense Risk Charges.....................................8
Other Charges..........................................................9
The Accumulation Period................................................9
Exchange Privilege....................................................11
The Annuity Period....................................................11
Ten-Day Revocation Right..............................................13
TAX INFORMATION..........................................................14
General...............................................................14
Non-Qualified Contracts...............................................14
Qualified Plan Contracts..............................................15
Withholding...........................................................16
Our Tax Status........................................................16
PERFORMANCE INFORMATION..................................................16
OTHER INFORMATION........................................................17
Voting Rights.........................................................17
Reservation of Rights.................................................18
Distribution of Contracts.............................................18
Year 2000.............................................................18
Financial Statements..................................................18
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION.............20
APPENDIX I...............................................................20
- ---------------
*A Table of Contents for the Special Bond Fund prospectus can be found at page 2
of that prospectus.
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GLOSSARY OF SPECIAL TERMS
ACCUMULATED VALUE - The value of all the Accumulation Units credited to the
Contract.
ACCUMULATION PERIOD - The period between the date of issue of a Contract
and the Annuity Commencement Date.
ACCUMULATION UNIT - A unit that measures the value of a Contractowner's
interest in Separate Account A before the Annuity Commencement Date.
ADDITIONAL PAYMENT - A Purchase Payment made to First Investors Life after
issuance of a Contract.
ANNUITANT - The person who is designated to receive annuity payments or who
is actually receiving annuity payments.
ANNUITY COMMENCEMENT DATE - The date on which we begin making annuity
payments.
ANNUITY UNIT - A unit that determines the amount of each annuity payment
after the first annuity payment.
BENEFICIARY - The person who is designated to receive any benefits under a
Contract upon the death of the Annuitant or the Contractowner.
CONTRACT - An individual variable annuity contract offered by this
Prospectus.
CONTRACTOWNER - The person or entity with legal rights of ownership of the
Contract.
FIXED ANNUITY - An annuity with annuity payments that remain fixed as to
dollar amount throughout the payment period.
GENERAL ACCOUNT - All assets of First Investors Life other than those
allocated to Separate Account A and other segregated investment accounts of
First Investors Life.
JOINT ANNUITANT - The designated second person under a joint and survivor
life annuity.
PURCHASE PAYMENT - A payment made to First Investors Life to purchase a
Contract.
SEPARATE ACCOUNT A - The segregated investment account entitled "First
Investors Life Variable Annuity Fund A," established by First Investors Life
pursuant to applicable law and registered as a unit investment trust under the
Investment Company Act of 1940 ("1940 Act").
VALUATION DATE - Any date on which the New York Stock Exchange ("NYSE") is
open for regular trading. Each Valuation Date ends as of the close of regular
trading on the NYSE (normally 4:00 P.M., Eastern Time). The NYSE currently
observes the following holidays: New Year's Day, Martin Luther King Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
VALUATION PERIOD - The period beginning at the end of any Valuation Date
and extending to the end of the next Valuation Date.
VARIABLE ANNUITY - An annuity with annuity payments that vary in dollar
amount, in accordance with the net investment experience of Separate Account A,
throughout the payment period.
WE (AND OUR) - First Investors Life.
YOU (AND YOUR) - The prospective Contractowner.
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FEE TABLE
The tables below are provided to help you understand the various charges
and expenses you will directly or indirectly bear in purchasing a Contract. They
reflect the charges and expenses of Separate Account A, as well as the Fund in
which Separate Account A invests. The tables reflect expenses expected to be
incurred in 1999.
SEPARATE ACCOUNT A EXPENSES
Contractowner Transaction Expenses
- ----------------------------------
Maximum Sales Load Imposed on Purchases (as a percentage of
Purchase Payments)...................................................... 7.00%
Separate Account A Annual Expenses
- ----------------------------------
(as a percentage of average account value)
Mortality and Expense Risk Charges...................................... 0.75%
Other Charges........................................................... 0.00%
-----
Total Separate Account A Annual Expenses................................ 0.75%
FUND ANNUAL EXPENSES
(AS A PERCENTAGE OF FUND AVERAGE NET ASSETS)
Management Fees.................................................... 0.75%
Other Expenses..................................................... 0.14%
-----
Total Fund Operating Expenses ..................................... 0.89%*
* The Fund has an expense offset arrangement that may reduce the Fund's
custodian fee based on the amount of cash maintained by the Fund with its
custodian. We do not reflect these fee reductions under Total Fund Operating
Expenses.
For more complete descriptions of the various charges and expenses shown in
the Fee Table, please refer to "THE CONTRACTS IN DETAIL -- Sales Charge,
Mortality and Expense Risk Charges, and Other Charges." We may deduct an
administrative charge of $7.50 annually from the Accumulated Value of Contracts
that have an Accumulated Value of less than $1,500 (see "Administrative
Charge"). In addition, Premium taxes may be applicable (see "Other Charges").
EXAMPLE
If you surrender your Contract
(or if you annuitize) at the end
of the period shown, you would pay the
following expenses on a $1,000 investment,
assuming 5% annual return on assets:......... 1 year 3 years 5 years 10 years
------ ------- ------- --------
$86 $118 $153 $251
YOU SHOULD NOT CONSIDER THE EXPENSES IN THE EXAMPLE A REPRESENTATION OF
PAST OR FUTURE EXPENSES. ACTUAL EXPENSES IN FUTURE YEARS MAY BE GREATER OR LESS
THAN THOSE SHOWN.
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CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
This table shows the accumulation unit values and the number of
accumulation units outstanding for Separate Account A for the last ten fiscal
years.
Accumulation Number of
At Unit Value($) Accumulation Units
----------------- ------------- ------------------
December 31, 1989 2.08689 40,781,044.9
December 31, 1990 1.88053 28,318,605.0
December 31, 1991 2.53391 19,910,946.0
December 31, 1992 2.88323 15,144,947.0
December 31, 1993 3.38150 12,724,736.0
December 31, 1994 3.31907 11,057,783.2
December 31, 1995 3.97815 9,552,100.7
December 31, 1996 4.46562 8,254,269.6
December 31, 1997 4.91727 7,334,261.6
December 31, 1998 4.94340 6,517,336.4
OVERVIEW
This overview highlights some basic information about the Variable Annuity
Contract offered by First Investors Life Insurance Company ("First Investors
Life", "We", "Us", or "Our") in this prospectus. We sell Separate Account A
Contracts with a front-end sales charge. The Contracts invest in Separate
Account A. You will find more information about the Contracts beginning on page
7 of this Prospectus.
HOW THE CONTRACTS WORK
Like all variable annuity contracts, the Contract has two phases: an
accumulation period and an annuity income period. During the accumulation
period, earnings on your investment accumulate on a tax-deferred basis. The
annuity income period begins when you start to receive annuity income payments.
You can select one of several annuity income payment options. The amount of your
annuity payments will vary with the performance of Separate Account A as well as
the type of annuity option you choose
During the accumulation period, the amount of money you accumulate in your
Contract depends on the performance of Separate Account A. You can gain or lose
money if you invest in the Contract. Separate Account A invests at net asset
value in shares of the Special Bond Fund.
The Contract provides a guaranteed death benefit that we pay to a
designated beneficiary when the Annuitant dies. The Separate Account A Contract
guarantees that the beneficiary will receive the greater of (i) the total
Purchase Payments less any withdrawals or (ii) the Accumulated Value of the
Contract at the time of death.
