<PAGE>
As filed with the Securities and Exchange Commission on April 26, 1995.
Registration No. 2-98409
811-4325
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 16 X
-
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
-----------
Amendment No. 16 X
-
----------
FIRST INVESTORS LIFE SERIES FUND
(Exact name of Registrant as specified in charter)
Mr. Larry R. Lavoie
Secretary and General Counsel
First Investors Corporation
95 Wall Street
New York, New York 10005
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement
It is proposed that this filing will become effective on May 1, 1995 pursuant to
paragraph (b) of Rule 485.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
previously elected to register an indefinite number of shares of beneficial
interest, no par value, under the Securities Act of 1933. Registrant will filed
a Rule 24f-2 Notice for its fiscal year ending December 31, 1994 on February 21,
1995.
<PAGE>
FIRST INVESTORS LIFE SERIES FUND
CROSS-REFERENCE SHEET
N-1A Item No. Location
- ------------- --------
PART A: PROSPECTUS
1. Cover Page ............................... Cover Page
2. Synopsis ................................. Not Applicable
3. Condensed Financial Information .......... Financial Highlights
4. General Description of Registrant ........ Investment Objectives and
Policies; General Information
5. Management of the Fund.................... Management
5A. Management's Discussion of
Fund Performance ........................ Dividends and Other
6. Capital Stock and Other Securities ....... Distributions; Taxes;
Determination of Net Asset
Value
7. Purchase of Securities Being Offered ..... How to Buy Shares
8. Redemption or Repurchase ................. How to Redeem Shares
9. Pending Legal Proceedings ................ Management
PART B: STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page .............................. Cover Page
11. Table of Contents ....................... Table of Contents
12. General Information and History ......... General Information
13. Investment Objectives and Policies ...... Investment Policies; Investment
Restrictions
14. Management of the Fund .................. Trustees and Officers
15. Control Persons and Principal
Holders of Securities ................... Not Applicable
16. Investment Advisory and Other Services .. Management
17. Brokerage Allocation .................... Allocation of Portfolio
Brokerage
18. Capital Stock and Other Securities ...... Determination of Net Asset
Value
19. Purchase, Redemption and Pricing
of Securities Being Offered ................ Determination of Net Asset
Value
20. Tax Status .............................. Taxes
21. Underwriters ............................ Not Applicable
22. Performance Data ........................ Performance Information
23. Financial Statements .................... Financial Statements; Report of
Independent Accountants
PART C: OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
item so numbered, in Part C hereof.
<PAGE>
FIRST INVESTORS LIFE SERIES FUND
95 Wall Street, New York, New York 10005/(212) 858-8200
This is a Prospectus for FIRST INVESTORS LIFE SERIES FUND ("Fund"), an
open-end, diversified management investment company. The Fund offers ten
separate investment series, each of which has different investment objectives
and policies: BLUE CHIP SERIES, CASH MANAGEMENT SERIES, DISCOVERY SERIES,
GOVERNMENT SERIES, GROWTH SERIES, HIGH YIELD SERIES, INTERNATIONAL SECURITIES
SERIES, INVESTMENT GRADE SERIES, TARGET MATURITY 2007 SERIES and UTILITIES
INCOME SERIES (collectively, "Series"). Each Series' investment objectives are
listed on the inside cover.
Investments in a Series are made through purchases of the Level
Premium Variable Life Insurance Policies ("Policies") or the Individual Variable
Annuity Contracts ("Contracts") offered by First Investors Life Insurance
Company ("First Investors Life"). Policy premiums, net of certain expenses, are
paid into a unit investment trust, First Investors Life Insurance Company
Separate Account B ("Separate Account B"). Purchase payments for the Contracts,
net of certain expenses, are also paid into a unit investment trust, First
Investors Life Variable Annuity Fund C ("Separate Account C"). Separate Account
B and Separate Account C ("Separate Accounts") pool these proceeds to purchase
shares of a Series designated by purchasers of the Policies or Contracts.
Investments in the Series are used to fund benefits under the Policies and
Contracts. TARGET MATURITY 2007 SERIES is only offered to Contractowners of
Separate Account C.
AN INVESTMENT IN THE FUND, INCLUDING CASH MANAGEMENT SERIES, IS
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE
THAT THE CASH MANAGEMENT SERIES WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE. INVESTMENTS BY THE HIGH YIELD SERIES IN HIGH-YIELD,
HIGH RISK SECURITIES, COMMONLY REFERRED TO AS "JUNK BONDS," MAY ENTAIL RISKS
THAT ARE DIFFERENT OR MORE PRONOUNCED THAN THOSE THAT WOULD RESULT FROM
INVESTMENT IN HIGHER-RATED SECURITIES. SEE "HIGH YIELD SECURITIES--RISK
FACTORS."
This Prospectus sets forth concisely the information about the Series
that a prospective investor should know before investing and should be retained
for future reference. First Investors Management Company, Inc. ("FIMCO" or
"Adviser") serves as investment adviser to the Series. A Statement of
Additional Information ("SAI"), dated May 1, 1995 (which is incorporated by
reference herein), has been filed with the Securities and Exchange Commission.
The SAI is available at no charge upon request to the Fund at the address or
telephone number indicated above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
An investment in these securities is not a deposit or obligation of,
or guaranteed or endorsed by, any bank and is not federally insured or protected
by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any
other governmental agency.
The date of this Prospectus is May 1, 1995
<PAGE>
The investment objectives of each Series of the Fund offered by this
Prospectus are as follows:
BLUE CHIP SERIES. The investment objective of BLUE CHIP SERIES is to
seek high total investment return consistent with the preservation of capital.
This goal will be sought by investing, under normal market conditions, primarily
in equity securities of larger, well-capitalized companies with high potential
earnings growth that have shown a history of dividend payments, commonly known
as "Blue Chip" companies.
CASH MANAGEMENT SERIES. The objective of CASH MANAGEMENT SERIES is to
seek to earn a high rate of current income consistent with the preservation of
capital and maintenance of liquidity. The CASH MANAGEMENT SERIES will invest in
money market obligations, including high quality securities issued or guaranteed
by the U.S. Government or its agencies and instrumentalities, bank obligations
and high grade corporate instruments.
DISCOVERY SERIES. The investment objective of DISCOVERY SERIES is to
seek long-term capital appreciation, without regard to dividend or interest
income, through investment in the common stock of companies with small to medium
market capitalization that the Adviser considers to be undervalued or less well
known in the current marketplace and to have the potential for capital growth.
GOVERNMENT SERIES. The investment objective of GOVERNMENT SERIES is
to seek to achieve a significant level of current income which is consistent
with security and liquidity of principal by investing, under normal market
conditions, primarily in obligations issued or guaranteed as to principal and
interest by the U.S. Government, its agencies or instrumentalities, including
mortgage-related securities.
GROWTH SERIES. The investment objective of GROWTH SERIES is to seek
long-term capital appreciation. This goal will be sought by investing, under
normal market conditions, primarily in common stocks of companies and industries
selected for their growth potential.
HIGH YIELD SERIES. The primary objective of HIGH YIELD SERIES is to
seek to earn a high level of current income. The Series actively seeks to
achieve its secondary objective of capital appreciation to the extent consistent
with its primary objective. The Series seeks to attain its objectives primarily
through investments in lower-grade, high-yielding, high risk debt securities,
commonly referred to as "junk bonds" ("High Yield Securities").
INTERNATIONAL SECURITIES SERIES. The primary objective of
INTERNATIONAL SECURITIES SERIES is to seek long-term capital growth. As a
secondary objective, the Series seeks to earn a reasonable level of current
income. These objectives are sought, under normal market conditions, through
investment in common stocks, rights and warrants, preferred stocks, bonds and
other debt obligations issued by companies or governments of any nation, subject
to certain restrictions with respect to concentration and diversification.
INVESTMENT GRADE SERIES. The investment objective of INVESTMENT GRADE
SERIES is to seek a maximum level of income consistent with investment in
investment grade debt securities.
TARGET MATURITY 2007 SERIES. The investment objective of TARGET
MATURITY 2007 SERIES is to seek a predictable compounded investment return for
investors who hold their Series' shares until the Series' maturity, consistent
with preservation of capital. The Series will seek its objective by investing,
under normal market conditions, at least 65% of its total assets in zero coupon
securities which are issued by the U.S. Government, its agencies or
instrumentalities or created by third parties using securities issued by the
U.S. Government, its agencies or instrumentalities. The Series intends to
2
<PAGE>
terminate in the year 2007. AS A RESULT OF THE VOLATILE NATURE OF THE MARKET
FOR ZERO COUPON SECURITIES, THE VALUE OF SERIES' SHARES PRIOR TO THE SERIES'
MATURITY MAY FLUCTUATE SIGNIFICANTLY IN PRICE. THUS, TO ACHIEVE A PREDICTABLE
RETURN, INVESTORS MUST HOLD THEIR INVESTMENTS IN THE SERIES UNTIL THE SERIES
LIQUIDATES SINCE THE SERIES' VALUE CHANGES DAILY WITH MARKET CONDITIONS.
ACCORDINGLY, ANY INVESTOR WHO REDEEMS HIS OR HER SHARES PRIOR TO THE SERIES'
MATURITY IS LIKELY TO ACHIEVE A DIFFERENT INVESTMENT RESULT THAN THE RETURN THAT
WAS PREDICTED ON THE DATE THE INVESTMENT WAS MADE, AND MAY EVEN SUFFER A
SIGNIFICANT LOSS. There can be no assurance that the objective of the Series
will be realized.
UTILITIES INCOME SERIES. The primary investment objective of
UTILITIES INCOME SERIES is to seek high current income. Long-term capital
appreciation is a secondary objective. These objectives are sought, under
normal market conditions, through investment in equity and debt securities
issued by companies primarily engaged in the public utilities industry.
