The words "First Investors" in a box across the top of the page.
FIRST INVESTORS
SPECIAL BOND FUND, INC.
ANNUAL REPORT
DECEMBER 31, 1998
First Investors Logo
The words "A MEMBER OF THE FIRST INVESTORS FINANCIAL NETWORK"
under the First Investors logo.
Portfolio Manager's Letter
FIRST INVESTORS SPECIAL BOND FUND, INC.
Dear Investor:
We are pleased to present the annual report for the First Investors Special
Bond Fund, Inc. for the fiscal year ending December 31, 1998.
During 1998, First Investors Special Bond Fund returned 1.3% on a net asset
value basis, compared to -.4% for the average high yield bond fund as
measured by Lipper Inc. After several years of strong returns, the high yield
market produced modest returns in 1998. The primary factors that drove the
Fund's performance were a deterioration in the high yield market as a result
of the "flight to quality," and a perceived credit squeeze. This
deterioration trend abated in the fourth quarter of 1998. On the positive
side, the Fund's limited exposure to emerging market debt and its focus on
higher-rated junk bonds helped its performance, relative to its peer group.
Through the early part of 1998, the financial markets saw a continuation of
the positive characteristics exhibited in 1997. The financial system remained
supportive, despite widespread emerging markets worries. The equity market
continued its strong performance -- the ultimate expression of investor
confidence. This stock market strength and the abundance of initial public
offerings brought to market provided high yield issuers with a source of
financial flexibility and contributed to the positive performance of some
issues. Concerns about Asia led the Treasury market to rally early in 1998.
Within the high yield market, its long-term historical track record and set
of positive fundamentals also encouraged investing. This, in turn, drove
issuance to a record pace. High yield bonds were, and are, a comparatively
attractive source of capital for funding merger and acquisition activity and
other aggressive business plans.
In the second quarter, fear of the Asian contagion and projections of slower
economic growth conflicted with the frenetic pace of issuance, and caused
quality spreads to widen as investors began to resist the lower yields that
they were being asked to accept. In the high yield market, performance
leadership shifted to the "upper tier" bonds (relatively stronger junk bond
issues) from the "middle tier" bonds (those judged to rank lower -- but not
lowest -- in credit strength) where it had been through the first quarter.
Extremely aggressive deals, "lower tier issues," deferred pay (zero coupon)
bonds and emerging market debt underperformed the market.
During the third quarter, several severe shocks to the world financial system
caused risk to be both reassessed and shunned by investors. The Russian
default and wider difficulties in emerging markets also negatively impacted
the domestic high yield and investment grade bond markets, as well as the
equity markets. Temporarily, the high yield market experienced severe
liquidity concerns and stratification, which caused upper tier issues to
outperform lower tier issues. However, in late October, the market reopened
for business as the Fed signaled its determination to prevent a world credit
crunch, and the few bond deals sold during this turbulent time provided their
investors with especially handsome returns.
The Fund's strong relative performance reflects its long-term investment
approach, a credit and quality orientation and its positioning to avoid
dependence on perpetual bull markets. The Fund benefited from diversification
across industry and structure, low exposure to emerging markets, but
especially from its preference for stable to improving companies. While the
Fund must accept the inherent risks of the high yield market, it often shuns
the more speculative investments that carry the greatest level of risk.
While we continue to believe that the fundamentals of the U.S. economy remain
sound, investors should remain aware of the risks involved with investing in
the high yield market. Bond funds fluctuate as interest rates change. They
also fluctuate based on changes in the credit quality of the bonds they hold.
Investments in higher-yielding, lower-rated debt obligations are more
sensitive to adverse economic changes or individual corporate developments
than are higher-rated investments 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 this is written, a variety of market conditions appear to make high yield
bonds attractive investments. These include buoyant domestic economic
activity, a lack of inflation, and a lull in U.S. Treasury demands for
capital. To be fair, the valuation level is -- and will likely continue to be
- -- influenced by concerns about the eventual trade effects from recessions
elsewhere. These concerns have caused the previously mentioned flight to
quality. A well thought out portfolio strategy provides one with both the
opportunity to weather market turbulence, and a good entry point into
investments such as the Fund.