WHO WE ARE
First Investors Life Insurance Company
--------------------------------------
First Investors Life, 95 Wall Street, New York, New York 10005 is a stock
life insurance company incorporated in New York in 1962. We write life
insurance, annuities and accident and health insurance. First Investors
Consolidated Corporation ("FICC"), a holding company, owns all of the voting
common stock of First Investors Management Company, Inc. and all of the
outstanding stock of First Investors Life, First Investors Corporation ("FIC" or
"Underwriter") and Administrative Data Management Corp., the transfer agent for
the Life Series Fund. Mr. Glenn O. Head, Chairman of FICC, controls FICC and,
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therefore, controls the First Investors Management Company, Inc. and First
Investors Life.
Separate Account A
------------------
First Investors Life Variable Annuity Fund A ("Separate Account A") was
established on September, 1979 under New York Insurance Law.
Separate Account A is a registered unit investment trust with the
Securities and Exchange Commission ("SEC"). This registration does not involve
SEC supervision or the management or investment practices or policies of
Separate Account A.
We segregate the assets of Separate Account A from our other assets. We
cannot charge liabilities arising out of our other businesses against that
portion of Separate Account A's assets that is approximately equal to Contract
reserves and liabilities. We credit to, or charge against, Separate Account A
realized and unrealized income, gains and losses without regard to our other
income, gains and losses. The obligations under the Contracts are our
obligations.
Separate Account A invests, at net asset value, in shares of the Special
Bond Fund. Separate Account A reinvests all distributions received from the Fund
in additional shares of the Fund at net asset value. Separate Account A may make
deductions for charges and expenses by redeeming the number of equivalent Fund
shares at net asset value. We value Fund shares that we hold in Separate Account
A at their net asset values.
The Special Bond Fund
---------------------
The Special Bond Fund is a diversified open-end management investment
company (commonly known as a "mutual fund") registered with the SEC under the
1940 Act. Registration of the Fund does not involve supervision by the SEC of
the management or investment practices or policies of the Fund. The Fund offers
its shares only through the purchase of our variable annuity contracts. It does
not offer its shares directly to the general public. The Fund reserves the right
to offer its shares to other separate accounts of ours or directly to us.
First Investors Management Company, Inc. (the "Adviser"), an affiliate of
First Investors Life, is the investment adviser of the Fund. The Adviser
supervises and manages the investments and operations of the Fund. The Adviser
is a New York corporation located at 95 Wall Street, New York, NY 10005.
WHO SHOULD CONSIDER PURCHASING A CONTRACT
The Contract allows you to accumulate money on a tax-deferred basis for
retirement or other long-term goals and thereafter to annuitize the accumulated
value of your Contract if you wish. Generally, the higher your tax bracket, the
more you will benefit from the tax-deferred feature of the Contract. You should
not purchase a Contract if you are looking for a short-term investment or if you
cannot take the risk of receiving less money than you paid for the Contract. You
may want to consult a tax advisor or other professional before you purchase a
Contract.
RISK AND REWARD CONSIDERATIONS
The Contracts offer you the opportunity to benefit on a tax deferred
basis from the performance of an underlying investment portfolio or Subaccount.
However, there are several important factors that you should consider before
making a decision to purchase a Contract:
1. You bear all of the investment risk of the underlying investment
portfolio. You should therefore carefully review the prospectus for the Special
Bond Fund. It explains the Fund's investment objectives, primary investment
strategies, and primary risks.
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2. The Contracts are generally not appropriate choices for the
investment of money that you will need in the short term. You should therefore
only invest money that you will not need in the short term.
3. If you are considering purchasing a Contract inside of an individual
retirement account or qualified retirement plan, you should know that the same
tax benefits are available whether you invest in mutual funds or variable
annuities and that variable annuities generally have higher cost structures than
those of mutual funds. The variable annuity's death benefit should be an
important factor if you select a variable annuity.
4. Like other financial services organizations, First Investors Life and
its affiliates could experience problems in processing policy-related requests
and rendering other services if the computers or other systems on which they
rely are not properly programmed to operate after January 1, 2000. (See "OTHER
INFORMATION--Year 2000" for more information.)
THE CONTRACTS IN DETAIL
The Contract is a variable annuity contract which provides you with the
opportunity to accumulate capital on a tax deferred basis by investing in
Separate Account A and thereafter annuitizing your accumulated cash value if you
wish. We offer the Contract in states where we have the authority to issue the
Contract. We designed the Contract to provide lifetime annuity payments to
Annuitants according to several annuity options. The amount of annuity payments
will vary with the investment performance of Separate Account A as well as the
type of annuity you select. The Contract obligates us to make payments for the
lifetime of the Annuitant in accordance with the annuity rates in the Contract,
regardless of actual mortality experience (see "The Annuity Period"). On the
death of the Annuitant before the Annuity Commencement Date, we pay a death
benefit to the Beneficiary whom you designate. For a discussion of the amount
and manner of payment of this benefit, see "Death of Annuitant During the
Accumulation Period."
You may surrender all or a portion of the Accumulated Value during the
Accumulation Period. For a discussion on withdrawals during the Accumulation
Period, see "Surrender and Termination (Redemption) During the Accumulation
Period." For Federal income tax consequences of a withdrawal, see "Tax
Information." The exercise of any Contract right, including the right to make a
withdrawal during the Accumulation Period, is subject to the terms and
conditions of any qualified trust or plan under which the Contracts are
purchased. This Prospectus contains no information concerning such trust or
plan.
We reserve the right to amend the Contracts to meet the requirements of the
1940 Act or other applicable Federal or state laws or regulations.
Contractowners with any inquiries concerning their account should write to
us at our Home Office, 95 Wall Street, New York, New York 10005.
PURCHASE PAYMENTS
Your initial Purchase Payment must be at least $2,000. You may make
Additional Payments under the Contract of at least $200 at any time after
Contract issuance.
We credit your initial Purchase Payment (less any charges) to a your
Account on the Valuation Date that we receive it, provided that we have received
a properly completed application. We credit an Additional Payment to your
Account on the Valuation Date that we receive it. If we receive an incomplete
application from you, you must provide us with all required information not
later than five business days following the receipt of such application.
Otherwise, we will return the Purchase Payment to you at the end of such
five-day period.
Your Purchase Payments buy Accumulation Units of Separate Account A and not
shares of the Fund in which Separate Account A invests. We allocate Purchase
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Payments to Separate Account A based on the next computed value of an
Accumulation Unit following receipt at our Home Office or other designated
office. We value Accumulation Units at the end of each Valuation Date (i.e., as
of the close of regular trading on the NYSE, normally 4:00 P.M., Eastern Time).
SALES CHARGE DEDUCTED FROM PURCHASE PAYMENTS
We intend the sales charge to cover expenses relating to the sale of the
Contracts, including commissions paid to persons distributing the Contracts.
Discounts are available on larger purchases. Moreover, when you make an
Additional Payment after the issuance of the Contract, you are entitled to a
credit for all prior payments in computing the sales charge percentage. In other
words, you pay the sales charge percentage that reflects: (a) the total amount
of all Purchase Payments previously made plus (b) the amount of the Additional
Payment being made.
DEDUCTION TABLE
SALES CHARGE AS % OF
------------------------ CONCESSION TO
PURCHASE NET AMOUNT DEALERS AS % OF
AMOUNT OF PURCHASE PAYMENT(S) PAYMENT(S)* INVESTED PURCHASE PAYMENT(S)
Less than $25,000................. 7.00% 7.53% 5.75%
$25,000 but under $50,000......... 6.25 6.67 5.17
$50,000 but under $100,000........ 4.75 4.99 3.93
$100,000 but under $250,000....... 3.50 3.63 2.90
$250,000 but under $500,000....... 2.50 2.56 2.19
$500,000 but under $1,000,000..... 2.00 2.04 1.67
$1,000,000 or over................ 1.50 1.52 1.24
* Assumes that we have deducted no Premium taxes.