There can be no assurance that any Series will achieve its investment
objectives. See "Investment Objectives and Policies" for a detailed description
of each Series' investment objectives and policies.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following table sets forth the per share operating performance data for a
share of beneficial interest outstanding, total return, ratios to average net
assets and other supplemental data for each period indicated. Financial
highlights are not presented for TARGET MATURITY 2007 SERIES since this Series
did not commence operations until May 1995. The table below has been derived
from financial statements which have been examined by Tait, Weller & Baker,
independent certified public accountants, whose report thereon appears in the
Statement of Additional Information ("SAI"). This information should be read in
conjunction with the Financial Statements and Notes thereto, which also appear
in the SAI, available at no charge upon request to the Fund.
<TABLE>
<CAPTION>
PER SHARE DATA
---------------------------------------------------------------------------------------------------------
Income from Investment Operations Less Distributions from
--------------------------------------- -----------------------
Net
Asset
Net Asset Value Net Realized Value
--------------- Net and Unrealized Total from Net Net --------
Beginning of Investment Gain (Loss) Investment Investment Realized Total End of
Period Income on Investments Operations Income Gains Distributions Period
--------------- ---------- -------------- ---------- --------- -------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BLUE CHIP
- ---------
3/8/90* to 12/31/90 $10.00 $ .07 $ (.02) $ .05 $ -- $ -- $ -- $10.05
1991 10.05 .12 2.50 2.62 .05 -- .05 12.62
1992 12.62 .16 .67 .83 .21 -- .21 13.24
1993 13.24 .15 .97 1.12 .15 -- .15 14.21
1994 14.21 .18 (.39) (.21) .08 .17 .25 13.75
CASH MANAGEMENT
- ---------------------------
11/9/87* to 12/31/87 1.00 .002 -- .002 .002 -- .002 1.00
1988 1.00 .048 -- .048 .048 -- .048 1.00
1989 1.00 .075 -- .075 .075 -- .075 1.00
1990 1.00 .072 -- .072 .072 -- .072 1.00
1991 1.00 .054 -- .054 .054 -- .054 1.00
1992 1.00 .029 -- .029 .029 -- .029 1.00
1993 1.00 .027 -- .027 .027 -- .027 1.00
1994 1.00 .037 -- .037 .037 -- .037 1.00
DISCOVERY
- ---------------------------
11/9/87 to 12/31/87 10.00 .02 -- .02 -- -- -- 10.02
1988 10.02 .26 .10 .36 -- -- -- 10.38
1989 10.38 .19 2.19 2.38 .27 .09 .36 12.40
1990 12.40 .14 (.78) (.64) .15 .90 1.05 10.71
1991 10.71 .07 5.42 5.49 .18 -- .18 16.02
1992 16.02 -- 2.51 2.51 .03 .15 .18 18.35
1993 18.35 -- 3.92 3.92 -- .91 .91 21.36
1994 21.36 .06 (.62) (.56) -- .94 .94 19.86
GOVERNMENT
- ---------------------------
1/7/92* to 12/31/92 10.00 .47 .51 .98 .33 -- .33 10.65
1993 10.65 .64 (.02) .66 .70 .19 .89 10.42
1994 10.42 .79 (1.21) (.42) .25 .05 .30 9.70
- ------------------------------------------------------------------------------------------------------------------------------------
* Commencement of operations
** Adjusted to reflect ten-for-one stock split on May 1, 1991
+ Some or all expenses have been waived or assumed by the investment adviser
from commencement of operations through December 31, 1994.
++ The effect of fees and charges incurred at the separate account level are
not reflected in these performance figures.
(a) Annualized
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
RATIOS / SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets Ratio to Average Net Assets Portfolio
Total End of Period Ratio to Average Net Assets Before Expenses Waived or Assumed Turnover
--------------------------------- -----------------------------------------
Return++(%) (in thousands) Expenses(%) Net Income(%) Expenses(%) Net Investment Income(%) Rate(%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
.61(a) $ 3,656 -- 2.95(a) 1.92(a) 1.03(a) 15
26.17 13,142 1.00 1.88 1.55 1.34 21
6.67 23,765 .79 1.66 .86 1.60 40
8.51 34,030 .88 1.27 N/A N/A 37
(1.45) 41,424 .88 1.49 N/A N/A 82
5.05(a) 17 -- -- -- -- N/A
4.94 33 -- 4.99 7.68 (2.69) N/A
7.79 2,210 -- 7.84 1.35 6.49 N/A
7.49 8,203 .39 6.90 1.15 6.15 N/A
5.71 9,719 .57 5.39 .93 5.03 N/A
3.02 8,341 .79 2.99 .98 2.81 N/A
2.70 4,243 .60 2.67 1.05 2.22 N/A
3.77 3,929 .60 3.69 1.04 3.25 N/A
1.38(a) 18 -- -- -- -- 0
3.59 125 -- 3.80 3.10 .70 158
23.62 283 -- 2.43 4.78 (2.35) 231
(5.47) 960 -- 2.97 2.68 .28 104
51.73 4,661 .70 .48 1.49 (.31) 93
15.74 10,527 .91 .02 1.05 (.12) 91
22.20 21,221 .87 (.03) N/A N/A 69
(2.53) 30,244 .88 .36 N/A N/A 53
9.95(a) 5,064 .03(a) 6.64(a) .89(a) 5.79(a) 301
6.35 8,234 .35 6.60 .84 6.11 525
(4.10) 7,878 .35 6.74 .90 6.19 457
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PER SHARE DATA
---------------------------------------------------------------------------------------------------------
Income from Investment Operations Less Distributions from
---------------------------------------- -----------------------
Net
Net Asset Asset
Value Net Realized Value
------------- Net and Unrealized Total from Net Net ---------
Beginning of Investment Gain (Loss) on Investment Investment Realized Total End of
Period Income Investments Operations Income Gains Distributions Period
------------- ---------- -------------- ---------- ---------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GROWTH
- ------
11/9/87* to 12/31/87 $10.00 $ .02 $ -- $ .02 $ -- $ -- $ -- $10.02
1988 10.02 .26 .51 .77 -- -- -- 10.79
1989 10.79 .02 2.51 2.53 .18 .12 .30 13.02
1990 13.02 .16 (.55) (.39) .06 -- .06 12.57
1991 12.57 .17 4.15 4.32 .18 -- .18 16.71
1992 16.71 .08 1.41 1.49 .18 1.38 1.56 16.64
1993 16.64 .07 .93 1.00 .09 .10 .19 17.45
1994 17.45 .09 (.60) (.51) -- .21 .21 16.73
HIGH YIELD
- ---------------------------
11/9/87* to 12/31/87 10.00 -- -- -- -- -- -- 10.00
1988 10.00 .74 .82 1.56 -- -- -- 11.56
1989 11.56 .74 (.92) (.18) .56 .11 .67 10.71
1990 10.71 1.08 (1.79) (.71) .83 -- .83 9.17
1991 9.17 1.16 1.66 2.82 1.18 -- 1.18 10.81
1992 10.81 1.11 .21 1.32 1.69 -- 1.69 10.44
1993 10.44 .96 .88 1.84 1.12 -- 1.12 11.16
1994 11.16 .87 (1.14) (.27) .31 -- .31 10.58
INTERNATIONAL SECURITIES
- ---------------------------
4/16/90* to 12/31/90 10.00 .03 .34 .37 -- -- -- 10.37
1991 10.37 .09 1.49 1.58 .03 .05 .08 11.87
1992 11.87 .15 (.28) (.13) .15 .22 .37 11.37
1993 11.37 .10 2.41 2.51 .14 -- .14 13.74
1994 13.74 .14 (.32) (.18) .05 -- .05 13.51
INVESTMENT GRADE
- ---------------------------
1/7/92* to 12/31/92 10.00 .43 .44 .87 .34 -- .34 10.53
1993 10.53 .65 .49 1.14 .71 .01 .72 10.95
1994 10.95 .67 (1.06) (.39) .16 .09 .25 10.31
UTILITIES INCOME
- ---------------------------
11/15/93* to 12/31/93 10.00 .01 (.07) (.06) -- -- -- 9.94
1994 9.94 .24 (.96) (.72) .03 -- .03 9.19
- ------------------------------------------------------------------------------------------------------------------------------------
* Commencement of operations
+ Some or all expenses have been waived or assumed by the investment adviser
from commencement of operations through December 31, 1994.
++ The effect of fees and charges incurred at the separate account level are
not reflected in these performance figures.
(a) Annualized
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
RATIOS / SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to
Average Net Assets
Net Assets Before Expenses Portfolio
Total End of Period Ratio to Average Net Assets Waived or Assumed Turnover
--------------------------------- ----------------------------------------
Return++(%) (in thousands) Expenses(%) Net Income(%) Expenses(%) Net Investment Income(%) Rate(%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1.38(a) $ 18 -- -- -- -- 0
7.68 38 -- 3.20 8.70 (5.50) 31
24.00 570 -- 2.91 5.21 (2.30) 24
(2.99) 2,366 -- 3.03 1.64 1.40 28
34.68 7,743 .69 1.21 1.34 .55 148
9.78 16,385 .76 .75 1.20 .30 45
6.00 25,658 .91 .43 N/A N/A 51
(2.87) 32,797 .90 .60 N/A N/A 40
0 88 -- -- -- -- 0
15.60 4,564 -- 13.22 1.32 11.90 46
(1.76) 14,354 -- 12.05 .88 11.17 22
(5.77) 18,331 -- 13.21 .91 12.30 35
33.96 23,634 .53 11.95 .89 11.60 40
13.15 24,540 .91 10.48 .96 10.43 84
18.16 30,593 .91 9.49 N/A N/A 96
(1.56) 32,285 .88 9.43 N/A N/A 50
5.21(a) 3,946 -- .99(a) 3.43(a) (2.43)(a) 29
15.24 8,653 1.70 .75 2.27 .18 70
(1.13) 12,246 1.03 1.55 1.38 1.20 36
22.17 21,009 1.14 .97 N/A N/A 37
(1.29) 31,308 1.03 1.22 N/A N/A 36
8.91(a) 4,707 .23(a) 6.16(a) .93(a) 5.46(a) 72
10.93 10,210 .35 6.32 .85 5.82 64
(3.53) 11,602 .37 6.61 .92 6.06 15
(4.66)(a) 494 -- 1.46(a) 3.99(a) (2.52)(a) 0
(7.24) 4,720 .17 4.13 .95 3.35 31
</TABLE>
7
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
BLUE CHIP SERIES
BLUE CHIP SERIES seeks to provide investors with high total investment return
consistent with the preservation of capital. The Series seeks to achieve its
objective by investing, under normal market conditions, at least 65% of its
total assets in securities of "Blue Chip" companies, including common and
preferred stocks and securities convertible into common stock, that the Adviser
believes have potential earnings growth that is greater than the average company
included in the Standard & Poor's 500 Composite Stock Price Index ("S&P 500").
