The words "First Investors" in a box across the top of the page.
FIRST INVESTORS
SPECIAL BOND FUND, INC.
ANNUAL REPORT
DECEMBER 31, 1999
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 ended December 31, 1999.
During the period, the Fund's return on a net asset value basis was
6.2%, compared to a return of 4.5% for its Lipper peer group. During the
period, the Fund declared dividends from net investment income of $1.20
per share. Shares of the Fund cannot be purchased directly; they are
only available through variable contracts issued by an affiliated life
insurance company.
The primary factors that drove the Fund's performance during the fiscal
year were the rising interest-rate environment and credit developments --
both positive and negative -- within the portfolio.
Early in 1999, investor comfort with sustainable growth turned into a
fear of rising interest rates. This enabled higher-risk investments such
as high yield bonds to outperform Treasury securities. Widespread
concerns about emerging markets began to be relieved as Brazil devalued
its currency and took some steps toward fiscal reform. The improved
performance of emerging markets removed a large concern overhanging all
markets. This spurred the high yield market, and caused both the
aggressiveness and volume of domestic high yield bond issues to grow.
As the reporting period progressed, the prospect of accelerating
domestic growth and tight employment conditions fueled inflation
worries. Markets thus began to expect Federal Reserve tightening and the
resulting demand for higher yields caused new issue activity to slow
appreciably. After the Fed raised interest rates in June, investors
showed an increasing preference for larger, higher-rated, more-liquid
bond issues. Issues not meeting these criteria underperformed and became
difficult to trade. This contrasted sharply with the outperformance of
more aggressive transactions earlier in the year.
Concerns continued to mount regarding additional interest rate hikes.
Ultimately, the rapid pace of growth led the Fed to raise interest rates
again in August and a third time in October. Market liquidity became
problematic as pent-up demand for capital collided with investor
defensiveness and demands for higher yields. On top of year 2000
uncertainty, investors also became less tolerant of incipient credit
problems as more have occurred.
During 1999, the default rate of high yield bonds more than doubled from
the 1998 level, to about 4%. However, late in the year, premiums
available in the high yield market -- the DLJ High Yield Index began
October at an unusually high 6.11% more than Treasuries -- partially
overcame Y2K fears. Thus, selective new deals from large, liquid,
widely-followed issuers were completed, performed well and aroused hopes
for 2000.
Throughout the reporting period, a number of other factors stand out as
having had an impact on the Fund's return. The Fund's performance was
aided by its emerging-markets holdings, as well as several of its
telecommunication companies, which as a group have proven to be dynamic
drivers of economic growth. The Fund also benefited from premiums paid
on some repurchases and calls of successful credits. Although the U.S.
enjoyed strong economic growth, company and management-specific problems
still affected some holdings. The Fund's performance was negatively
impacted by the fact that it had few holdings in the growing European
high yield community of issuers, which began to outperform as Euro
Portfolio Manager's Letter (continued)
FIRST INVESTORS SPECIAL BOND FUND, INC.
currency-based investors began to commit. Holdings in the U.S. health
care sector, usually viewed as defensive, also hurt the Fund. A number
of long-term care companies suffered because of difficulties in
adjusting to new Medicare reimbursement rules enacted under the Balanced
Budget Act of 1997. The energy sector began the year weakly, but most
companies rebounded thanks to improved pricing of oil and natural gas.
The Fund will continue to focus on uncovering companies whose strong
managements, market positions, strategies and results are likely to
provide us with value improvement in the high yield market.
Because it is impossible to predict the future direction of the markets,
even over the short term, there are certain basic investment principles
that we encourage our clients to follow to reduce exposure to risk.*
First, we encourage clients to take a long-term view, and to avoid
trying to time the market. Attempting to time the market is extremely
difficult, even for professional investors. Second, we encourage our
clients to diversify their portfolios among stock, bond and money market
portfolios. Third, we encourage our clients to follow a regular
investment plan. This may help you to avoid getting caught up in the
excitement of a rising market and will reduce the risk of buying at high
points.