We do not impose a sales charge for Contracts sold to (a) officers and
full-time employees of First Investors Life or its affiliates who have been
employed for at least one year, or (b) our agents who have been under contract
for at least one year.
MORTALITY AND EXPENSE RISK CHARGES
The mortality risk that we assume arises from our obligation to continue to
make Fixed or Variable Annuity payments, determined in accordance with the other
provisions of the Contracts, to each Annuitant regardless of (a) how long that
person lives and (b) how long all payees as a group live. This assures an
Annuitant that neither the Annuitant's own longevity nor an improvement in life
expectancy generally will have any adverse effect on the variable annuity
payments the Annuitant will receive under the Contract. Moreover, these factors
may reduce the risk that the Annuitant will outlive the funds that the Annuitant
has accumulated for retirement. We also assume mortality risk because of our
guarantee of a minimum payment in the event of the death prior to the Annuity
Commencement Date of the Annuitant prior to the Annuity Commencement Date. In
addition, we assume the risk that the charges for administrative expenses may
not be adequate to cover such expenses. We will not increase the amount we
charge for administrative expenses. In consideration for our assumption of these
mortality and expense risks, we deduct an amount equal, on an annual basis, to
0.75% of the daily Accumulation Unit value of Separate Account A. Of this
charge, approximately 0.60% is for assuming the mortality risk, and 0.15% is for
assuming the expense risk.
We guarantee that we will not increase the mortality and expense risk charges
during the term of any Contract. If the charges are insufficient to cover the
actual cost of the mortality and expense risks, the loss will fall on us.
Conversely, if the deductions prove more than sufficient, the excess will be a
profit to us. We can use any profits resulting to us from over-estimates of the
actual costs of the mortality and expense risks for any business purpose,
including the payment of expenses of distributing the Contracts. These profits
will not remain in Separate Account A.
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OTHER CHARGES
Administrative Charge
---------------------
We may deduct an administrative charge of $7.50 annually from the
Accumulated Value of Contracts that have an Accumulated Value of less than
$1,500 due to partial surrenders. These charges are to compensate us for
expenses involved in administering small accounts. If the actual expenses exceed
charges, we will bear the loss.
Premium Tax Charge
------------------
Some states assess Premium taxes at the time you:
o make Purchase Payments,
o surrender, or
o begin receiving annuity payments.
We currently advance any Premium taxes due at the time you make Purchase
Payments and then deduct Premium taxes from the Accumulated Value of the
Contract at the time of surrender, on death of the Annuitant or when annuity
payments begin. However, we reserve the right to deduct Premium taxes when
incurred. See "Appendix I" for Premium tax table.
Expenses
--------
Total Separate Account A expenses for the fiscal year ended December 31,
1998 amounted to $254,306 or 0.75% of average net assets for Separate Account A.
The Special Bond Fund has expenses that it pays out of its assets.
THE ACCUMULATION PERIOD
Crediting Accumulation Units
----------------------------
During the Accumulation Period, we credit Purchase Payments on the
Contracts to the Contractowner's Individual Account in the form of Accumulation
Units. We determine the number of Accumulation Units that we credit to a
Contractowner for Separate Account A by dividing (a) the Purchase Payment (less
any charges) by (b) the value of an Accumulation Unit for Separate Account A. We
make this valuation after we receive the Purchase Payment at our Home Office or
other designated office.
The value of the Contractowner's Individual Account varies with the value
of the assets of Separate Account A. The investment performance of Separate
Account A and the expenses and deduction of certain charges affect the value of
an Accumulation Unit. There is no assurance that the value of your Individual
Account will equal or exceed Purchase Payments. We determine your Individual
Account for a Valuation Period by multiplying (a) the total number of
Accumulation Units we credit to Separate Account A by (b) the value of an
Accumulation Unit for Separate Account A for the Valuation Period.
Death of Annuitant During the Accumulation Period
-------------------------------------------------
If the Annuitant dies before the Annuity Commencement Date, we pay a Death
Benefit to the Beneficiary you have designated. We make this payment when we
receive (a) a death certificate or similar proof of the death of the Annuitant
("Due Proof of Death") and (b) a First Investors Life Claimant's Statement that
includes notification of the Beneficiary's election to receive payment in either
a single sum settlement or an Annuity Option. We determine the value of the
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Death Benefit as of the next computed value of the Accumulation Units following
our receipt of written notification of death at our Home Office or other
designated office.
If you do not elect payment of the Death Benefit under one of the Annuity
Options before the Annuitant's death, the Beneficiary may elect to have the
Death Benefit (a) paid in a single sum, (b) applied to provide an annuity under
one of the Annuity Options or (c) as we otherwise permit. If the Beneficiary
elects a single sum settlement, we pay the amount of the Death Benefit within
seven days of receipt of Due Proof of Death and a Claimant's statement.
If the Beneficiary wants an Annuity Option, the Beneficiary will have up to
60 days commencing with the date of our receipt of Due Proof of Death to select
an Annuity Option. If the Beneficiary does not make a selection by the end of
the 60-day period, we pay a single sum settlement to the Beneficiary. If the
Beneficiary selects any Annuity Option, the Annuity Commencement Date is the
date specified in the election. That date may be no later than 60 days after
receipt by us of Due Proof of Death.
The amount of the Death Benefit payable upon the death of the Annuitant
will be the greater of (a) the total Purchase Payments less withdrawals or (b)
the Accumulated Value.
Death Benefit During Annuity Period
-----------------------------------
On receipt of Due Proof of Death of the Annuitant after annuity payments
have begun under an Annuity Option, we make any remaining payments under the
Annuity Option to the Beneficiary as provided by the Annuity Option.
Unless otherwise provided in the Beneficiary designation, if no Beneficiary
survives the Annuitant, the proceeds will be paid in one sum to the
Contractowner, if living; otherwise, to the Contractowner's estate.
Death of Contractowner During the Accumulation Period
-----------------------------------------------------
If the Contractowner dies before we have distributed the entire interest in
the Contract, we must distribute the value of the Contract to the Beneficiary as
provided below. Otherwise, the Contract will not qualify as an annuity under
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code"). The
entire interest of the Contractowner is the Accumulated Value of the Contract.
If the death of the Contractowner occurs before the Annuity Commencement
Date, we distribute the entire interest in the Contract to the Beneficiary (a)
within five years, or (b) beginning within one year of death, over a period not
longer than the life or life expectancy of the Beneficiary. If the Contract is
payable to (or for the benefit of) the Contractowner's surviving spouse, we need
not make any distribution. The surviving spouse may continue the Contract as the
new Contractowner. If the Contractowner is also the Annuitant, the spouse has
the right to become the Annuitant under the Contract. Likewise, if the Annuitant
dies and the Contractowner is not a natural person, the Annuitant's surviving
spouse has the right to become the Contractowner and the Annuitant.
Surrender and Termination (Redemption) During the Accumulation Period
---------------------------------------------------------------------
You may elect, at any time before the earlier of the Annuity Commencement
Date or the death of the Annuitant, to surrender the Contract for all or any
part of your Individual Account. In the event of the termination of the Contract
and on due surrender of the Contract at our Home Office or other designated
office, we pay you the Accumulated Value of the Contract.
We deduct any amount you request as a partial surrender from Separate
Account A. This results in a corresponding reduction in the number of
Accumulation Units credited to you in Separate Account A. For any total or
partial surrender, we base the deduction on the next computed value of an
Accumulation Unit following our receipt of a written request at our Home Office
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or other designated office. We may defer any such payment for a period of not
more than seven days. However, we may postpone such payment during any period
when:
o trading on the NYSE is restricted as the SEC determines or the NYSE
is closed for other than weekends and holidays;
o the SEC has by order permitted such suspension; or
o any emergency, as defined by SEC rules, exists when the sale of
portfolio securities or calculation of securities is not reasonably
practicable.