The Series also may invest up to 35% of its total assets in the equity
securities of non-Blue Chip companies that the Adviser believes have significant
potential for growth of capital or future income consistent with the
preservation of capital. When market conditions warrant, or when the Adviser
believes it is necessary to achieve the Series' objective, the Series may invest
up to 25% of its total assets in fixed income securities.
The Series defines Blue Chip companies as those companies that have a market
capitalization of at least $300 million, are dividend paying and are included in
the S&P 500. Market capitalization is the total market value of a company's
outstanding common stock. Blue Chip companies are considered to be of
relatively high quality and generally exhibit superior fundamental
characteristics, which may include: potential for consistent earnings growth, a
history of profitability and payment of dividends, leadership position in their
industries and markets, proprietary products or services, experienced
management, high return on equity and a strong balance sheet. Blue Chip
companies usually exhibit less investment risk and share price volatility than
smaller, less established companies. Examples of Blue Chip companies are
American Telephone & Telegraph, General Electric, Pepsico Inc. and Bristol-Myers
Squibb.
The fixed income securities in which the Series may invest include money
market instruments (including prime commercial paper, certificates of deposit of
domestic branches of U.S. banks and bankers' acceptances), obligations issued or
guaranteed as to principal and interest by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), including mortgage-related
securities, and corporate debt securities. However, no more than 5% of the
Series' net assets may be invested in corporate debt securities rated below Baa
by Moody's Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's
Ratings Group ("S&P"). The Series may borrow money for temporary or emergency
purposes in amounts not exceeding 5% of its total assets. The Series may also
invest up to 5% of its net assets in American Depository Receipts ("ADRs"),
enter into repurchase agreements and make loans of portfolio securities. See
the SAI for additional information concerning these securities.
CASH MANAGEMENT SERIES
CASH MANAGEMENT SERIES seeks to earn a high rate of current income consistent
with the preservation of capital and maintenance of liquidity. The Series
generally can invest only in securities that mature within 397 days from the
date of purchase. In addition, the Series maintains a dollar-weighted average
portfolio maturity of 90 days or less.
CASH MANAGEMENT SERIES invests primarily in (1) high quality marketable
securities issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities, (2) bank certificates of deposit,
bankers' acceptances, time deposits and other short-term obligations
8
<PAGE>
issued by banks and (3) prime commercial paper and high quality, U.S. dollar
denominated short-term corporate bonds and notes. The U.S. Government securities
in which the Series may invest include a variety of U.S. Treasury securities
that differ in their interest rates, maturities and dates of issue. Securities
issued or guaranteed by agencies or instrumentalities of the U.S. Government may
be supported by the full faith and credit of the United States or by the right
of the issuer to borrow from the U.S. Treasury. See the SAI for additional
information on U.S. Government securities. The Series may invest in domestic
bank certificates of deposit (insured up to $100,000) and bankers' acceptances
(not insured) issued by domestic banks and savings institutions which are
insured by the Federal Deposit Insurance Corporation ("FDIC") and that have
total assets exceeding $500 million. The Series also may invest in certificates
of deposit issued by London branches of domestic or foreign banks ("Eurodollar
CDs"). The Series may invest in time deposits and other short-term obligations,
including uninsured, direct obligations bearing fixed, floating or variable
interest rates, issued by domestic banks, foreign branches of domestic banks,
foreign subsidiaries of domestic banks and domestic and foreign branches of
foreign banks. See Appendix A to the SAI for a description of commercial paper
ratings and Appendix B to the SAI for a description of municipal note ratings.
The Series also may invest in repurchase agreements with banks that are members
of the Federal Reserve System or securities dealers that are members of a
national securities exchange or are market makers in U.S. Government securities,
and, in either case, only where the debt instrument subject to the repurchase
agreement is a U.S. Treasury or agency obligation.
CASH MANAGEMENT SERIES also may purchase high quality, U.S. dollar
denominated short-term bonds and notes, including variable rate and master
demand notes issued by domestic and foreign corporations (including banks).
Floating and variable rate demand notes and bonds permit the Series, as the
holder, to demand payment of principal at any time, or at specified intervals
not exceeding 397 days, in each case upon not more than 30 days' notice. The
Series may borrow money for temporary or emergency purposes in amounts not
exceeding 5% of its total assets and make loans of portfolio securities. See
"Description of Certain Securities, Other Investment Policies and Risk Factors"
for additional information concerning these securities.
CASH MANAGEMENT SERIES may purchase only obligations that (1) the Adviser
determines present minimal credit risks based on procedures adopted by the
Fund's Board of Trustees, and (2) are either (a) rated in one of the top two
rating categories by at least two nationally recognized statistical ratings
organizations ("NRSROs") (or one, if only one rated the security) or (b) unrated
securities that the Adviser determines are of comparable quality. Securities
qualify as being in the top rating category ("First Tier Securities") if at
least two NRSROs (or one, if only one rated the security) have given it the
highest rating. If only one NRSRO has rated a security, or it is unrated, the
acquisition of that security must be approved or ratified by the Fund's Board of
Trustees. The Series' purchases of commercial paper are limited to First Tier
Securities. The Series may not invest more than 5% of its total assets in
securities rated in the second highest rating category ("Second Tier
Securities"). Investments in Second Tier Securities of any one issuer are
limited to the greater of 1% of the Series' total assets or $1 million. The
Series generally may invest no more than 5% of its total assets in the
securities of a single issuer (other than securities issued by the U.S.
Government, its agencies or instrumentalities).
9
<PAGE>
DISCOVERY SERIES
DISCOVERY SERIES seeks long-term capital appreciation, without regard to
dividend or interest income. The Series seeks to achieve its objective by
investing in the common stock of companies with small to medium market
capitalization that the Adviser considers to be undervalued or less well known
in the current marketplace and to have potential for capital growth.
The Series seeks to invest in the common stock of companies that are
undervalued in the current market in relation to fundamental economic values
such as earnings, sales, cash flow and tangible book value; that are early in
their corporate development (i.e., before they become widely recognized and well
known and while their reputations and track records are still emerging); or that
offer the possibility of greater earnings because of revitalized management, new
products or structural changes in the economy. Such companies primarily are
those with small to medium market capitalization, which the Series considers to
be market capitalization of up to $1 billion. The Adviser believes that, over
time, these securities are more likely to appreciate in price than securities
whose market prices have already reached their perceived economic value. In
addition, the Series intends to diversify its holdings among as many companies
and industries as the Adviser deems appropriate.
Companies that are early in their corporate development may be dependent on
relatively few products or services, may lack adequate capital reserves, may be
dependent on one or two management individuals and may have less of a track
record or historical pattern of performance. In addition, there may be less
information available as to the issuers and their securities may not be well
known to the general public and may not yet have wide institutional ownership.
Thus, the investment risk is higher than that normally associated with larger,
older or better-known companies.
Investments in securities of companies with small to medium market
capitalization are generally considered to offer greater opportunity for
appreciation and to involve greater risk of depreciation than securities of
companies with larger market capitalization. Because the securities of most
companies with small to medium market capitalization are not as broadly traded
as those of companies with larger market capitalization, these securities are
often subject to wider and more abrupt fluctuations in market price. In the
past, there have been prolonged periods when these securities have substantially
underperformed or outperformed the securities of larger capitalization
companies. In addition, smaller capitalization companies generally have fewer
assets available to cushion an unforeseen adverse occurrence and thus such an
occurrence may have a disproportionately negative impact on these companies.
The Series may invest up to 10% of its total assets in common stocks issued
by foreign companies which are traded on a recognized domestic or foreign
securities exchange. In addition to the fundamental analysis of companies and
their industries which it performs for U.S. issuers, the Adviser evaluates the
economic and political climate of the country in which the company is located
and the principal securities markets in which such securities are traded.
Although the foreign stocks in which the Series invests are primarily
denominated in foreign currencies, the Series also may invest in ADRs. The
Adviser does not attempt to time actively either short-term market trends or
short-term currency trends in any market. See "Foreign Securities--Risk
Factors" and "American Depository Receipts and Global Depository Receipts."
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The Series may borrow money for temporary or emergency purposes in amounts
not exceeding 5% of its total assets. The Series also may enter into repurchase
agreements and may make loans of portfolio securities. For temporary defensive
purposes, the Series may invest all of its assets in U.S. Government
Obligations, prime commercial paper, certificates of deposit and bankers'
acceptances. See the SAI for more information regarding these securities.
GOVERNMENT SERIES
GOVERNMENT SERIES seeks to achieve a significant level of current income
which is consistent with security and liquidity of principal by investing, under
normal market conditions, at least 65% of its assets in U.S. Government
Obligations, including mortgage-related securities. Securities issued or
guaranteed as to principal and interest by the U.S. Government include a variety
of Treasury securities, which differ only in their interest rates, maturities
and times of issuance. Although the payment of interest and principal on a
portfolio security may be guaranteed by the U.S. Government or one of its
agencies or instrumentalities, shares of the Series are not insured or
guaranteed by the U.S. Government or any agency or instrumentality. The net
asset value of shares of the Series generally will fluctuate in response to
interest rate levels. When interest rates rise, prices of fixed income
securities generally decline; when interest rates decline, prices of fixed
income securities generally rise. See "U.S. Government Obligations" and "Debt
Securities-Risk Factors," below.