Of course, no financial plan or program, no matter how well-designed, is
guaranteed to be successful. In addition, nothing eliminates the risk
associated with overall market trends. However, utilizing these various
strategies may help to minimize the risk by reducing the extent to which
an investor may be affected by a decline in any one security or segment
of the market. If you use dollar cost averaging, you should consider
your ability to continue purchases through periods of declining prices.
Thank you for placing your trust in First Investors. As always, we
appreciate the opportunity to serve your investment needs.
Sincerely,
/S/ NANCY W. JONES
Nancy W. Jones
Vice President
and Portfolio Manager **
January 31, 2000
* There are a variety of risks associated with investing in bond
subaccounts, including interest rate risk and credit risk. Interest-rate
risk is the risk that bonds will decrease in value as interest rates
rise. As a general matter, longer-term bonds fluctuate more than
shorter-term bonds in reaction to changes in interest rates. Credit risk
is the risk that bonds will decline in value as the result of a decline
in the credit rating of the bonds or the economy as a whole. You should
consult your prospectus for a precise explanation of the risks
associated with your fund.
** Effective January 1, 2000, Ms. Jones serves as Portfolio Manager of
the Fund.
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.
As of December 31, 1999
SPECIAL FIRST
BOND BOSTON
Jan-90 $10,000 $10,000
Dec-90 9,089 9,362
Dec-91 12,339 13,458
Dec-92 14,136 15,700
Dec-93 16,716 18,669
Dec-94 16,534 18,488
Dec-95 19,966 21,701
Dec-96 22,582 24,396
Dec-97 25,052 27,477
Dec-98 25,376 27,637
Dec-99 26,959 28,261
[INSET BOX IN CHART READS:]
Average Annual
Total Return*
One Year 6.24%
Five Years 10.27%
Ten Years 10.43%
S.E.C. 30-Day Yield 9.32%
* The graph compares a $10,000 investment in the First Investors Special
Bond Fund, Inc. beginning 1/1/90 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 1,493 different issues, 1,290 of which are cash
pay, 160 are zero-coupon, 9 are step bonds, 12 are payment-in-kind
bonds and the remaining 22 are in default. The bonds included in the
Index have an average life of 7.7 years, an average maturity of 7.8
years, an average duration of 4.8 years and an average coupon of 10.1%.
It is not possible to invest directly in the Index. In addition, the
Index does not take into account fees and expenses that an investor
would incur in purchasing securities in the Index. For purposes of the
graph and accompanying table it has been assumed that all dividends and
distributions were reinvested.
The Average Annual Total Return figures are for the period ended
12/31/99. The returns shown do not reflect any sales charges, since the
Fund sells it shares solely to First Investors Life Variable Annuity
Fund A at net asset value. The returns do not reflect the fees and
charges that an individual would pay in connection with an investment
in a variable annuity contract. 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 issuers
of the high yield bonds in which the Fund primarily invests 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 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, 1999
- -------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE BONDS--84.6%
Aerospace/Defense--1.7%
$ 500M Moog, Inc., 10%, 2006 $ 505,000 $ 167
- -------------------------------------------------------------------------------------------------------
Automotive--5.8%
700M Cambridge Industries, Inc., 10 1/4%, 2007** 283,500 94
500M Collins & Aikman Products Co., 11 1/2%, 2006 495,000 164
600M Exide Corp., 10%, 2005 574,500 190
500M Special Devices, Inc., 11 3/8%, 2008 392,500 130
- -------------------------------------------------------------------------------------------------------
1,745,500 578
- -------------------------------------------------------------------------------------------------------
Basic Materials--2.9%
500M Falcon Building Products, Inc., 9 1/2%, 2007 506,250 168
350M S.D. Warren Co., 12%, 2004 366,185 121
- -------------------------------------------------------------------------------------------------------
872,435 289