Thank you for placing your trust in First Investors. 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 29, 1999
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 CS 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.
As of December 31, 1998
SPECIAL FIRST
BOND BOSTON
Jan-89 $9,300 $10,000
Dec-89 9,158 12,319
Dec-90 8,324 14,001
Dec-91 11,300 14,054
Dec-92 12,945 13,157
Dec-93 15,308 18,914
Dec-94 15,142 22,065
Dec-95 18,285 26,237
Dec-96 20,680 25,983
Dec-97 22,942 30,498
Dec-98 23,239 30,675
[BOXED INFORMATION INSIDE GRAPH:]
Average Annual Total Return*
N.A.V. Only S.E.C. Standardized
One Year 1.29% (5.79%)
Five Years 8.71% 7.14%
Ten Years 9.59% 8.80%
S.E.C. 30-Day Yield 8.51%
The graph compares a $10,000 investment in the First Investors Special Bond
Fund, Inc. beginning 1/1/89 with a theoretical investment in the CS First
Boston High Yield Index. The CS First Boston High Yield Index is designed to
measure the performance of the high yield bond market. The Index consists of
1,568 different issues, 1,371 of which are cash pay, 142 are zero-coupon, 15
are step bonds, 7 are pay-in-kind bonds and the remaining 33 are in default.
The bonds included in the Index have an average life of 8.2 years, an average
maturity of 8.2 years, an average duration of 4.8 years and an average coupon
of 10.0%. 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 12/31/98) 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. CS First Boston High Yield Index
figures from CS First Boston Corporation and all other figures from First
Investors Management Company, Inc.
<TABLE>
<CAPTION>
Portfolio of Investments
FIRST INVESTORS SPECIAL BOND FUND, INC.
December 31, 1998
- -------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE BONDS--85.6%
Aerospace/Defense--1.6%
$ 500M Moog, Inc., 10%, 2006 $ 515,000 $ 160
- -------------------------------------------------------------------------------------------------------
Apparel/Textiles--2.2%
700M Polymer Group, Inc., 9%, 2007 696,500 216
- -------------------------------------------------------------------------------------------------------
Automotive--7.6%
600M Aftermarket Technology Corp., 12%, 2004 633,000 196
700M Cambridge Industries, Inc., 10 1/4%, 2007 549,500 170
500M Collins & Aikman Products Co., 11 1/2%, 2006 518,750 161
750M Exide Corp., 10%, 2005 750,000 233
- -------------------------------------------------------------------------------------------------------
2,451,250 760
- -------------------------------------------------------------------------------------------------------
Building Materials--1.4%
500M Falcon Building Products Corp., 9 1/2%, 2007 446,250 138
- -------------------------------------------------------------------------------------------------------
Chemicals--2.7%
800M Huntsman Polymers Corp., 11 3/4%, 2004 860,000 267
- -------------------------------------------------------------------------------------------------------
Consumer Products--3.6%
700M AKI, Inc., 10 1/2%, 2008+ 668,500 207
455M Hines Horticulture, Inc., 11 3/4%, 2005 487,988 151
- -------------------------------------------------------------------------------------------------------
1,156,488 358
- -------------------------------------------------------------------------------------------------------
Containers/Packaging--5.5%
400M Plastic Containers, Inc., 10%, 2006 418,000 130
600M Tekni-Plex, Inc., 9 1/4%, 2008 629,250 195
700M U.S. Can Corp., 10 1/8%, 2006 738,500 229
- -------------------------------------------------------------------------------------------------------
1,785,750 554
- -------------------------------------------------------------------------------------------------------
Durable Goods Manufacturing--1.9%
640M Columbus McKinnon Corp., 8 1/2%, 2008 601,600 186
- -------------------------------------------------------------------------------------------------------
Energy--2.1%
700M Stone Energy Corp., 8 3/4%, 2007 681,625 211
- -------------------------------------------------------------------------------------------------------
Entertainment/Leisure--3.5%
600M Outboard Marine Corp., 10 3/4%, 2008+ 588,000 182
1,000M PX Escrow Corp., 0%-9 5/8%, 2006 552,500 171
- -------------------------------------------------------------------------------------------------------
1,140,500 353
- -------------------------------------------------------------------------------------------------------
Healthcare--5.9%
900M Integrated Health Services, Inc., 9 1/2%, 2007 853,875 265