The Series may invest in mortgage-related securities, including those
involving Government National Mortgage Association ("GNMA") certificates,
Federal National Mortgage Association ("FNMA") certificates and Federal Home
Loan Mortgage Corporation ("FHLMC") certificates. The Series also may invest in
securities issued or guaranteed by other U.S. Government agencies or
instrumentalities, including: the Federal Farm Credit System and the Federal
Home Loan Bank (each of which may not borrow from the U.S. Treasury and the
securities of which are not guaranteed by the U.S. Government); the Tennessee
Valley Authority, and the U.S. Postal Service (each of which may borrow from the
U.S. Treasury to meet its obligations); the Farmers Home Administration and the
Export-Import Bank (the securities of which are backed by the full faith and
credit of the United States). The Series normally reinvests principal payments
(whether regular or pre-paid) in additional mortgage-related securities. See
"Mortgage-Related Securities," below.
The Series may invest up to 35% of its assets in securities other than U.S.
Government Obligations and mortgage-related securities. These may include:
prime commercial paper, certificates of deposit of domestic branches of U.S.
banks, bankers' acceptances, repurchase agreements (applicable to U.S.
Government Obligations), insured certificates of deposit and certificates
representing accrual on U.S. Treasury securities. The Series also may make
loans of portfolio securities and invest in zero coupon securities. The Series
may borrow money for temporary or emergency purposes in amounts not exceeding 5%
of its total assets. See the SAI for a further discussion of these securities.
For temporary defensive purposes, the Series may invest all of its assets in
cash, cash equivalents and money market instruments, including bank certificates
of deposit, bankers' acceptances and commercial paper issued by domestic
corporations, short-term fixed income securities or U.S. Government Obligations.
See the SAI for a description of these securities.
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<PAGE>
GROWTH SERIES
The investment objective of GROWTH SERIES is long-term capital appreciation.
Current income through the receipt of interest or dividends from investments
will merely be incidental to the Series' efforts in pursuing its goal. It is
the policy of the Series to invest, under normal market conditions, primarily in
common stocks and it is anticipated that the Series will usually be so invested.
It also may invest to a limited degree in convertible securities and preferred
stocks. At least 75% of the value of the Series' total assets (excluding
securities held for defensive purposes) shall be invested in securities of
companies in industries in which the Adviser, or the Series' investment
subadviser, Wellington Management Company ("Subadviser" or "WMC"), believes
opportunities for capital growth exist. The Series does not intend to
concentrate its investments in a particular industry, but it may invest up to
25% of the value of its assets in a particular industry. The Series may also
invest in ADRs, purchase securities on a when-issued or delayed delivery basis
and make loans of portfolio securities. The Series may borrow money for
temporary or emergency purposes in amounts not exceeding 5% of its total assets.
For temporary defensive purposes, the Series may invest all of its assets in
U.S. Government Obligations, investment grade bonds, prime commercial paper,
certificates of deposit, bankers' acceptances, repurchase agreements and
participation interests. See the SAI for a description of these securities.
HIGH YIELD SERIES
HIGH YIELD SERIES primarily seeks high current income and secondarily seeks
growth of capital. The Series actively seeks to achieve its secondary objective
to the extent consistent with its primary objective. The Series seeks to
achieve its objectives by investing, under normal market conditions, at least
65% of its total assets in high risk, high yield securities, commonly referred
to as "junk bonds" ("High Yield Securities"). High Yield Securities include the
following instruments: fixed, variable or floating rate debt obligations
(including bonds, debentures and notes) which are rated below Baa by Moody's or
below BBB by S&P, or, if unrated, are deemed to be of comparable quality by the
Adviser; preferred stocks and dividend-paying common stocks that have yields
comparable to those of high yielding debt securities; any of the foregoing
securities of companies that are financially troubled, in default or undergoing
bankruptcy or reorganization ("Deep Discount Securities"); and any securities
convertible into any of the foregoing. See "High Yield Securities--Risk
Factors" and "Deep Discount Securities."
The Series may invest up to 5% of its total assets in foreign debt securities
issued by foreign governments and companies located outside the United States
and denominated in foreign currency. The Series may borrow money for temporary
or emergency purposes in amounts not exceeding 5% of its total assets, make
loans of portfolio securities, enter into repurchase agreements and invest in
zero coupon and pay-in-kind securities. The Series may also invest in
securities on a "when issued" or delayed delivery basis. See the SAI for more
information concerning these securities.
The Series may invest up to 35% of its total assets in securities other than
High Yield Securities, including: dividend-paying common stocks; securities
convertible into, or exchangeable for, common stock; debt obligations of all
types (including bonds, debentures and notes) rated A or better by Moody's or
S&P; U.S. Government Obligations; warrants and money market instruments
consisting of prime commercial paper, certificates of deposit of domestic
branches of U.S. banks, bankers' acceptances and repurchase agreements.
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<PAGE>
In any period of market weakness or of uncertain market or economic
conditions, the Series may establish a temporary defensive position to preserve
capital by having all or part of its assets invested in investment grade debt
securities or retained in cash or cash equivalents, including bank certificates
of deposit, bankers' acceptances, U.S. Government Obligations and commercial
paper issued by domestic corporations. See the SAI for more information
concerning these securities.
The medium- to lower-rated, and certain of the unrated securities in which
the Series invests tend to offer higher yields than higher-rated securities with
the same maturities because the historical financial condition of the issuers of
such securities may not be as strong as that of other issuers. Debt obligations
rated lower than Baa or BBB by Moody's or S&P, respectively, are speculative and
generally involve more risk of loss of principal and income than higher-rated
securities. Also, their yields and market value tend to fluctuate more than
higher quality securities. The greater risks and fluctuations in yield and
value occur because investors generally perceive issuers of lower-rated and
unrated securities to be less creditworthy. These risks cannot be eliminated,
but may be reduced by diversifying holdings to minimize the portfolio impact of
any single investment. In addition, fluctuations in market value does not
affect the cash income from the securities, but are reflected in the Series' net
asset value. When interest rates rise, the net asset value of the Series tends
to decrease. When interest rates decline, the net asset value of the Series
tends to increase.
Variable or floating rate debt obligations in which the Series may invest
periodically adjust their interest rates to reflect changing economic
conditions. Thus, changing economic conditions specified by the terms of the
security would serve to change the interest rate and the return offered to the
investor. This reduces the effect of changing market conditions on the
security's underlying market value.
A High Yield Security may itself be convertible into or exchangeable for
equity securities, or may carry with it the right to acquire equity securities
evidenced by warrants attached to the security or acquired as part of a unit
with the security. Although the Series invests primarily in High Yield
Securities, securities received upon conversion or exercise of warrants and
securities remaining upon the break-up of units or detachment of warrants may be
retained to permit orderly disposition, to establish a long-term holding basis
for Federal income tax purposes or to seek capital appreciation.
Because of the greater number of investment considerations involved in
investing in High Yield Securities, the achievement of the Series' investment
objectives depends more on the Adviser's research abilities than would be the
case if the Series were investing primarily in securities in the higher rated
categories. Because medium- to lower-rated securities generally involve greater
risks of loss of income and principal than higher-rated securities, investors
should consider carefully the relative risks associated with investments in
securities that carry medium to lower ratings or, if unrated, deemed to be of
comparable quality by the Adviser. See "High Yield Securities--Risk Factors"
and Appendix A for a description of corporate bond ratings.
The dollar weighted average of credit ratings of all bonds held by the Series
during the 1994 fiscal year, computed on a monthly basis, is set forth below.
This information reflects the average composition of the Series' assets during
the 1994 fiscal year and is not necessarily representative of the Series as of
the end of its 1994 fiscal year, the current fiscal year or at any other time in
the future.
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<TABLE>
<CAPTION>
COMPARABLE QUALITY OF
UNRATED SECURITIES TO
RATED BY MOODY'S BONDS RATED BY MOODY'S
----------------- -----------------------
<S> <C> <C>
Baa 1.07% 0%
Ba 12.74 1.72
B 67.88 2.31
Caa 4.82 0.98
Ca 0.10 0
----- ----
Total 86.61% 5.01%
</TABLE>
INTERNATIONAL SECURITIES SERIES
INTERNATIONAL SECURITIES SERIES primarily seeks long-term capital growth and
secondarily seeks to earn a reasonable level of current income. The Series may
invest in all types of securities issued by companies and government
instrumentalities of any nation, subject only to industry concentration and
issuer diversification restrictions described below and in the SAI. This
investment flexibility permits the Series to react to rapidly changing economic
conditions among countries which cause the relative attractiveness of
investments within national markets to be subject to frequent reappraisal. It
is a fundamental policy of the Series that no more than 35% of its total assets
will be invested in securities issued by U.S. companies and U.S. Government
Obligations or cash and cash equivalents denominated in U.S. currency. In
addition, the Series presently does not intend to invest more than 35% of its
total assets in any one particular country. Further, except for temporary
defensive purposes, the Series' assets will be invested in securities of at
least three different countries outside the United States. For defensive
purposes, the Series may temporarily invest in securities issued by U.S.
companies and the U.S. Government and its agencies and instrumentalities, or
cash equivalents denominated in U.S. currency, without limitation as to amount.
See "Foreign Securities--Risk Factors".
The Series may purchase securities traded on any foreign stock exchange. The
Series may also purchase American Depository Receipts ("ADRs") and Global
Depository Receipts ("GDRs"). See "American Depository Receipts and Global
Depository Receipts," below. The Series also may invest up to 25% of its total
assets in unlisted securities of foreign issuers; provided, however, that no
more than 15% of the value of its net assets may be invested in unlisted
securities with a limited trading market and other illiquid investments. The
investment standards for the selection of unlisted securities are the same as
those used in the purchase of securities traded on a stock exchange.