- -------------------------------------------------------------------------------------------------------
Chemicals--5.3%
800M Huntsman Polymers Corp., 11 3/4%, 2004 840,000 278
325M Hydrochem Industrial Services, 10 3/8%, 2007 280,313 93
500M Polymer Group, Inc., 9%, 2007 487,500 162
- -------------------------------------------------------------------------------------------------------
1,607,813 533
- -------------------------------------------------------------------------------------------------------
Consumer Products--6.6%
700M AKI Inc., 10 1/2%, 2008 626,500 208
500M Chattem, Inc., 8 7/8%, 2008 468,750 155
555M Hines Horticulture, Inc., 11 3/4%, 2005 574,425 190
350M Mail-Well I Corp., 8 3/4%, 2008 334,250 111
- -------------------------------------------------------------------------------------------------------
2,003,925 664
- -------------------------------------------------------------------------------------------------------
Containers/Packaging--3.1%
400M Tekni-Plex, Inc., 9 1/4%, 2008 408,000 135
500M U.S. Can Corp., 10 1/8%, 2006 512,500 170
- -------------------------------------------------------------------------------------------------------
920,500 305
- -------------------------------------------------------------------------------------------------------
Durable Goods Manufacturing--1.7%
600M Columbus McKinnon Corp., 8 1/2%, 2008 519,000 172
- -------------------------------------------------------------------------------------------------------
Entertainment/Leisure--4.2%
460M Carmike Cinemas, Inc., 9 3/8%, 2009 400,200 133
500M Loews Cineplex Entertainment Corp., 8 7/8%, 2008 442,500 147
600M Outboard Marine Corp., 10 3/4%, 2008 435,000 143
- -------------------------------------------------------------------------------------------------------
1,277,700 423
- -------------------------------------------------------------------------------------------------------
Food/Beverage/Tobacco--1.6%
500M Canandaigua Brands, Inc., 8 1/2%, 2009 477,500 158
- -------------------------------------------------------------------------------------------------------
Gaming/Lodging--3.2%
550M Hollywood Park, Inc., 9 1/4%, 2007 547,938 181
450M Isle of Capri Casinos, 8 3/4%, 2009 416,250 138
- -------------------------------------------------------------------------------------------------------
964,188 319
- -------------------------------------------------------------------------------------------------------
Healthcare--2.6%
300M Integrated Health Services, Inc., 9 1/2%, 2007** 19,125 6
350M Leiner Health Products, Inc., 9 5/8%, 2007 264,250 88
500M Tenet Healthcare Corp., 8 5/8%, 2007 487,500 161
- -------------------------------------------------------------------------------------------------------
770,875 255
- -------------------------------------------------------------------------------------------------------
Machinery/Diversified-1.3%
500M Numatics, Inc., 9 5/8%, 2008 377,500 125
- -------------------------------------------------------------------------------------------------------
Media (Cable TV/Broadcasting)--6.1%
300M Grupo Televisa, SA, 11 7/8%, 2006 323,250 107
500M Mediacom LLC/Capital Corp., 8 1/2%, 2008 471,250 156
550M Rogers Communications, Inc., 9 1/8%, 2006 556,875 185
500M Star Choice Communications, Inc., 13%, 2005 501,250 166
- -------------------------------------------------------------------------------------------------------
1,852,625 614
- -------------------------------------------------------------------------------------------------------
Media (Other)--1.5%
500M Garden State Newspapers, Inc., 8 5/8%, 2011 460,000 152
- -------------------------------------------------------------------------------------------------------
Mining/Metals--6.6%
600M Commonwealth Aluminum Corp., 10 3/4%, 2006 609,000 202
800M CSN Iron, SA, 9 1/8%, 2007+ 670,500 222
700M Euramax International PLC, 11 1/4%, 2006 721,000 239
- -------------------------------------------------------------------------------------------------------
2,000,500 663
- -------------------------------------------------------------------------------------------------------
<CAPTION>
Portfolio of Investments
FIRST INVESTORS SPECIAL BOND FUND, INC.