For information as to Federal tax consequences of surrenders, see "Tax
Information." For information as to Premium tax consequences, see "Other
Charges."
EXCHANGE PRIVILEGE
At any time prior to the Annuity Commencement Date, you may exchange
Separate Account A Contracts for First Investors Life Variable Annuity Fund C
("Separate Account C") Contracts, at the next computed values of the respective
Accumulation Units of the two Separate Accounts. Although there is no charge for
this exchange, Contractowners who exchange from Separate Account A to Separate
Account C will be required to execute a change of contract form. This form
states that we deduct a daily charge equal to an annual rate of 1.00% of the
daily Accumulation Unit value of Separate Account C as a charge for mortality
and expense risks. Contractowners are advised to read the Prospectus of Separate
Account C, which may be obtained free of charge from First Investors Life,
before exchanging Separate Account A Contracts for Separate Account C Contracts.
We may modify or terminate this exchange privilege at any time.
THE ANNUITY PERIOD
Commencement Date
-----------------
Annuity payments begin on the Annuity Commencement Date you select when you
buy a Contract. You may elect in writing to advance or defer the Annuity
Commencement Date, not later than 30 days before the Annuity Commencement Date.
You may defer the Annuity Commencement Date until the first day of the calendar
month after the Annuitant's 85th birthday or, if state law permits, 90th
birthday. If you elect no other date, annuity payments will commence on the
Contract anniversary date after the Annuitant's 85th birthday, or, if state law
permits, 90th birthday.
If the net Accumulated Value on the Annuity Commencement Date is less than
$2,000, we may pay such value in one sum in lieu of annuity payments. If the net
Accumulated Value is $2,000 or more, but the variable annuity payments are less
than $20, we may change the frequency of annuity payments to intervals that will
result in payments of at least $20.
Assumed Investment Rate
-----------------------
We build a 3.5% assumed investment rate into the Contract's Annuity Tables
which are used to determine the amount of the monthly annuity payments. A higher
rate would mean a higher initial payment but more slowly rising and more rapidly
falling subsequent Variable Annuity payments. A lower rate would have the
opposite effect. If the actual net investment rate of Separate Account A is at
the annual rate of 3.5%, the Variable Annuity payments will be level. A Fixed
Annuity features annuity payments that remain fixed as to dollar amount
throughout the payment period and an assumed interest rate of 3.5% per year
built into the Annuity Tables in the Contract.
Annuity Options
---------------
You may elect to receive payments under any one of the Annuity Options in
the Contract. You may make this election at any time up to 30 days before the
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Annuity Commencement Date on written notice to us at our Home Office or other
designated office. If no election is in effect on the Annuity Commencement Date,
we will make annuity payments on a variable basis only under Annuity Option 3
below, Life Annuity with 120 Monthly Payments Guaranteed. This is the Basic
Annuity.
The material factors that determine the level of your annuity benefits are:
o the value of your Individual Account described in this Prospectus
before the Annuity Commencement Date;
o the Annuity Option you select;
o the frequency and duration of annuity payments;
o the sex and adjusted age of the Annuitant and any Joint Annuitant at
the Annuity Commencement Date; and,
o in the case of a variable annuity, the investment performance of
Separate Account A.
On the Annuity Commencement Date, we apply the Accumulated Value, reduced
by any applicable Premium taxes not previously deducted, to provide (a) the
Basic Annuity or (b) if you have elected an Annuity Option, one of the Annuity
Options we describe below.
The Contracts provide for the six Annuity Options described below:
Option 1 - LIFE ANNUITY. An annuity payable monthly during the lifetime of
the Annuitant, ceasing with the last payment due before the death of the
Annuitant. If you elect this Option, annuity payments terminate automatically
and immediately on the death of the Annuitant without regard to the number or
total amount of payments received.
Option 2a - JOINT AND SURVIVOR LIFE ANNUITY. An annuity payable monthly
during the joint lifetime of the Annuitant and the Joint Annuitant and
continuing thereafter during the lifetime of the survivor, ceasing with the last
payment due before the death of the survivor.
Option 2b - JOINT AND TWO-THIRDS TO SURVIVOR LIFE ANNUITY. An annuity
payable monthly during the joint lifetime of the Annuitant and the Joint
Annuitant and continuing thereafter during the lifetime of the survivor at an
amount equal to two-thirds of the joint annuity payment, ceasing with the last
payment due before the death of the survivor.
Option 2c - JOINT AND ONE-HALF TO SURVIVOR LIFE ANNUITY. An annuity payable
monthly during the joint lifetime of the Annuitant and the Joint Annuitant and
continuing thereafter during the lifetime of the survivor at an amount equal to
one-half of the joint annuity payment, ceasing with the last payment due before
the death of the survivor.
Under Annuity Options 2a, 2b and 2c, annuity payments terminate
automatically and immediately on the deaths of both the Annuitant and the Joint
Annuitant without regard to the number or total amount of payments received.
Option 3 - LIFE ANNUITY WITH 60, 120 OR 240 MONTHLY PAYMENTS GUARANTEED. An
annuity payable monthly during the lifetime of the Annuitant, with the guarantee
that if, at his or her death, payments have been made for less than 60, 120 or
240 monthly periods, as elected, we will continue to pay to the Beneficiary any
guaranteed payments during the remainder of the selected period and, if the
Beneficiary dies after the Annuitant, we will pay the Beneficiary's estate the
present value of the remainder of the guaranteed payments. The present value of
the remaining payments is the discounted (or reduced) amount which would produce
the total of the remaining payments assuming that the discounted amount grew at
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the effective annual interest rate assumed in the Annuity Tables of the
Contract. Pursuant to the 1940 Act, the Beneficiary may also, at any time he or
she is receiving guaranteed payments, elect to have us pay him or her the
present value of the remaining guaranteed payments in a lump sum.
Option 4 - UNIT REFUND LIFE ANNUITY. An annuity payable monthly during the
lifetime of the Annuitant, terminating with the last payment due before the
death of the Annuitant. We make an additional annuity payment to the Beneficiary
equal to the following. We take the Annuity Unit value of Separate Account A as
of the date we receive notice of death in writing at our Home Office or other
designated office. We multiply that value by the excess, if any, of (a) over
(b). For this purpose, (a) is (i) the net Accumulated Value we allocate to
Separate Account A and apply under the option at the Annuity Commencement Date,
divided by (ii) the corresponding Annuity Unit Value as of the Annuity
Commencement Date, and (b) is the product of (i) the number of Annuity Units
applicable under Separate Account A represented by each annuity payment and (ii)
the number of annuity payments made. (For an illustration of this calculation,
see Appendix II, Example A, in the Statement of Additional Information.)
Annuity Election
----------------
You may elect to have the net Accumulated Value applied at the Annuity
Commencement Date to provide a Fixed Annuity, a Variable Annuity, or any
combination thereof. After the Annuity Commencement Date, we allow no transfers
or redemptions where we are making payments based on life contingencies. You
must make these elections in writing to us at our Home Office or other
designated office at least 30 days before the Annuity Commencement Date. In the
absence of an election, we make annuity payments on a variable basis only under
Annuity Option 3 above. Option 3 is the Basic Annuity, a Life Annuity with 120
Monthly Payments Guaranteed.