The Series may invest in warrants, which may or may not be listed on a
recognized United States or foreign exchange. The Series also may enter into
repurchase agreements, purchase securities on a when-issued or delayed delivery
basis and make loans of portfolio securities. The Series also may borrow money
for temporary or emergency purposes in amounts not exceeding 5% of its total
assets. See the SAI for further information concerning these securities.
INVESTMENT GRADE SERIES
INVESTMENT GRADE SERIES seeks to generate a maximum level of income
consistent with investment in investment grade debt securities. The Series
seeks to achieve its objective by investing, under normal market conditions, at
least 65% of its total assets in debt securities of U.S. issuers that are rated
in the four highest rated categories by Moody's or S&P, or in unrated
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<PAGE>
securities that are deemed to be of comparable quality by the Adviser
("investment grade securities"). The Series may invest up to 35% of its total
assets in U.S. Government Obligations, including mortgage-related securities,
dividend-paying common and preferred stocks, obligations convertible into common
stocks, repurchase agreements, debt securities rated below investment grade and
money market instruments. The Series may invest up to 5% of its net assets in
corporate or government debt securities of foreign issuers which are U.S. dollar
denominated and traded in U.S. markets. The Series may also borrow money for
temporary or emergency purposes in amounts not exceeding 5% of its total assets.
The Series may purchase securities on a when-issued basis, make loans of
portfolio securities and invest in zero coupon or pay-in-kind securities. See
"Description of Certain Securities, Other Investment Policies and Risk Factors,"
below, and the SAI for additional information concerning these securities.
The published reports of rating services are considered by the Adviser in
selecting rated securities for the Series' portfolio. The Adviser also relies,
among other things, on its own credit analysis, which includes a study of the
existing debt's capital structure, the issuer's ability to service debt (or to
pay dividends, if investing in common or preferred stock) and the current trend
of earnings for the issuer. Although up to 100% of the Series' total assets can
be invested in debt securities rated at least Baa by Moody's or at least BBB by
S&P, or unrated debt securities deemed to be of comparable quality by the
Adviser, no more than 5% of the Series' net assets may be invested in debt
securities rated lower than Baa by Moody's or BBB by S&P (including securities
that have been downgraded), or, if unrated, deemed to be of comparable quality
by the Adviser, or in any equity securities of any issuer if a majority of the
debt securities of such issuer are rated lower than Baa by Moody's or BBB by
S&P. Securities rated BBB or Baa by S&P or Moody's, respectively, are
considered to be speculative with respect to the issuer's ability to make
principal and interest payments. The Adviser continually monitors the
investments in the Series' portfolio and carefully evaluates on a case-by-case
basis whether to dispose of or retain a debt security which has been downgraded
to a rating lower than investment grade. See "Debt Securities--Risk Factors"
and Appendix A for a description of corporate bond ratings.
For temporary defensive purposes, the Series may invest all of its assets in
money market instruments, short-term fixed income securities or U.S. Government
Obligations. See the SAI for additional information concerning these
securities.
TARGET MATURITY 2007 SERIES
TARGET MATURITY 2007 SERIES seeks to provide a predictable compounded
investment for investors who hold their Series shares until the Series'
maturity, consistent with preservation of capital. The Series will seek its
objective by investing, under normal market conditions, at least 65% of its
total assets in zero coupon securities which are issued by the U.S. Government
and its agencies and instrumentalities or created by third parties using
securities issued by the U.S. Government and its agencies and instrumentalities.
These investments will mature no later than December 31, , 2007 (the "Maturity
Date"). On the Maturity Date, the Series will be converted to cash and
distributed or reinvested in another series of the Fund at the investor's
choice.
The Series seeks to provide investors with a positive total return at the
Maturity Date which, together with the reinvestment of all dividends and
distributions, exceeds their original investment in the Series by a relatively
predictable amount. While the risk of fluctuation in the values of zero coupon
securities is greater when the period to maturity is longer, that risk tends to
diminish as the
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<PAGE>
Maturity Date approaches. Although an investor can redeem shares at the current
net asset value at any time, any investor who redeems his or her shares prior to
the Maturity Date is likely to achieve a different investment result than the
return that was predicted on the date the investment was made, and may even
suffer a significant loss.
Zero coupon securities are debt obligations that do not entitle the holder to
any periodic payment of interest prior to maturity or a specified date when the
securities begin paying current interest. They are issued and traded at a
discount from their face amount or par value, which discount varies depending on
the time remaining until maturity, prevailing interest rates, liquidity of the
security and the perceived credit quality of the issuer. When held to maturity,
their entire return, which consists of the accretion of the discount, comes from
the difference between their issue price and their maturity value. This
difference is known at the time of purchase, so investors holding zero coupon
securities until maturity know the amount of their investment return at the time
of their investment. The market values are subject to greater market
fluctuations from changing interest rates prior to maturity than the values of
debt obligations of comparable maturities that bear interest currently. See
"Zero Coupon Securities-Risk Factors."
A portion of the total realized return from conventional interest-paying
bonds comes from the reinvestment of periodic interest. Since the rate to be
earned on these reinvestments may be higher or lower than the rate quoted on the
interest-paying bonds at the time of the original purchase, the total return of
interest-paying bonds is uncertain even for investors holding the security to
its maturity. This uncertainty is commonly referred to as reinvestment risk and
can have a significant impact on total realized investment return. With zero
coupon securities, however, there are no cash distributions to reinvest, so
investors bear no reinvestment risk if they hold the zero coupon securities to
maturity.
The Series will primarily purchase three types of zero coupon securities:
(1) U.S. Treasury STRIPS (Separate Trading of Registered Interest and Principal
Securities) which are created when the coupon payments and the principal payment
are stripped from an outstanding Treasury security by the Federal Reserve Bank.
Bonds issued by the Resolution Funding Corporation (REFCORP) can also be
stripped in this fashion. (2) STRIPS which are created when a dealer deposits
a Treasury security or a Federal agency security with a custodian for
safekeeping and then sells the coupon payments and principal payment that will
be generated by this security. Bonds issued by the Financing Corporation (FICO)
can be stripped in this fashion. (3) Zero coupon securities of Federal agencies
and instrumentalities either issued directly by an agency in the form of a zero
coupon bond or created by stripping an outstanding bond.
The Series may invest up to 35% of its total assets in the following
instruments: interest- bearing obligations issued by the U.S. Government and
its agencies and instrumentalities (see "U.S. Government Obligations");
corporate debt securities, including corporate zero coupon securities;
repurchase agreements; and money market instruments consisting of prime
commercial paper, certificates of deposit of domestic branches of U.S. banks and
bankers' acceptances. The TARGET MATURITY 2007 SERIES may only invest in debt
securities rated A or better by Moody's or S&P or in unrated securities that are
deemed to be of comparable quality by the Adviser. Debt obligations rated A or
better by Moody's or S&P comprise what are known as high-grade bonds and are
regarded as having a strong capacity to pay principal and interest. See
Appendix A for a description of corporate bond ratings. The Series may also
invest in restricted and illiquid securities, make loans
16
<PAGE>
of portfolio securities and purchase securities on a when-issued basis. See the
SAI for more information regarding these types of investments.
UTILITIES INCOME SERIES
The primary investment objective of UTILITIES INCOME SERIES is to seek high
current income. Long-term capital appreciation is a secondary objective. The
Series seeks its objectives by investing, under normal market conditions, at
least 65% of its total assets in equity and debt securities issued by companies
primarily engaged in the public utilities industry. Equity securities in which
the Series may invest include common stocks, preferred stocks, securities
convertible into common stocks or preferred stocks, and warrants to purchase
common or preferred stocks. Debt securities in which the Series may invest will
be rated at the time of investment at least A by Moody's or S&P or, if unrated,
will be deemed to be of comparable quality as determined by the Adviser. Debt
securities rated A or higher by Moody's or S&P or, if unrated, deemed to be of
comparable quality by the Adviser, are regarded as having a strong capacity to
pay principal and interest. The Series' policy is to attempt to sell, within a
reasonable time period, a debt security in its portfolio which has been
downgraded below A, provided that such disposition is in the best interests of
the Series and its shareholders. See Appendix A for a description of corporate
bond ratings. The portion of the Series' assets invested in equity securities
and in debt securities will vary from time to time due to changes in interest
rates and economic and other factors.
The utility companies in which the Series will invest include companies
primarily engaged in the ownership or operation of facilities used to provide
electricity, gas, water or telecommunications (including telephone, telegraph
and satellite, but not companies engaged in public broadcasting or cable
television). For these purposes, "primarily engaged" mean that (1) more than
50% of the company's assets are devoted to the ownership or operation of one or
more facilities as described above, or (2) more than 50% of the company's
operating revenues are derived from the business or combination of any of the
businesses described above. It should be noted that based on this definition,
the Series may invest in companies which are also involved to a significant
degree in non-public utilities activities.
Utility stocks generally offer dividend yields that exceed those of
industrial companies and their prices tend to be less volatile than stocks of
industrial companies. However, utility stocks can still be affected by the
risks of the stock of industrial companies. Because the Series concentrates its
investments in public utilities companies, the value of its shares will be
especially affected by factors peculiar to the utilities industry, and may
fluctuate more widely than the value of shares of a fund that invests in a
broader range of industries. See "Utilities Industries--Risk Factors."
The Series may invest up to 35% of its total assets in the following
instruments: debt securities (rated at least A by Moody's or S&P) and common and
preferred stocks of non-utility companies; U.S. Government Obligations;
mortgage-related securities; cash; and money market instruments consisting of
prime commercial paper, bankers' acceptances, certificates of deposit and
repurchase agreements. The Series may invest in securities on a "when-issued"
or delayed delivery basis and make loans of portfolio securities. The Series
may invest up to 5% of its net assets in ADRs. The Series may borrow money for
temporary or emergency purposes in amounts not exceeding 5% of its net assets.