500M Leiner Health Products, Inc., 9 5/8%, 2007 522,500 162
500M Tenet Healthcare Corp., 8 5/8%, 2007 525,000 163
- -------------------------------------------------------------------------------------------------------
1,901,375 590
- -------------------------------------------------------------------------------------------------------
Machinery/Diversified--1.4%
500M Numatics, Inc., 9 5/8%, 2008 470,000 146
- -------------------------------------------------------------------------------------------------------
Media (Cable TV/Broadcasting)--7.0%
500M Allbritton Communications Corp., 9 3/4%, 2007 532,500 165
700M Mediacom LLC/Mediacom Capital Corp, 8 1/2%, 2008 722,750 224
500M Sinclair Broadcasting Group, Inc., 9%, 2007 510,000 158
500M Star Choice Communications Inc., 13%, 2005 502,500 156
- -------------------------------------------------------------------------------------------------------
2,267,750 703
- -------------------------------------------------------------------------------------------------------
Media (Other)--3.2%
1,000M Affiliated Newspaper Investments, Inc., 0%-13 1/4%, 2006 1,032,500 320
- -------------------------------------------------------------------------------------------------------
Mining/Metals--5.6%
600M Commonwealth Aluminum Corp., 10 3/4%, 2006 606,000 188
800M CSN Iron, SA, 9 1/8%, 2007+ 492,000 153
700M Euramax International PLC, 11 1/4%, 2006 703,500 217
- -------------------------------------------------------------------------------------------------------
1,801,500 558
- -------------------------------------------------------------------------------------------------------
Miscellaneous--7.3%
500M Iron Mountain, Inc., 10 1/8%, 2006 540,000 167
600M Kindercare Learning Centers, Inc., 9 1/2%, 2009 600,000 186
600M Loomis Fargo & Co., 10%, 2004 594,000 184
550M Pierce-Leahy Corp., 11 1/8%, 2006 610,500 189
- -------------------------------------------------------------------------------------------------------
2,344,500 726
- -------------------------------------------------------------------------------------------------------
Paper/Forest Products--3.9%
500M Container Corp., 11 1/4%, 2004 512,500 159
900M Fonda Group, Inc., 9 1/2%, 2007 751,500 233
- -------------------------------------------------------------------------------------------------------
1,264,000 392
- -------------------------------------------------------------------------------------------------------
Real Estate/Construction--.7%
600M Cathay International Ltd., 13%, 2008+ 231,000 72
- -------------------------------------------------------------------------------------------------------
Telecommunications--16.7%
500M 21st Century Telecom Group, Inc., 0%-12 1/4%, 2008 211,250 65
600M Comcast Cellular Holdings, Inc., 9 1/2%, 2007 642,000 199
700M Facilicom International, Inc., 10 1/2%, 2008 560,000 174
1,000M ICG Services, Inc., 0%-10%, 2008 535,000 166
800M McCaw International, Ltd., 0%-13%, 2007 428,000 133
700M McLeodUSA, Inc., 9 1/4%, 2007 730,625 226
750M Netia Holdings BV, 0%-11 1/4%, 2007 429,375 133
800M Powertel, Inc., 0%-12%, 2006 584,000 181
700M Qwest Communications International, Inc., 0%-9.47%, 2007 540,750 168
800M RCN Corp., 0%-11%, 2008 440,000 136
500M Viatel, Inc., 0%-12 1/2%, 2008 287,500 89
- -------------------------------------------------------------------------------------------------------
5,388,500 1,670
- -------------------------------------------------------------------------------------------------------
Transportation--1.8%
600M Eletson Holdings, Inc., 9 1/4%, 2003 573,000 178
- -------------------------------------------------------------------------------------------------------
Total Value of Corporate Bonds (cost $29,387,366) 2 227,609,088 8,558
- -------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Principal Amount
Amount, Invested
Shares For Each
or $10,000 of
Warrants Security Value Net Assets
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS--.8%
- -------------------------------------------------------------------------------------------------------
Media (Cable TV/Broadcasting)--.2%
1,300 * Echostar Communications Corp. - Class "A" 62,888 20
- -------------------------------------------------------------------------------------------------------
Media (Other)--.6%
1,500 * Affiliated Newspaper Investments, Inc. - Class "B" 187,500 58
- -------------------------------------------------------------------------------------------------------
Total Value of Common Stocks (cost $31,444) 250,388 78