Annuity Commencement Date Exchange Privilege
--------------------------------------------
If you fully surrender this Contract during the one-year period preceding
its Annuity Commencement Date, you can use the proceeds to purchase Class A
shares of First Investors mutual funds without incurring a sales charge.
Death of Contractowner During the Annuity Period
------------------------------------------------
If the death of the Contractowner occurs on or after the Annuity
Commencement Date, we distribute the entire interest in the Contract at least as
rapidly as under the Annuity Option in effect on the date of death.
TEN-DAY REVOCATION RIGHT
You may elect to cancel the Contract, (a) within ten days from the date the
Contract is delivered to you or (b) longer as applicable state law requires. We
will cancel the Contract after we receive from you (a) the Contract and (b) a
written request for cancellation, at our Home Office or other designated office.
We will pay you an amount equal to the sum of (a) the difference between the
Purchase Payments made under the Contract and the amount allocated to Separate
Account A under the Contract and (b) the Accumulated Value of the Contract on
the date of surrender. The amount we refund to you may be more or less than your
initial Purchase Payment depending on the investment results of Separate Account
A. Some states require a full refund of premiums. In those states, if the
Contractowner elects to cancel the Contract under the ten-day revocation right,
the Contractowner will receive a full refund of the Purchase Payment.
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TAX INFORMATION
GENERAL
We base this discussion on our understanding of the federal income tax law
and interpretations in effect on the date of this Prospectus. The discussion
assumes that the contractowner is a natural person who is a U.S. citizen and
U.S. resident. The tax effect on corporate taxpayers, non-U.S. citizens, and
non-U.S. residents may be different. That law and interpretations could change,
possibly retroactively. The discussion is general in nature. We do not intend it
as tax advice, for which you should consult a qualified tax adviser.
We discuss only federal income taxes and not state or other taxes.
Taxation of the Contracts will depend, in part, on whether the Contract is
purchased outside of a qualified retirement plan or an individual retirement
account ("Non-Qualified Contracts") or as part of an individual retirement
account or qualified plan ("Qualified Contracts").
NON-QUALIFIED CONTRACTS
Purchase Payments
-----------------
Your Purchase Payments under a Non-Qualified Contract are not deductible
from your gross income for tax purposes.
Increases in Accumulated Value Before Distribution from Contract
----------------------------------------------------------------
Generally, there is no tax on increases in your Contract's Accumulated Value
until there is a distribution from a Non-Qualified Contract. A distribution
could include a surrender or an annuity payment. However, the Contractowner is
subject to tax on such increases, even before a distribution, in the following
two situations:
o The Contractowner is not a natural person, subject to exceptions.
o The investments of Separate Account A do not meet certain
diversification or "investor controls" tests, discussed below.
Annuity Payments
----------------
Once annuity payments begin, a portion of each payment is taxable as
ordinary income. The remaining portion is a nontaxable recovery of your
investment in the contract. Generally, your investment in the Contract equals
the Purchase Payments you made, less any amounts you previously withdrew that
were not taxable.
For fixed annuity payments, the tax-free portion of each payment is
determined by:
o dividing your investment in the Contract by the total amount you
expect to receive out of the Contract and
o multiplying the result by the amount of the payment.
For Variable Annuity payments, the tax-free portion of each payment is (a)
your investment in the Contract divided by (b) the number of expected payments.
The remaining portion of each payment, and all of the payments you receive
after you recover your investment in the Contract, are fully taxable. If
payments under a life annuity stop because the Annuitant dies, there is an
income tax deduction for any unrecovered investment in the contract.
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Distributions Other than Annuity Payments
-----------------------------------------
Before annuity payments begin, the Code taxes distributions from
Non-Qualified Contracts as follows:
o a total or partial surrender is taxed in the year of receipt to the
extent that the Contract's Accumulated Value exceeds the investment in
the Contract;
o a loan under, or an assignment or pledge of, a Contract is taxed in
the same manner as a partial or total surrender;
o a penalty equal to 10% of the taxable distribution applies to
distributions before the taxpayer's age 59-1/2, subject to certain
exceptions; and
o the Code treats all Contracts that we issue to you in the same
calendar year as a single Contract. Consequently, you should consult
your tax advisor before buying more than one Contract in any calendar
year.
Diversification and Control Tests
---------------------------------
Separate Account A must meet the Code's investment diversification test. It
meets the test if:
o the Fund in which Separate Account A invests is diversified according
to certain limits;
o the Fund in which Separate Account A invests is a regulated investment
company under the Code;
o all shares of the Fund are owned only by (a) Separate Account A or
similar accounts of First Investors Life or other insurance companies,
(b) a life insurance company general account, or (c) the Adviser in
starting or managing the Fund (in the case of (b) and (c) of this
paragraph, there must be no intention to sell shares of the Fund to
the general public); (d) the trustee of a qualified pension or
retirement plan; and
o access to the Fund is available only through the purchase of
Contracts, or other Variable Annuity or life insurance products of
First Investors Life or other insurance companies.
If Separate Account A failed the diversification test, you would be taxed
on increases in the value of any Contract you own that is supported by Separate
Account A. The tax would apply from the first quarter of the failure, until we
corrected the failure in conformity with a Treasury Department procedure.
The Contracts must also meet an "investor control" test, which the Treasury
Department has said it may address in guidelines through regulations or rulings.
This test could specify that your control over allocation of values among
different investments may cause you to be treated as the owner of Separate
Account A assets, as applicable, for tax purposes. We reserve the right to amend
the Contracts in any way necessary to avoid this result. As of the date of this
prospectus, the Treasury Department has issued no guidelines on the subject.
However, the Department has informally indicated that guidelines could limit the
number of underlying funds or the frequency of transfers among those funds. The
guidelines may apply only prospectively, although retroactive effect is possible
if the guidelines do not embody a new position. Failure of the "control test"
would result in current taxation to you of increases in your Contract value.
QUALIFIED PLAN CONTRACTS
Taxation of a Contract depends, in part, on the provisions of the
applicable plan where the Contract is issued to
o a qualified individual retirement account;
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o a qualified corporate employee pension and profit-sharing plan; or
o a retirement or deferred compensation plan that does not meet the
requirements applicable to a qualified plan.
Some of tax rules applicable to such Contracts are similar to tax rules
applicable to Non-Qualified Contracts, including: (a) deferral of the taxation
until you receive a distribution, (b) taxation of a part of each distribution or
annuity payment, and (c) the 10% penalty on early distributions.
WITHHOLDING
The Code generally requires us to withhold income tax from any Contract
distribution, including a total or partial surrender or an annuity payment. The
amount of withholding depends, in part, on whether the payment is "periodic" or
"non-periodic."
For periodic payments (e.g., annuity payments), we withhold from the
taxable portion of each payment based on a payroll withholding schedule that
assumes a married recipient claiming three withholding exemptions. If you want
us to withhold on a different basis, you must file an appropriate withholding
certificate with us. For non-periodic payments (e.g., distributions such as
partial surrenders), we generally withhold 10% of the taxable portion of each
payment.
You may elect not to have the withholding rules apply. For periodic
payments, that election is effective for the calendar year for which you file it
with us, and for each subsequent year until you amend or modify it. For
non-periodic payments, an election is effective when you file it with us, but
only for the payment to which it is applicable. We have to notify your
recipients of your right to elect not to have taxes withheld.
The Code generally requires us to report all payments to the Internal
Revenue Service.
OUR TAX STATUS
The Code taxes us as a life insurance company. The Code taxes Separate
Account A as part of our overall operation. Currently, we do not charge Separate
Account A for an allocable portion of our federal income taxes. However, we do
reserve the right to impose such a charge if it becomes necessary in the future.