The Series also may invest in zero coupon and pay-in-kind securities. In
addition, in any period of market weakness or of uncertain market or economic
conditions, the Series may establish a temporary defensive position to preserve
capital by having all of its assets invested in short-term
17
<PAGE>
fixed income securities or retained in cash or cash equivalents. See the SAI for
a description of these securities.
GENERAL. Each Series' net asset value fluctuates based mainly upon changes
in the value of its portfolio securities. Each Series' investment objectives
and certain investment limitations set forth in the SAI are fundamental policies
that may not be changed without shareholder approval. There can be no assurance
that any Series will achieve its investment objectives.
DESCRIPTION OF CERTAIN SECURITIES, OTHER INVESTMENT POLICIES AND RISK FACTORS
AMERICAN DEPOSITORY RECEIPTS AND GLOBAL DEPOSITORY RECEIPTS. INTERNATIONAL
SECURITIES SERIES, GROWTH SERIES and DISCOVERY SERIES may invest in sponsored
and unsponsored ADRs. ADRs are receipts typically issued by a U.S. bank or
trust company evidencing ownership of the underlying securities of foreign
issuers, and other forms of depository receipts for securities of foreign
issuers. Generally, ADRs, in registered form, are denominated in U.S. dollars
and are designed for use in the U.S. securities markets. Thus, these securities
are not denominated in the same currency as the securities into which they may
be converted. In addition, the issuers of the securities underlying unsponsored
ADRs are not obligated to disclose material information in the United States
and, therefore, there may be less information available regarding such issuers
and there may not be a correlation between such information and the market value
to the ADRs. INTERNATIONAL SECURITIES SERIES may also invest in GDRs. GDRs
are issued globally and evidence a similar ownership arrangement. Generally,
GDRs are designed for trading in non-U.S. securities markets. ADRs and GDRs are
considered to be foreign securities by INTERNATIONAL SECURITIES SERIES, GROWTH
SERIES and DISCOVERY SERIES, as appropriate. See "Foreign Securities--Risk
Factors."
BANKERS' ACCEPTANCES. Each Series may invest in bankers' acceptances.
Bankers' acceptances are short-term credit instruments used to finance
commercial transactions. Generally, an acceptance is a time draft drawn on a
bank by an exporter or importer to obtain a stated amount of funds to pay for
specific merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
asset or it may be sold in the secondary market at the going rate of interest
for a specific maturity. Although maturities for acceptances can be as long as
270 days, most acceptances have maturities of six months or less.
CERTIFICATES OF DEPOSIT. Each Series may invest in bank certificates of
deposit ("CDs"). The FDIC is an agency of the U.S. Government which insures the
deposits of certain banks and savings and loan associations up to $100,000 per
deposit. The interest on such deposits may not be insured if this limit is
exceeded. Current Federal regulations also permit such institutions to issue
insured negotiable CDs in amounts of $100,000 or more, without regard to the
interest rate ceilings on other deposits. To remain fully insured, these
investments currently must be limited to $100,000 per insured bank or savings
and loan association.
COMMERCIAL PAPER. Commercial paper is a promissory note issued by a
corporation to finance short-term credit needs which may either be unsecured or
backed by a letter of credit. Commercial paper includes notes, drafts or
similar instruments payable on demand or having a maturity at the time of
issuance not exceeding nine months, exclusive of days of grace or any renewal
thereof. See Appendix A to the SAI for a description of commercial paper
ratings.
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<PAGE>
CONVERTIBLE SECURITIES. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or
dividends paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Convertible securities have unique investment
characteristics in that they generally (1) have higher yields than common
stocks, but lower yields than comparable non-convertible securities, (2) are
less subject to fluctuation in value than the underlying stock because they have
fixed income characteristics, and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases. See
the SAI for more information on convertible securities.
DEBT SECURITIES--RISK FACTORS. The market value of debt securities is
influenced primarily by changes in the level of interest rates. Generally, as
interest rates rise, the market value of debt securities decreases. Conversely,
as interest rates fall, the market value of debt securities increases. Factors
which could result in a rise in interest rates, and a decrease in the market
value of debt securities, include an increase in inflation or inflation
expectations, an increase in the rate of U.S. economic growth, an expansion in
the Federal budget deficit or an increase in the price of commodities such as
oil. In addition, the market value of debt securities is influenced by
perceptions of the credit risks associated with such securities. Sale of debt
securities prior to maturity may result in a loss and the inability to replace
the sold securities with debt securities with a similar yield. Debt obligations
rated lower than Baa by Moody's or BBB by S&P, commonly referred to as "junk
bonds" are speculative and generally involve a higher risk of loss of principal
and income than higher-rated securities. See "High Yield Securities--Risk
Factors" and Appendix A for a description of corporate bond ratings.
DEEP DISCOUNT SECURITIES. HIGH YIELD SERIES may invest up to 15% of its
total assets in securities of companies that are financially troubled, in
default or undergoing bankruptcy or reorganization. Such securities are usually
available at a deep discount from the face value of the instrument. The Series
will invest in Deep Discount Securities when the Adviser believes that there
exist factors that are likely to restore the company to a healthy financial
condition. Such factors include a restructuring of debt, management changes,
existence of adequate assets or other unusual circumstances. Debt instruments
purchased at deep discounts may pay very high effective yields. In addition, if
the financial condition of the issuer improves, the underlying value of the
security may increase, resulting in a capital gain. If the company defaults on
its obligations or remains in default, or if the plan of reorganization is
insufficient for debtholders, the Deep Discount Securities may stop paying
interest and lose value or become worthless. The Adviser will balance the
benefits of Deep Discount Securities with their risks. While a diversified
portfolio may reduce the overall impact of a Deep Discount Security that is in
default or loses its value, the risk cannot be eliminated. See "High Yield
Securities--Risk Factors."
EURODOLLAR CERTIFICATES OF DEPOSIT. CASH MANAGEMENT SERIES may invest in
Eurodollar CDs, which are issued by London branches of domestic or foreign
banks. Such securities involve risks that differ from certificates of deposit
issued by domestic branches of U.S. banks. These risks include future political
and economic developments, the possible imposition of United Kingdom withholding
taxes on interest income payable on the securities, the possible establishment
of exchange controls, the possible seizure or nationalization of foreign
deposits or the adoption of other foreign governmental restrictions that might
adversely affect the payment of principal and interest on such securities.
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FOREIGN SECURITIES--RISK FACTORS. INTERNATIONAL SECURITIES SERIES, GROWTH
SERIES and DISCOVERY SERIES may sell a security denominated in a foreign
currency and retain the proceeds in that foreign currency to use at a future
date (to purchase other securities denominated in that currency) or the Series
may buy foreign currency outright to purchase securities denominated in that
foreign currency at a future date. Because the Series do not intend to hedge
their foreign investments, each Series will be affected by changes in exchange
control regulations and fluctuations in the relative rates of exchange between
the currencies of different nations, as well as by economic and political
developments. Other risks involved in foreign securities include the following:
there may be less publicly available information about foreign companies
comparable to the reports and ratings that are published about companies in the
United States; foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies; some foreign stock markets
have substantially less volume than U.S. markets, and securities of some foreign
companies are less liquid and more volatile than securities of comparable U.S.
companies; there may be less government supervision and regulation of foreign
stock exchanges, brokers and listed companies than exist in the United States;
and there may be the possibility of expropriation or confiscatory taxation,
political or social instability or diplomatic developments which could affect
assets of the INTERNATIONAL SECURITIES SERIES, GROWTH SERIES or DISCOVERY SERIES
held in foreign countries.
INTERNATIONAL SECURITIES SERIES' and DISCOVERY SERIES' investments in
emerging markets include investments in countries whose economies or securities
markets are not yet highly developed. Special considerations associated with
these investments (in addition to the considerations regarding foreign
investments generally) may include, among others, greater political
uncertainties, an economy's dependence on revenues from particular commodities
or on international aid or development assistance, currency transfer
restrictions, a limited number of potential buyers for such securities and
delays and disruptions in securities settlement procedures.
HIGH YIELD SECURITIES--RISK FACTORS. High Yield Securities are subject to
certain risks that may not be present with investments in higher grade
securities.
EFFECT OF INTEREST RATE AND ECONOMIC CHANGES. High Yield Securities rated
lower than Baa by Moody's or BBB by S&P, commonly referred to as "junk bonds"
are speculative and generally involve a higher risk or loss of principal and
income than higher-rated securities. The prices of High Yield Securities tend to
be less sensitive to interest rate changes than higher-rated investments, but
may be more sensitive to adverse economic changes or individual corporate
developments. Periods of economic uncertainty and changes generally result in
increased volatility in the market prices and yields of High Yield Securities
and thus in a Series' net asset value. A strong economic downturn or a
substantial period of rising interest rates could severely affect the market for
High Yield Securities. In these circumstances, highly leveraged companies might
have greater difficulty in making principal and interest payments, meeting
projected business goals, and obtaining additional financing. Thus, there could
be a higher incidence of default. This would affect the value of such
securities and thus a Series' net asset value. Further, if the issuer of a
security owned by a Series defaults, that Series might incur additional expenses
to seek recovery.
Generally, when interest rates rise, the value of fixed rate debt
obligations, including High Yield Securities, tends to decrease; when interest
rates fall, the value of fixed rate debt obligations tends to increase. If an
issuer of a High Yield Security containing a redemption or call provision
exercises either provision in a declining interest rate market, a Series would
have to replace the security,
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which could result in a decreased return for shareholders. Conversely, if a
Series experiences unexpected net redemptions in a rising interest rate market,
it might be forced to sell certain securities, regardless of investment merit.
This could result in decreasing the assets to which Series expenses could be
allocated and in a reduced rate of return for that Series. While it is
impossible to protect entirely against this risk, diversification of a Series'
portfolio and the Adviser's careful analysis of prospective portfolio securities
should minimize the impact of a decrease in value of a particular security or
group of securities in a Series' portfolio.