- -------------------------------------------------------------------------------------------------------
PREFERRED STOCKS--.7%
Durable Goods Manufacturing--.6%
218 Day International Group, Inc., 12 1/4% 201,105 62
- -------------------------------------------------------------------------------------------------------
Telecommunications--.1%
257 Viatel, Inc., 10% Series "A" 28,270 9
- -------------------------------------------------------------------------------------------------------
Total Value of Preferred Stocks (cost $232,441) 229,375 71
- -------------------------------------------------------------------------------------------------------
WARRANTS--.1%
Gaming/Lodging--.0%
850 * Goldriver Finance Corp., Liqudating Trust 850 0
- -------------------------------------------------------------------------------------------------------
Media (Cable TV/Broadcasting)--.1%
11,580 * Star Choice Communications, Inc. (expiring 12/15/05)+ 30,397 9
- -------------------------------------------------------------------------------------------------------
Telecommunications--.0%
1,100 * McCaw International, Ltd. (expiring 4/15/07)+ 2,750 1
- -------------------------------------------------------------------------------------------------------
Total Value of Warrants (cost $0) 33,997 10
- -------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--3.5%
1,000M United States Treasury Note, 7%, 2006 (cost $1,087,969) 1,139,063 353
- -------------------------------------------------------------------------------------------------------
SHORT-TERM CORPORATE NOTES--6.7%
1,000M Ford Motor Credit Co., 5.41%, 1/6/99 999,248 310
1,150M Ford Motor Credit Co., 4.96%, 1/7/99 1,149,049 356
- -------------------------------------------------------------------------------------------------------
Total Value of Short-Term Corporate Notes (cost $2,148,297) 2,148,297 666
- -------------------------------------------------------------------------------------------------------
Total Value of Investments (cost $32,887,517) 97.4% 31,410,208 9,736
Other Assets, Less Liabilities 2.6 849,448 264
- -------------------------------------------------------------------------------------------------------
Net Assets 100.0% $ 32,259,656 $ 10,000
- -------------------------------------------------------------------------------------------------------
+ See Note 5
* Non-income producing
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
FIRST INVESTORS SPECIAL BOND FUND, INC.
December 31, 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments in securities, at value (identified cost $32,887,517) (Note 1A) $ 31,410,208
Cash 222,009
Interest receivable 671,860
Receivable for capital stock purchased 930
Other assets 4,373
------------
Total Assets 32,309,380
Liabilities
Payable for capital stock redeemed $ 5,080
Accrued advisory fee 19,804
Accrued expenses 24,840
-----------
Total Liabilities 49,724
------------
Net Asset $ 32,259,656
============
Net Assets Consist of:
Capital paid in $ 36,594,845
Undistributed net investment income 705,395
Accumulated net realized loss on investment transactions (3,563,275)
Net unrealized depreciation in value of investments (1,477,309)
------------
Total $ 32,259,656
============
Net Asset Value, Offering Price and Redemption Price Per Share
($32,259,656 divided by 2,719,519 shares outstanding),
25,000,000 shares authorized, $1.00 par value (Note 2) $11.86
============
See notes for financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
FIRST INVESTORS SPECIAL BOND FUND, INC.
Year Ended December 31, 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income
Income:
Interest $ 3,242,885
Dividends 45,637
Consent fees and other income 42,360
-------------
Total income $ 3,330,882
Expenses (Notes 1 and 4):
Advisory fee 254,508
Professional fees 23,609
Custodian fees 7,583
Reports and notices to shareholders 599
Other expenses 17,356
-------------
Total expenses 303,655
Less: Custodian fees paid indirectly (2,146)
-------------
Net expenses 301,509
-------------
Net investment income 3,029,373
Realized and Unrealized Gain (Loss) on Investments (Note 3):
Net realized gain on investments 857,581
Net unrealized depreciation of investments (3,371,027)
-------------
Net loss on investments (2,513,446)
-------------
Net Increase in Net Assets Resulting from Operations $ 515,927
=============
See notes for financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
FIRST INVESTORS SPECIAL BOND FUND, INC.