PERFORMANCE INFORMATION
From time to time, Separate Account A may advertise several types of
performance information, including "yield," "average annual total return" and
"total return." We base each of these figures on historical results and do not
intend them to indicate the future performance of Separate Account A.
The "total return" of Separate Account A is the total change in value of an
investment in Separate Account A over a period of time, expressed as a
percentage. "Average annual total return" is the rate of return that would
produce that change in value over the specified period, if compounded annually.
We will quote average annual total return for one, five and ten-year periods.
Average annual total return and total return figures include the deduction of
all expenses and fees, including the payment of the Mortality and Expense Risk
charges of 0.75% and the maximum sales charge of 7.00%.
The "yield" of Separate Account A refers to the income that an investment
in Separate Account A generates over a one-month or 30-day period expressed as a
percentage of the value of Separate Account A's Accumulation Units. Yield is an
16
<PAGE>
annualized figure. We assume that Separate Account A generates the same level of
net income over a one-year period, which we compound on a semi-annual basis.
Neither the total return nor the yield figures reflect deductions for
Premium taxes, since most states do not impose those taxes.
For further information on performance calculations, see "Performance
Information" in the Statement of Additional Information.
OTHER INFORMATION
VOTING RIGHTS
Because the Special Bond Fund is not required to have annual shareholder
meetings, Contractowners generally will not have an occasion to vote on matters
that pertain to the Special Bond Fund. In certain circumstances, the Fund may be
required to hold a shareholders meeting or may choose to hold one voluntarily.
For example, the Fund may not change fundamental investment objectives or
investment policies without the approval of a majority vote of the Fund's
shareholders in accordance with the 1940 Act. Thus, if the Fund sought to change
fundamental investment objectives or investment policies, Contractowners would
have an opportunity to provide voting instructions for shares of the Fund held
by the Subaccount in which their Contract invests.
We would vote the shares of the Fund held in Separate Account A or
directly, at any Fund shareholders as follows:
o shares attributable to Contractowners for which we received
instructions, would be voted in accordance with the instructions;
o shares attributable to Contractowners for which we did not receive
instructions would be voted in the same proportion that we voted
shares held in Separate Account A for which we received instructions;
and
o shares not attributable to Contractowners would be voted in the same
proportion that we voted shares held in Separate Account A
attributable to Contractowners for which we received instructions.
We will vote Fund shares that we hold directly in the same proportion that
we vote shares held in Separate Account A that are attributable to
Contractowners and for which we receive instructions. However, we will vote our
own shares as we deem appropriate where there are no shares held in the
subaccount. We will present all the shares of the Fund that we held through
Separate Account A or directly at any Fund shareholders meeting for purposes of
determining a quorum.
We will determine the number of Fund shares held in Separate Account A that
is attributable to each Contractowner as follows:
o before the Annuity Commencement Date, we divide Separate Account A's
Accumulated Value by the net assets value of one Fund share, and
o after the Annuity Commencement Date, we divide the reserve held in
Separate Account A for the variable annuity payment under the
Contracts by the net asset value of one Fund share. As this reserve
fluctuates, the number of votes fluctuates.
We will determine the number of votes that a Contractowner has the right to
cast as of the record date that the Fund establishes.
We will solicit instructions by written communication before the date of
the meeting at which votes will be cast. We will send meeting and other
materials relating to the Fund to each Contractowner having a voting interest in
Separate Account A.
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<PAGE>
The voting rights that we describe in this Prospectus are created under
applicable laws. If the laws eliminate the necessity to submit such matters for
approval by persons having voting rights in separate accounts of insurance
companies or restrict such voting rights, we reserve the right to proceed in
accordance with any such changed laws or regulations. Specifically, we reserve
the right to vote Fund shares in our own right, to the extent the law permits.
Reservation of Rights
We also reserve the right to make certain changes if we believe they would
(a) best serve the interests of the Contractowners and Annuitants or (b) be
appropriate in carrying out the purposes of the Contract. We will make a change
only as the law permits. We will obtain, when required, the necessary
Contractowner or regulatory approval for any change and provide, when required,
notification to Contractowners before making a change. For example, we may:
o operate Separate Account A in any form permitted under the 1940 Act or
in any other form permitted by law,
o add, delete, or substitute for the Fund shares held in Separate
Account A, the shares of any investment company or series thereof, or
any investment permitted by law, or
o amend the Contracts if required to comply with the Internal Revenue
Code or any other applicable federal or state law.
DISTRIBUTION OF CONTRACTS
Separate Account A, along with First Investors Life, has entered into an
Underwriting Agreement with its affiliate, FIC, 95 Wall Street, New York, New
York 10005 to sell the Contract. First Investors Life has reserved the right in
the Underwriting Agreement to sell the Contracts directly. Insurance agents
licensed to sell variable annuities sell the Contracts. These agents are
registered representatives of the Underwriter or broker-dealers who have sales
agreements with the Underwriter.
YEAR 2000
On and after January 1, 2000, computer date-related errors could adversely
affect Separate Account A, as they could other separate accounts. These errors
could occur in the computer and other information processing systems used by
First Investors Life, the underlying Fund, the Adviser, Transfer Agent and other
service providers. Typically, these systems use a two-digit number to represent
the year for any date. Consequently, computer systems could incorrectly
misidentify "00" as 1900, rather than 2000, and make related mistakes when
performing operations. First Investors Life, the Fund, the Adviser and Transfer
Agent are taking steps that they believe are reasonably designed to address the
Year 2000 problem for computer and other systems used by them. They are
obtaining assurances from other service providers that the service providers are
taking comparable steps. However, there can be no assurance that these steps
will avoid any adverse impact on Separate Account A.
Nor can Separate Account A estimate the extent of any impact.
FINANCIAL STATEMENTS
The Statement of Additional Information, dated April 30, 1999, includes:
o the financial statements for First Investors Life and the accompanying
Report of Independent Certified Public Accountants; and
o and the financial statements for Separate Account A and the
accompanying Report of Independent Certified Public Accountants.
18
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You can get the Statement of Additional Information at no charge on request
to First Investors Life at the address or telephone number on the cover page of
this Prospectus.
19
<PAGE>
TABLE OF CONTENTS
OF THE STATEMENT OF ADDITIONAL
INFORMATION
Item Page
---- ----
General Description........................................................2
Services...................................................................2
Annuity Payments...........................................................3
Other Information..........................................................4
Performance Information....................................................5
Relevance of Financial Statements..........................................7
Appendices.................................................................8
Financial Statements......................................................13
APPENDIX I
STATE AND LOCAL TAXES*
Alabama........................-- Mississippi...................--
Alaska.........................-- Missouri......................--
Arizona........................-- Nebraska......................--
Arkansas.......................-- New Jersey....................--
California.....................2.35% New Mexico....................--
Colorado.......................-- New York .....................--
Connecticut....................-- North Carolina ...............--
Delaware.......................-- Ohio..........................--
District of Columbia...........2.25% Oklahoma......................--
Florida........................1.00% Oregon........................--
Georgia........................-- Pennsylvania..................--
Illinois.......................-- Rhode Island..................--
Indiana........................-- South Carolina................--
Iowa...........................2.00% Tennessee.....................--
Kentcky........................2.00% Texas.........................--
Louisiana......................-- Utah..........................--
Maryland.......................-- Virginia......................--
Massachusetts..................-- Washington....................--
Michigan.......................-- West Virginia.................1.00%
Minnesota......................-- Wisconsin.....................--
Wyoming.......................1.00%
Note: State legislation could change the rates above. State insurance regulation
could change the applicability of the rates above.
* Includes local annuity Premium taxation.