THE HIGH YIELD SECURITIES MARKET. The market for below investment grade
bonds expanded rapidly in the 1980's, and its growth paralleled a long economic
expansion. During that period, the yields on below investment grade bonds rose
dramatically. Such higher yields did not reflect the value of the income stream
that holders of such bonds expected, but rather the risk that holders of such
bonds could lose a substantial portion of their value as a result of the
issuers' financial restructuring or default. In fact, from 1989 to 1991 during
a period of economic recession, the percentage of lower quality securities that
defaulted rose significantly, although the default rate decreased in subsequent
years. There can be no assurance that such declines in the below investment
grade market will not reoccur. The market for below investment grade bonds
generally is thinner and less active than that for higher quality bonds, which
may limit a Fund's ability to sell such securities at fair value in response to
changes in the economy or the financial markets. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may also decrease the
values and liquidity of lower rated securities, especially in a thinly traded
market.
CREDIT RATINGS. The credit ratings issued by credit rating services may
not fully reflect the true risks of an investment. For example, credit ratings
typically evaluate the safety of principal and interest payments, not market
value risk, of High Yield Securities. Also, credit rating agencies may fail to
change on a timely basis a credit rating to reflect changes in economic or
company conditions that affect a security's market value. Although the Adviser
considers ratings of recognized rating services such as Moody's and S&P, the
Adviser primarily relies on its own credit analysis, which includes a study of
existing debt, capital structure, ability to service debt and to pay dividends,
the issuer's sensitivity to economic conditions, its operating history and the
current trend of earnings. HIGH YIELD SERIES may invest in securities rated D
by S&P or C by Moody's or, if unrated, deemed to be of comparable quality by the
Adviser. Debt obligations with these ratings either have defaulted or in great
danger of defaulting and are considered to be highly speculative. See "Deep
Discount Securities." The Adviser continually monitors the investments in a
Series' portfolio and carefully evaluates whether to dispose of or retain High
Yield Securities whose credit ratings have changed. See Appendix A for a
description of corporate bond ratings.
LIQUIDITY AND VALUATION. Lower-rated bonds are typically traded among a
smaller number of broker-dealers than in a broad secondary market. Purchasers
of High Yield Securities tend to be institutions, rather than individuals, which
is a factor that further limits the secondary market. To the extent that no
established retail secondary market exists, many High Yield Securities may not
be as liquid as higher-grade bonds. A less active and thinner market for High
Yield Securities than that available for higher quality securities may result in
more volatile valuations of a Series' holdings and more difficulty in executing
trades at favorable prices during unsettled market conditions.
The ability of a Series to value or sell High Yield Securities will be
adversely affected to the extent that such securities are thinly traded or
illiquid. During such periods, there may be less
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reliable objective information available and thus the responsibility of the
Fund's Board of Trustees to value High Yield Securities becomes more difficult,
with judgment playing a greater role. Further, adverse publicity about the
economy or a particular issuer may adversely affect the public's perception of
the value, and thus liquidity, of a High Yield Security, whether or not such
perceptions are based on a fundamental analysis.
LEGISLATION. Provisions of the Revenue Reconciliation Act of 1989 limit a
corporate issuer's deduction for a portion of the original issue discount on
"high yield discount" obligations (including certain pay-in-kind securities).
This limitation could have a materially adverse impact on the market for certain
High Yield Securities. From time to time, legislators and regulators have
proposed other legislation that would limit the use of high yield debt
securities in leveraged buyouts, mergers and acquisitions. It is not certain
whether such proposals, which also could adversely affect High Yield Securities,
will be enacted into law.
MORTGAGE-RELATED SECURITIES
Mortgage loans made by banks, savings and loan institutions and other
lenders are often assembled into pools, the interests in which are issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself. Interests in such pools are referred
to herein as "mortgage-related securities." The market value of these
securities will fluctuate as interest rates and market conditions change. In
addition, prepayment of principal by the mortgagees, which often occurs with
mortgage-related securities when interest rates decline, can significantly
change the realized yield of these securities.
GNMA certificates are backed as to the timely payment of principal and
interest by the full faith and credit of the U.S. Government. Payments of
principal and interest on FNMA certificates are guaranteed only by FNMA itself,
not by the full faith and credit of the U.S. Government. FHLMC certificates
represent mortgages for which FHLMC has guaranteed the timely payment of
principal and interest but, like a FNMA certificate, they are not guaranteed by
the full faith and credit of the U.S. Government.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH
SECURITIES. Collateralized mortgage obligations ("CMOs") are debt obligations
collateralized by mortgage loans or mortgage pass-through securities.
Typically, CMOs are collateralized by GNMA certificates or other government
mortgage-backed securities (such collateral collectively hereinafter referred to
as "Mortgage Assets"). Multiclass pass-through securities are interests in
trusts that are comprised of Mortgage Assets. Unless the context indicates
otherwise, references herein to CMOs include Multiclass pass-through securities.
Payments of principal of, and interest on, the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or to make scheduled distributions on the multiclass pass-through securities.
CMOs in which GOVERNMENT SERIES may invest are issued or guaranteed by U.S.
Government agencies or instrumentalities, such as FNMA and FHLMC. See the SAI
for more information on CMOs.
STRIPPED MORTGAGE-BACKED SECURITIES. GOVERNMENT SERIES may invest in
stripped mortgage-backed securities ("SMBS"), which are derivative multiclass
mortgage securities. SMBS are usually structured with two classes that receive
different proportions of the interest and principal distributions from a pool of
mortgage assets. A common type of SMBS will have one class receiving most of
the interest and the remainder of the principal. In the most extreme case, one
class will
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receive all of the interest while the other class will receive all of the
principal. If the underlying Mortgage Assets experience greater than anticipated
prepayments of principal, the Series may fail to fully recoup its initial
investment in these securities. The market value of the class consisting
primarily or entirely of principal payments generally is unusually volatile in
response to changes in interest rates.
RISKS OF MORTGAGE-RELATED SECURITIES. Investments in mortgage-related
securities entail both market and prepayment risk. Fixed-rate mortgage-related
securities are priced to reflect, among other things, current and perceived
interest rate conditions. As conditions change, market values will fluctuate.
In addition, the mortgages underlying mortgage-related securities generally may
be prepaid in whole or in part at the option of the individual buyer.
Prepayments of the underlying mortgages can affect the yield to maturity on
mortgage-related securities and, if interest rates decline, the prepayment may
only be invested at the then prevailing lower interest rate. Changes in market
conditions, particularly during periods of rapid or unanticipated changes in
market interest rates, may result in volatility and reduced liquidity of the
market value of certain mortgage-related securities. CMOs and SMBS involve
similar risks, although they may be more volatile. In addition, because SMBS
were only recently introduced, established trading markets for these securities
have not yet developed, although the securities are traded among institutional
investors and investment banking firms.
PORTFOLIO TURNOVER. The decline in interest rates in 1993 and 1994 had an
impact on the mortgage-related securities market, where a large volume of
prepayments of mortgages occurred. As a result of these prepayments, among
other things, GOVERNMENT SERIES liquidated many of its positions in premium
mortgage-backed securities. This resulted in a portfolio turnover rate of 457%
for the fiscal year ended 1994. A high rate of portfolio turnover generally
leads to increased transaction costs and may result in a greater number of
taxable transactions. See "Allocation of Portfolio Brokerage" in the SAI. The
TARGET MATURITY 2007 SERIES currently does not expect its annual rate of
portfolio turnover to exceed 100%. See the SAI for the other Series' portfolio
turnover rate and for more information on portfolio turnover.
PREFERRED STOCK. A preferred stock is a blend of the characteristics of a
bond and common stock. It can offer the higher yield of a bond and has priority
over common stock in equity ownership, but does not have the seniority of a bond
and, unlike common stock, its participation in the issuer's growth may be
limited. Preferred stock has preference over common stock in the receipt of
dividends and in any residual assets after payment to creditors should the
issuer be dissolved. Although the dividend is set at a fixed annual rate, in
some circumstances it can be changed or omitted by the issuer.
RESTRICTED AND ILLIQUID SECURITIES. Each Series, other than CASH MANAGEMENT
SERIES, may invest up to 15% of its net assets in illiquid securities. CASH
MANAGEMENT SERIES may invest up to 10% of its net assets in illiquid securities.
These securities include (1) securities that are illiquid due to the absence of
a readily available market or due to legal or contractual restrictions on resale
and (2) repurchase agreements maturing in more than seven days. However,
illiquid securities for purposes of this limitation do not include securities
eligible for resale to qualified institutional buyers pursuant to Rule 144A
under the Securities Act of 1933, as amended (the "1933 Act"), which the Fund's
Board of Trustees or the Adviser or, for GROWTH SERIES and INTERNATIONAL
SECURITIES SERIES, their Subadviser, has determined are liquid under Board-
approved guidelines. See the SAI for more information regarding restricted and
illiquid securities.
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Under current guidelines of the staff of the SEC, interest-only and
principal-only classes of fixed-rate mortgage-related securities in which
GOVERNMENT FUND may invest are considered illiquid. However, such securities
issued by the U.S. Government or one of its agencies or instrumentalities will
not be considered illiquid if the Adviser has determined that they are liquid
pursuant to guidelines established by the GOVERNMENT FUND's Board of Directors.
The GOVERNMENT FUND may not be able to sell illiquid securities when the Adviser
considers it desirable to do so or may have to sell such securities at a price
lower than could be obtained if they were more liquid. Also the sale of
illiquid securities may require more time and may result in higher dealer
discounts and other selling expenses than does the sale of securities that are
not illiquid. Illiquid securities may be more difficult to value due to the
unavailability of reliable market quotations for such securities, and investment
in illiquid securities may have an adverse impact on net asset value.
TIME DEPOSITS. CASH MANAGEMENT SERIES may invest in time deposits. Time
deposits are non-negotiable deposits maintained in a banking institution for a
specified period of time at a stated interest rate. For the most part, time
deposits which may be held by the Series would not benefit from insurance from
the Bank Insurance Fund or the Savings Association Insurance Fund administered
by the FDIC.