December 31, 1999
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Principal Amount
Amount, Invested
Shares For Each
or $10,000 of
Warrants Security Value Net Assets
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Miscellaneous-5.3%
$ 500M Iron Mountain, Inc., 10 1/8%, 2006 $ 512,500 170
500M Kindercare Learning Centers, Inc., 9 1/2%, 2009 490,000 162
600M Loomis Fargo & Co., 10%, 2004 595,500 197
- -------------------------------------------------------------------------------------------------------
1,598,000 529
- -------------------------------------------------------------------------------------------------------
Paper/Forest Products--4.5%
500M Container Corp., 11 1/4%, 2004 517,500 171
400M Fonda Group, Inc., 9 1/2%, 2007 336,000 111
500M Packaging Corporation of America, 9 5/8%, 2009 512,500 170
- -------------------------------------------------------------------------------------------------------
1,366,000 452
- -------------------------------------------------------------------------------------------------------
Real Estate/Construction--1.0%
600M Cathay International, Ltd., 13%, 2008+ 312,000 103
- -------------------------------------------------------------------------------------------------------
Telecommunications--16.5%
500M 21st Century Telecom Group, Inc., 0%-12 1/4%, 2008 336,250 111
600M ICG Services, Inc., 0%-10%, 2008 313,500 104
500M Level 3 Communications, Inc., 9 1/8%, 2008 472,500 157
500M McCaw International, Ltd., 0%-13%, 2007 345,000 114
600M McLeodUSA, Inc., 8 1/8%, 2009 562,500 186
750M Netia Holdings BV, 0%-11 1/4%, 2007 489,375 162
400M NEXTLINK Communications, Inc., 9%, 2008 377,500 125
500M Powertel, Inc., 0%-12%, 2006 437,500 145
700M Qwest Communications International, Inc., 0%-9.47%, 2007 565,250 187
500M RCN Corp., 0%-11%, 2008 330,000 109
500M Viatel, Inc., 0%-12 1/2%, 2008 316,250 105
500M World Access, Inc., 13 1/4%, 2008 452,500 150
- -------------------------------------------------------------------------------------------------------
4,998,125 1,655
- -------------------------------------------------------------------------------------------------------
Transportation--1.9%
600M Eletson Holdings, Inc., 9 1/4%, 2003 555,000 184
- -------------------------------------------------------------------------------------------------------
Waste Management--1.2%
400M Allied Waste, Inc., 10%, 2009+ 358,000 119
- -------------------------------------------------------------------------------------------------------
Total Value of Corporate Bonds (cost $28,076,193) 25,542,186 8,459
- -------------------------------------------------------------------------------------------------------
COMMON STOCKS--2.8%
Media (Cable TV/Broadcasting)--1.7%
5,200 *Echostar Communications Corp.--Class "A" 507,000 168
- -------------------------------------------------------------------------------------------------------
Media (Other)--.6%
1,500 *Affiliated Newspaper Investments, Inc.--Class "B" 187,500 62
- -------------------------------------------------------------------------------------------------------
Telecommunications--.5%
2,037 *Viatel, Inc. 109,234 36
1,571 World Access, Inc. 30,242 10
- -------------------------------------------------------------------------------------------------------
139,476 46
- -------------------------------------------------------------------------------------------------------
Total Value of Common Stocks (cost $80,848) 833,976 276
- -------------------------------------------------------------------------------------------------------
PREFERRED STOCKS--.6%
Durable Goods Manufacturing
245 Day International Group, Inc., 12 1/4% (cost $239,622) 191,012 63
- -------------------------------------------------------------------------------------------------------
WARRANTS--.1%
Media (Cable TV/Broadcasting)--.1%
11,580 *Star Choice Communications, Inc. (expiring 12/15/05)+ 30,398 10
- -------------------------------------------------------------------------------------------------------
Telecommunications--.0%
1,100 *McCaw International, Ltd. (expiring 4/15/07)+ 2,750 1
- -------------------------------------------------------------------------------------------------------
Total Value of Warrants (cost $0) 33,148 11
- -------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--3.4%
$ 1,000M United States Treasury Notes, 7%, 2006 (cost $1,087,969) 1,024,688 340