20
<PAGE>
[GRAPHIC FIRST INVESTORS]
SPECIAL BOND FUND
The Securities and Exchange Commission has not approved or disapproved
these securities or 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, 1999.
<PAGE>
Contents
INTRODUCTION...................................................................3
FUND DESCRIPTION...............................................................4
FUND MANAGEMENT................................................................7
BUYING AND SELLING SHARES......................................................8
o How and when does the Fund price its shares? .........................8
o How do I buy and sell shares? .......................................8
ACCOUNT POLICIES...............................................................8
o What about dividends and capital gain distributions? .................8
o What about taxes?.....................................................9
FINANCIAL HIGHLIGHTS..........................................................10
2
<PAGE>
INTRODUCTION
This prospectus describes the First Investors Fund that is used solely as the
underlying investment option for variable annuity contracts offered by First
Investors Life Insurance Company ("FIL"). This means that you cannot purchase
shares of the Fund directly, but only through such a contract as offered by FIL.
The Fund description in this prospectus has an "Overview" which provides a brief
explanation of the Fund's objectives, its primary strategies and primary risks,
how it has performed, and its fees and expenses. The Fund description also
contains a "Fund in Detail" section with more information on strategies and
risks of the Fund.
3
<PAGE>
FUND DESCRIPTION
SPECIAL BOND FUND
OVERVIEW
Objectives: The Fund primarily seeks high current income without undue
risk to principal and secondarily seeks growth of capital.
Primary
Investment
Strategies: The Fund primarily invests in a diversified portfolio of
high-yield, below-investment grade corporate bonds (commonly
known as "junk bonds"). These bonds provide a higher level of
income than investment grade bonds because they have a higher
risk of default. The Fund seeks to reduce the risk of a
default by selecting bonds through careful credit research and
analysis. The Fund seeks to reduce the impact of a potential
default by diversifying its investments among bonds of many
different companies and industries. While the Fund invests
primarily in domestic companies, it also invests in securities
of issuers domiciled in foreign countries. These securities
will generally be dollar-denominated and traded in the U.S.
The Fund seeks to achieve growth of capital by investing in
high-yield bonds with stable to improving credit conditions.
Primary
Risks: There are four primary risks of investing in the Fund. First,
the value of the Fund's shares could decline as a result of a
deterioration of the financial condition of an issuer of bonds
owned by the Fund or as a result of a default by the issuer.
This is known as credit risk. High yield bonds carry higher
credit risks than investment grade bonds because the companies
that issue them are not as strong financially as companies
with investment grade credit ratings. High yield bonds issued
by foreign companies are subject to additional risks including
political instability, government regulation, and differences
in financial reporting standards. Second, the value of the
Fund's shares could decline if the entire high yield bond
market were to decline, even if none of the Fund's bond
holdings were at risk of a default. The high yield market can
experience sharp declines at times as the result of a
deterioration in the overall economy, declines in the stock
market, a change of investor tolerance for risk, or other
factors. Third, high yield bonds tend to be less liquid than
other bonds, which means that they are more difficult to sell.
Fourth, while high yield bonds are generally less interest
rate sensitive than higher quality bonds, their values
generally will decline when interest rates rise. Fluctuations
in the prices of high yield bonds can be substantial.
Accordingly, the value of an investment in the Fund will go up
and down, which means that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
How has the Special Bond Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
4
<PAGE>
The bar chart shows changes in the performance of the Fund's shares for each of
the past ten calendar years. The bar chart does not reflect fees and expenses
that may be deducted by the variable annuity contract through which you invest.
If they were included, the returns would be less than those shown.
[GRAPHIC-BAR CHART]
During the periods shown, the highest quarterly return was 10.85% (for the
quarter ended March 31, 1991), and the lowest quarterly return was -7.24% (for
the quarter ended September 30, 1990). The Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
The following table shows how the average annual total returns for the Fund's
shares compare to those of the Credit Suisse First Boston High Yield Index
("High Yield Index"). The High Yield Index is designed to measure the
performance of the high yield bond market. The High Yield Index does not take
into account fees and expenses that an investor would incur in holding the
securities in the Index. If it did so, the returns would be lower than those
shown.
5
<PAGE>
1 Year* 5 Years* 10 Years*
Special Bond (5.79)% 7.14% 8.80%
High Yield Index 0.58 8.16 10.74
*The annual returns are based upon calendar years.
THE FUND IN DETAIL
What are the Special Bond Fund's objectives, principal investment
strategies, and risks?
OBJECTIVES: The Fund primarily seeks high current income without undue risk to
principal and secondarily seeks growth of capital.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in a diversified portfolio of high-yield, below-investment grade
corporate bonds commonly known as "junk bonds" (those rated below Baa by Moody's
Investors Service, Inc. or below BBB by Standard & Poor's Ratings Group). High
yield bonds generally provide higher income than investment grade bonds to
compensate investors for their higher risk of default (i.e., failure to make
required interest or principal payments). High-yield bond issuers include small
or relatively new companies lacking the history or capital to merit investment
grade status, former blue chip companies downgraded because of financial
problems, companies using debt rather than equity to fund capital investment or
spending programs, companies electing to borrow heavily to finance or avoid a
takeover or buyout, and firms with heavy debt loads. The Fund's portfolio may
include zero coupon bonds and pay in kind bonds. While the Fund invests
primarily in domestic companies, it also invests in securities of issuers
domiciled in foreign countries. These securities will generally be
dollar-denominated and traded in the U.S. The Fund seeks to reduce the risk of a
default by selecting bonds through careful credit research and analysis. The
Fund seeks to reduce the impact of a potential default by diversifying its
investments among bonds of many different companies and industries.
To achieve its secondary objective of growth of capital, the Fund attempts to
invest in bonds that have stable to improving credit quality that could
appreciate in value because of a credit rating upgrade or an improvement in the
outlook for a particular company, industry or the economy as a whole.
Although the Fund will consider ratings assigned by ratings agencies in
selecting high yield bonds, it relies principally on its own research and
investment analysis. The Fund considers a variety of factors, including the
issuer's managerial strength, anticipated cash flow, debt maturity schedules,
borrowing requirements, interest or dividend coverage, asset coverage and
earnings prospects. The Fund will usually sell a bond when it shows
deteriorating fundamentals or falls short of the portfolio manager's
expectations. Information on the Fund's recent strategies and holdings can be
found in the most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of the investment, the greater the risk. Here
are the principal risks of investing in the Special Bond Fund:
CREDIT RISK: This is the risk that an issuer of bonds will be unable to pay
interest or principal when due. The prices of bonds are affected by the credit
quality of the issuer. High yield bonds are subject to greater credit risk than
higher quality bonds because the companies that issue them are not as
financially strong as companies with investment grade ratings. Changes in the
financial condition of an issuer, changes in general economic conditions, and
changes in specific economic conditions that affect a particular type of issuer
can impact the credit quality of an issuer. Such changes may weaken an issuer's
ability to make payments of principal or interest, or cause an issuer of bonds
to fail to make timely payments of interest or principal. Lower quality bonds
generally tend to be more sensitive to these changes than higher quality bonds.
While credit ratings may be available to assist in evaluating an issuer's credit
6
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quality, they may not accurately predict an issuer's ability to make timely
payments of principal and interest.
MARKET RISK: The entire junk bond market can experience sharp price swings due
to a variety of factors, including changes in economic forecasts, stock market
volatility, large sustained sales of junk bonds by major investors, high-profile
defaults, or changes in the market's psychology. This degree of volatility in
the high yield market is usually associated more with stocks than bonds. The
prices of high yield bonds held by the Fund could therefore decline, regardless
of the financial condition of the issuers of such bonds. Markets tend to run in
cycles with periods when prices generally go up, known as "bull" markets, and
periods when prices generally go down, referred to as "bear" markets.