- ---------------------------------------------------------------------------------------------------
Year Ended December 31 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets from Operations
Net investment income $ 3,029,373 $ 3,094,490
Net realized gain on investments 857,581 972,414
Net unrealized depreciation of investments (3,371,027) (313,134)
------------- -------------
Net increase in net assets resulting from operations 515,927 3,753,770
------------- -------------
Dividends to Shareholders
Net investment income (3,269,565) (3,378,374)
------------- -------------
Capital Share Transactions (a)
Proceeds from shares sold 240,123 163,124
Reinvestment of dividends 3,269,565 3,378,373
Cost of shares redeemed (4,577,922) (4,783,216)
------------- -------------
Net decrease in net assets resulting from share transactions (1,068,234) (1,241,719)
------------- -------------
Net decrease in net assets (3,821,872) (866,323)
Net Assets
Beginning of year 36,081,528 36,947,851
------------- -------------
End of year (including undistributed net investment income of
$705,395 and $945,587, respectively) $ 32,259,656 $ 36,081,528
============= =============
(a) Capital Shares Issued and Redeemed
Sold 18,737 12,765
Issued for dividends reinvested 265,057 264,653
Redeemed (364,362) (374,153)
------------- -------------
Net decrease in capital shares (80,568) (96,735)
============= =============
See notes for 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 Stock Market is valued at its last sale price on
the exchange or market where the security is principally traded, and lacking
any sales, the security is valued at the mean between the closing bid and
asked prices. Securities traded in the over-the-counter market (including
securities listed on exchanges whose primary market is believed to be over-
the-counter) are 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 debt securities that mature in 60 days or
less are valued on the amortized cost method which approximates market value.
Securities for which market quotations are not readily available are valued
on a consistent basis at fair value as determined in good faith by or under
the supervision of the Fund's officers in a manner specifically authorized by
the 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,
1998, the Fund had capital loss carryovers of $3,563,275, of which $3,021,871
expires 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, if any, 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 capital 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. For the year ended December
31, 1998, the Fund's custodian has provided credits in the amount of $2,146
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, 1998, purchases
and sales of investment securities, other than United States Government
obligations and short-term corporate notes, aggregated $21,011,163 and
$24,114,165, respectively.
At December 31, 1998, the cost of investments for federal income tax purposes
was $32,887,517. Accumulated net unrealized depreciation on investments was
$1,477,309, consisting of $835,745 gross unrealized appreciation and
$2,313,054 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. Directors of the Fund who are not
"interested persons" of the Fund as defined in the 1940 Act are remunerated
by the Fund. For the year ended December 31, 1998, total directors fees
accrued by the Fund amounted to $2,900.
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,
1998, the Fund held seven 144A securities with an aggregate value of
$2,482,647 representing 7.7% 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 Auditors' 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, 1998 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 the financial highlights for each of the five
years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements.
Our procedures included confirmation of securities owned as of December 31,
1998, 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, 1998, and the
results of its operations for the year then ended, changes in its net assets
for each of the two years in the period then ended and financial highlights
for each of the five years in the period then ended, in conformity with
generally accepted accounting principles.
Tait, Weller & Baker
Philadelphia, Pennsylvania
January 29, 1999
<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 data for each year indicated.
---------------------------------------------------------
Year Ended December 31
---------------------------------------------------------
1998 1997 1996 1995 1994
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Data
- --------------
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
Ratio 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.
See notes for financial statements
</TABLE>
FIRST INVESTORS SPECIAL BOND FUND, INC.
Directors
- ---------------------------------------
James J. Coy (Emeritus)
Glenn O. Head
Kathryn S. Head
Larry R. Lavoie
Rex R. Reed
Herbert Rubinstein
Nancy S. Schaenen
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
Eight Penn Center Plaza
Philadelphia, PA 19103
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.