- -------------------------------------------------------------------------------------------------------
SHORT-TERM CORPORATE NOTES--5.6%
1200M Prudential Funding Corp., 4.5%, 1/7/2000 1,199,100 397
500M Sharp Corp., 7%, 1/18/2000 498,346 165
- -------------------------------------------------------------------------------------------------------
Total Value of Short-Term Corporate Notes (cost $1,697,446) 1,697,446 562
- -------------------------------------------------------------------------------------------------------
Total Value of Investments (cost $31,182,078) 97.1% 29,322,456 9,711
Other Assets, Less liabilities 2.9 871,864 289
- -------------------------------------------------------------------------------------------------------
Net Assets 100.0% $30,194,320 $10,000
=======================================================================================================
+ See Note 5
* Non-income producing
** Security is in default and currently not paying interest
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
FIRST INVESTORS SPECIAL BOND FUND, INC.
December 31, 1999
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments in securities, at value (identified cost $31,182,078) (Note 1A) $ 29,322,456
Cash 268,320
Interest receivable 635,810
Other assets 4,374
------------
Total Assets 30,230,960
Liabilities
Payable for capital stock redeemed $ 1,563
Accrued advisory fee 18,781
Accrued expenses 16,296
-----------
Total Liabilities 36,640
------------
Net Assets $ 30,194,320
============
Net Assets Consist of:
Capital paid in $ 32,805,550
Undistributed net investment income 426,791
Accumulated net realized loss on investment transactions (1,178,399)
Net unrealized depreciation in value of investments (1,859,622)
------------
Total $ 30,194,320
============
Net Asset Value, Offering Price and Redemption Price Per Share
($30,194,320 divided by 2,655,288 shares outstanding),
25,000,000 shares authorized, $1.00 par value (Note 2) $11.37
============
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
FIRST INVESTORS SPECIAL BOND FUND, INC.
Year Ended December 31, 1999
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income
Income:
Interest $ 3,119,912
Dividends 34,006
-------------
Total income $ 3,153,918
Expenses (Notes 1 and 4):
Advisory fee 230,925
Professional fees 25,632
Custodian fees 5,774
Reports and notices to shareholders 610
Other expenses 4,966
-------------
Total expenses 267,907
Less: Custodian fees paid indirectly (3,540)
-------------
Net expenses 264,367
-------------
Net investment income 2,889,551
Realized and Unrealized Loss on Investments (Note 3):
Net realized loss on investments (636,995)
Net unrealized depreciation of investments (382,313)
-------------
Net loss on investments (1,019,308)
-------------
Net Increase in Net Assets Resulting from Operations $ 1,870,243
=============
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
FIRST INVESTORS SPECIAL BOND FUND, INC.
- ---------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets from Operations
Net investment income $ 2,889,551 $ 3,029,373
Net realized gain (loss) on investments (636,995) 857,581
Net unrealized depreciation of investments (382,313) (3,371,027)
------------- -------------
Net increase in net assets resulting from operations 1,870,243 515,927
------------- -------------
Distributions to Shareholders
Net investment income (3,168,155) (3,269,565)
------------- -------------
Capital Share Transactions*
Proceeds from shares sold 291,841 240,123
Reinvestment of dividends 3,168,155 3,269,565
Cost of shares redeemed (4,227,420) (4,577,922)
------------- -------------
Net decrease in net assets resulting from share transactions (767,424) (1,068,234)
------------- -------------
Net decrease in net assets (2,065,336) (3,821,872)
Net Assets
Beginning of year 32,259,656 36,081,528
------------- -------------
End of year (including undistributed net investment income of
$426,791 and $705,395, respectively) $ 30,194,320 $ 32,259,656
============= =============
*Capital Shares Issued and Redeemed
Sold 25,008 18,737
Issued for dividends reinvested 274,660 265,057
Redeemed (363,899) (364,362)
------------- -------------
Net decrease in capital shares (64,231) (80,568)
============= =============
See notes to financial statements
</TABLE>
Notes to Financial Statements
FIRST INVESTORS SPECIAL BOND FUND, INC.