LIQUIDITY: High yield bonds tend to be less liquid than higher quality bonds,
meaning that it may be difficult to sell high yield bonds at a reasonable price,
particularly if there is a deterioration in the economy or in the financial
prospects of their issuers. As a result, the prices of high yield bonds may be
subject to wide price fluctuations due to liquidity concerns.
INTEREST RATE RISK: The market value of a bond is affected by changes in
interest rates. When interest rates rise, the market value of a bond declines;
when interest rates decline, the market value of a bond increases. The price
volatility of a bond also depends on its maturity and duration. Generally, the
longer the maturity and duration of a bond, the greater its sensitivity to
interest rates. To compensate investors for this higher risk, bonds with longer
maturities and durations generally offer higher yields than bonds with shorter
maturities and durations.
FOREIGN ISSUERS: Foreign investments involve additional risks, including
political instability, government regulation, differences in financial reporting
standards, and less stringent regulation of foreign securities markets.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult.
These problems could have a negative effect on the Fund's investments and
returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
FUND MANAGEMENT
First Investors Management Company, Inc. ("FIMCO") is the investment adviser to
the Fund. Its address is 95 Wall Street, New York, NY 10005. It currently is
investment adviser to 51 mutual funds or series of funds with total net assets
of approximately $5 billion. FIMCO supervises all aspects of the Fund's
operations and determines the Fund's portfolio transactions. For the fiscal year
ended December 31, 1998, FIMCO received advisory fees of 0.75% of the Fund's
average daily net assets.
George V. Ganter serves as Portfolio Manager of the Fund. Mr. Ganter also serves
as Portfolio Manager of certain other First Investors Funds. Mr. Ganter joined
FIMCO in 1985 as a Senior Investment Analyst.
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In addition to the investment risks of the Year 2000 which are discussed above,
the ability of FIMCO and its affiliates to price the Fund's shares, process
purchase and redemption orders, and render other services could be adversely
affected if the computers or other systems on which they rely are not properly
programmed to operate after January 1, 2000. Additionally, because the services
provided by FIMCO and its affiliates depend on the interaction of their computer
systems with the computer systems of brokers, information services and other
parties, any failure on the part of such third party computer systems to deal
with the Year 2000 may have a negative effect on the services provided to the
Fund. FIMCO and its affiliates are taking steps that they believe are reasonably
designed to address the Year 2000 problem for computer and other systems used by
them and are obtaining assurances that comparable steps are being taken by the
Fund's other service providers. However, there can be no assurance that these
steps will be sufficient to avoid any adverse impact on the Fund. Nor can the
Fund estimate the extent of any impact.
BUYING AND SELLING SHARES
How and when does the Fund price its shares?
The share price (which is called "net asset value" or "NAV" per share) for the
Fund is calculated once each day as of 4 p.m., Eastern Time ("ET"), on each day
the New York Stock Exchange ("NYSE") is open for regular trading. In the event
that the NYSE closes early, the share price will be determined as of the time of
the closing.
To calculate the NAV, the Fund's assets are valued and totaled, liabilities are
subtracted, and the balance, called net assets, is divided by the number of
shares outstanding.
In valuing its assets, the Fund uses the market value of securities for which
market quotations or last sale prices are readily available. If there are no
readily available quotations or last sale prices for an investment or the
available quotations are considered to be unreliable, the securities will be
valued at their fair value as determined in good faith pursuant to procedures
adopted by the Board of Directors of the Fund.
How do I buy and sell shares?
Investments in the Fund may only be made through purchases of variable annuity
contracts offered by FIL. Purchase payments for variable annuity contracts, less
applicable charges or expenses, are paid into Separate Account A, a unit
investment trust. The Separate Account pools the proceeds to purchase shares of
the Fund.
For information about how to buy or sell the variable annuity contracts, see the
Separate Account prospectus which is attached to this prospectus. It will
describe not only the process for buying and selling contracts, but also the
fees and charges involved. This prospectus is not valid unless a Separate
Account prospectus is attached hereto.
ACCOUNT POLICIES
What about dividends and capital gain distributions?
The Separate Account which owns the shares of the Fund will receive all
dividends and distributions. As described in the attached Separate Account
prospectus, all dividends and distributions are then reinvested by the Separate
Account in additional shares of the Fund.
To the extent that it has net investment income, the Fund will declare daily and
pay, on a quarterly basis, dividends from net investment income. Any net
realized capital gains will be declared and distributed on an annual basis,
usually after the end of the Fund's fiscal year. The Fund may make an additional
distribution in any year if necessary to avoid a Federal excise tax on certain
undistributed income and capital gain.
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What about taxes?
You will not be subject to taxes as the result of purchases or sales of Fund
shares by the Separate Account, or Fund dividends, or distributions to the
Separate Account. There are tax consequences associated with investing in the
variable annuity contracts. These are discussed in the attached Separate Account
prospectus.
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FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). The
information has been audited by Tait, Weller & Baker, whose report, along with
the Fund's financial statements, are included in the SAI, which is available
upon request.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Year Ended December 31
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
---- ------ ------ ------ ------
Net Asset Value, Beginning of Year..... $12.89 $12.75 $12.23 $11.03 $12.18
------ ------ ------- ------ ------
Income from Investment Operations
Net investment income.................. 1.12 1.11 1.17 1.20 1.09
Net realized and unrealized
gain (loss) on investments............ (.95) .23 .37 1.02 (1.22)
----- --- ------ ------ -------
Total from Investment Operations.... .17 1.34 1.54 2.22 (.13)
--- ---- ------ ------ -------
Less Distributions from:
Net investment income............... 1.20 1.20 1.02 1.02 1.02
---- ---- ------- ------ -------
Net Asset Value, End of Year........... $11.86 $12.89 $12.75 $12.23 $11.03
====== ====== ======= ====== =======
Total Return(%)+....................... 1.29 10.94 13.10 20.76 (1.00)
- ----------------
Ratios/Supplemental Data
Net Assets, End of Year (in thousands). $32,260 $36,082 $36,948 $38,037 $36,725
Ratios to Average Net Assets (%)
Expenses............................... .89 .86 .86 .88 .87
Net investment income.................. 8.93 8.60 9.31 10.17 9.38
Portfolio Turnover Rate (%)............ 65 53 29 45 54
+ The effect of fees and charges incurred at the separate account level are not reflected in these performance figures.
</TABLE>
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[GRAPHIC - FIRST INVESTORS]
SPECIAL BOND FUND
For investors who want more information about the Fund, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS: Additional information about the Fund's investments
is available in the Fund's annual and semi-annual reports to shareholders. In
the Fund's annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected the Fund's performance
during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Fund and is incorporated by reference into this
prospectus.
You can get free copies of reports and the SAI, request other information and
discuss your questions about the Fund by contacting the Fund at:
Administrative Data Management Corp.
581 Main Street
Woodbridge, NJ 07095-1198
Telephone: 1-800-423-4026
You can review and copy information about the Fund (including the Fund's reports
and SAI) at the Public Reference Room of the Securities and Exchange Commission
("SEC") in Washington, D.C. You can also send your request for copies and a
duplicating fee to the Public Reference Room of the SEC, Washington, DC
20549-6009. You can obtain information on the operation of the Public Reference
Room by calling 1-800-SEC-0330. Text-only versions of Fund documents can be
viewed online or downloaded from the SEC's Internet website at
http://www.sec.gov.
(Investment Company Act File No. 811-2981
First Investors Special Bond Fund, Inc.)