1. Significant Accounting Policies -- The Fund is registered under the
Investment Company Act of 1940 (the "1940 Act") as a diversified, open-
end management investment company. The investment objective of the Fund
is to seek high current income without undue risk to principal and
secondarily to seek growth of capital.
A. Security Valuation -- Except as provided below, a security listed or
traded on an exchange or the Nasdaq 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 regulated 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, 1999, the Fund had
capital loss carryovers of $1,178,399, of which $287,903 expires in
2003, $253,501 in 2004 and $636,995 in 2007.
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, 1999, the Fund's
custodian has provided credits in the amount of $3,540 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 First Investors Life Variable Annuity Fund A contracts issued by
First Investors Life Insurance Company.
3. Security Transactions -- For the year ended December 31, 1999,
purchases and sales of investment securities, other than United States
Government obligations and short-term corporate notes, aggregated
$9,302,575 and $10,426,673, respectively.
At December 31, 1999, the cost of investments for Federal income tax
purposes was $31,182,078. Accumulated net unrealized depreciation on
investments was $1,859,622, consisting of $930,739 gross unrealized
appreciation and $2,790,361 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, 1999, total directors fees accrued by the Fund amounted to $3,000.
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.
Notes to Financial Statements
FIRST INVESTORS SPECIAL BOND FUND, INC.
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, 1999, the Fund held five 144A securities with an aggregate
value of $1,373,648 representing 4.5% 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, at December 31, 1999 and the related statement of
operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended and financial
highlights for each of the 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 at December 31,
1999, 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. at
December 31, 1999 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 31, 2000
<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
---------------------------------------------------------
1999 1998 1997 1996 1995
-------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Data
- --------------
Net Asset Value, Beginning of Year $11.86 $12.89 $12.75 $12.23 $11.03
-------- --------- -------- -------- --------
Income from Investment Operations
Net investment income 1.10 1.12 1.11 1.17 1.20
Net realized and unrealized
gain (loss) on investments (.39) (.95) .23 .37 1.02
-------- --------- -------- -------- --------
Total from Investment Operations .71 .17 1.34 1.54 2.22
-------- --------- -------- -------- --------
Less Distributions from
Net Investment Income 1.20 1.20 1.20 1.02 1.02
-------- --------- -------- -------- --------
Net Asset Value, End of Year $11.37 $11.86 $12.89 $12.75 $12.23
======== ========= ======== ======== ========
Total Return(%)+ 6.24 1.29 10.94 13.10 20.76
- ----------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Year (in thousands) $30,194 $32,260 $36,082 $36,948 $38,037
Ratio to Average Net Assets:(%)
Expenses .87 .89 .86 .86 .88
Net investment income 9.38 8.93 8.60 9.31 10.17
Portfolio Turnover Rate(%) 32 65 53 29 45
+ The effect of fees and charges incurred at the separate account level are not reflected in these
performance figures.
See notes to financial statements
</TABLE>
FIRST INVESTORS SPECIAL BOND FUND, INC.
Directors
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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
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Glenn O. Head
President
Nancy Jones
Vice President
Concetta Durso
Vice President and Secretary
Joseph I. Benedek
Treasurer
Mark S. Spencer
Assistant Treasurer
Carol Lerner Brown
Assistant Secretary
Shareholder Information
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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.