U.S. GOVERNMENT OBLIGATIONS. Securities issued or guaranteed as to principal
and interest by the U.S. Government include (1) U.S. Treasury obligations which
differ only in their interest rates, maturities and times of issuance as
follows: U.S. Treasury bills (maturities of one year or less), U.S. Treasury
notes (maturities of one to ten years), and U.S. Treasury bonds (generally
maturities of greater than ten years); and (2) obligations issued or guaranteed
by U.S. Government agencies and instrumentalities that are backed by the full
faith and credit of the United States, such as securities issued by the Federal
Housing Administration, GNMA, the Department of Housing and Urban Development,
the Export-Import Bank, the General Services Administration and the Maritime
Administration and certain securities issued by the Farmers Home Administration
and the Small Business Administration. The range of maturities of U.S.
Government Obligations is usually three months to thirty years.
UTILITIES INDUSTRY-RISK FACTORS. Stocks of utilities companies generally
offer dividend yields that exceed those of industrial companies and their prices
tend to be less volatile than stocks of industrial companies. However, utility
stocks can still be affected by the risks of the stock market in general, as
well as factors specific to public utilities companies.
Many utility companies, especially electric and gas and other energy-related
utility companies, have historically been subject to the risk of increases in
fuel and other operating costs, changes in interest rates on borrowing for
capital improvement programs, changes in applicable laws and regulations, and
costs and operating constraints associated with compliance with environmental
regulations. In particular, regulatory changes with respect to nuclear and
conventionally-fueled power generating facilities could increase costs or impair
the ability of utility companies to operate such facilities or obtain adequate
return on invested capital.
Certain utilities, especially gas and telephone utilities, have in recent
years been affected by increased competition, which could adversely affect the
profitability of such utility companies. In addition, expansion by companies
engaged in telephone communication services of their non-regulated activities
into other businesses (such as cellular telephone services, data processing,
equipment retailing, computer services and financial services) has provided the
opportunity for
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increases in earnings and dividends at faster rates than have been allowed in
traditional regulated businesses. However, technological innovations and other
structural changes also could adversely affect the profitability of such
companies in competition with utilities companies.
Because securities issued by utility companies are particularly sensitive to
movements in interest rates, the equity securities of such companies are more
affected by movements in interest rates than are the equity securities of other
companies.
Each of these risks could adversely affect the ability and inclination of
public utilities companies to declare or pay dividends and the ability of
holders of common stock, such as the UTILITIES INCOME SERIES, to realize any
value from the assets of the company upon liquidation or bankruptcy.
VARIABLE RATE AND FLOATING RATE NOTES. CASH MANAGEMENT SERIES may invest in
variable rate and floating rate notes. Issuers of such notes include
corporations, banks, broker-dealers and finance companies. Variable rate notes
include master demand notes which are obligations permitting the holder to
invest fluctuating amounts, which may change daily without penalty, pursuant to
direct arrangements between the Series, as lender, and the borrower. The
interest rates on these notes fluctuate from time to time. The issuer of such
obligations normally has a corresponding right, after a given period, to prepay
in its discretion the outstanding principal amount of the obligations plus
accrued interest upon a specified number of days' notice to the holders of such
obligations. See the SAI for more information on these securities.
ZERO COUPON AND PAY-IN-KIND SECURITIES. Zero coupon securities are debt
obligations that do not entitle the holder to any periodic payment of interest
prior to maturity or a specified date when the securities begin paying current
interest. They are issued and traded at a discount from their face amount or
par value, which discount varies depending on the time remaining until cash
payments begin, prevailing interest rates, liquidity of the security and the
perceived credit quality of the issuer. Pay-in-kind securities are those that
pay interest through the issuance of additional securities. The market prices
of zero coupon and pay-in-kind securities generally are more volatile than the
prices of securities that pay interest periodically and in cash and are likely
to respond to changes in interest rates to a greater degree than do other types
of debt securities having similar maturities and credit quality. Original issue
discount earned on zero coupon securities and the "interest" on pay-in-kind
securities must be included in a Series' income. Thus, to continue to qualify
for tax treatment as a regulated investment company and to avoid a certain
excise tax on undistributed income, a Series may be required to distribute as a
dividend an amount that is greater than the total amount of cash it actually
receives. See "Taxes" in the SAI. These distributions must be made from a
Series' cash assets or, if necessary, from the proceeds of sales of portfolio
securities. A Series will not be able to purchase additional income-producing
securities with cash used to make such distributions, and its current income
ultimately could be reduced as a result.
ZERO COUPON SECURITIES-RISK FACTORS. Zero coupon securities are debt
securities and thus are subject to the same risk factors as all debt securities.
See "Debt Securities-Risk Factors." The market prices of zero coupon
securities, however, generally are more volatile than the prices of securities
that pay interest periodically and in cash and are likely to respond to changes
in interest rates to a greater degree than do other types of debt securities
having similar maturities and credit quality. As a result, the net asset value
of shares of the TARGET MATURITY 2007 SERIES may fluctuate over a greater range
than shares of the other Series or mutual funds that invest in debt obligations
having similar maturities but that make current distributions of interest.
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Zero coupon securities can be sold prior to their due date in the secondary
market at their then prevailing market value, which depends primarily on the
time remaining to maturity, prevailing levels of interest rates and the
perceived credit quality of the issuer. The prevailing market value may be more
or less than the securities' value at the time of purchase. While the objective
of the TARGET MATURITY 2007 SERIES is to seek a predictable compounded
investment return for investors who hold their Series shares until the Series'
maturity, the Series cannot assure that it will be able to achieve a certain
level of return due to the possible necessity of having to sell certain zero
coupon securities to pay expenses, dividends or meet redemptions at times and at
prices that might be disadvantageous or, alternatively, the need to invest
assets received from new purchases at prevailing interest rates, which would
expose the Series to reinvestment risk. In addition, no assurance can be given
as to the liquidity of the market for certain of these securities.
Determination as to the liquidity of such securities will be made in accordance
with guidelines established by the Fund's Board of Trustees. In accordance with
such guidelines, the Adviser will monitor the Series' investments in such
securities with particular regard to trading activity, availability of reliable
price information and other relevant information.
HOW TO BUY SHARES
Investments in a Series are made through purchases of the Policies or the
Contracts offered by First Investors Life. Policy premiums, net of certain
expenses, are paid into a unit investment trust, Separate Account B. Purchase
payments for the Contracts, net of certain expenses, are also paid into a unit
investment trust, Separate Account C. The Separate Accounts pool these proceeds
to purchase shares of a Series designated by purchasers of the Policies or
Contracts. Orders for the purchase of Series shares received prior to the close
of regular trading on the New York Stock Exchange ("NYSE"), generally 4:00 P.M.
(New York City time), on any business day the NYSE is open for trading, will be
processed and shares will be purchased at the net asset value determined at the
close of regular trading on the NYSE on that day. Orders received after the
close of regular trading on the NYSE will be processed at the net asset value
determined at the close of regular trading on the NYSE on the next trading day.
See "Determination of Net Asset Value."
HOW TO REDEEM SHARES
Shares of a Series may be redeemed at the direction of Policyowners or
Contractowners, in accordance with the terms of the Policies or Contracts.
Redemptions will be made at the next determined net asset value of the
respective Series upon receipt of a proper request for redemption or repurchase.
Payment will be made by check as soon as possible but within seven days after
presentation. However, the Fund's Board of Trustees may suspend the right of
redemption or postpone the date of payment during any period when (a) trading on
the NYSE is restricted as determined by the Securities and Exchange Commission
("SEC") or the NYSE is closed for other than weekends and holidays, (b) the SEC
has by order permitted such suspension, or (c) an emergency, as defined by rules
of the SEC, exists during which time the sale or valuation of portfolio
securities held by a Series is not reasonably practicable.
MANAGEMENT
BOARD OF TRUSTEES. The Fund's Board of Trustees, as part of its overall
management responsibility, oversees various organizations responsible for each
Series' day-to-day management.
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ADVISER. First Investors Management Company, Inc. supervises and manages
each Series' investments, supervises all aspects of each Series' operations and,
except for INTERNATIONAL SECURITIES SERIES and GROWTH SERIES, determines each
Series' portfolio transactions. The Adviser is a New York corporation located
at 95 Wall Street, New York, NY 10005. First Investors Consolidated
Corporation ("FICC") owns all of the voting common stock of the Adviser and all
of the outstanding stock of First Investors Corporation and the Transfer Agent.
Mr. Glenn O. Head (or members of his family) and Mrs. Julie W. Grayson (as
executrix of the estate of her deceased husband, David D. Grayson) each control
more than 25% of the voting stock of FICC and, therefore, jointly control the
Adviser.
As compensation for its services, the Adviser receives an annual fee from
each Series, which is payable monthly. For the fiscal year ended December 31,
1994, the advisory fees were 0.75% of average daily net assets for each of BLUE
CHIP SERIES, DISCOVERY SERIES, GROWTH SERIES, HIGH YIELD SERIES and
INTERNATIONAL SECURITIES SERIES, 0.35% of average daily net assets, net of
waiver, for each of GOVERNMENT SERIES and INVESTMENT GRADE SERIES, 0.31% of
average daily net assets, net of waiver, for CASH MANAGEMENT SERIES and 0.17%
average daily net assets, net of waiver, for UTILITIES INCOME SERIES. As
compensation for its services, the Adviser receives a fee from TARGET MATURITY
2007 SERIES at the rate of 0.75% of the average daily net assets of that Series.
Each Series bears all expenses of its operations other than those incurred by
the Adviser under the terms of its advisory agreement. Series expenses include,
but are not limited to: the advisory fee; shareholder servicing fees and
expenses; custodian fees and expenses; legal and auditing fees; expenses of
communicating to existing shareholders, including preparing, printing and
mailing prospectuses and shareholder reports to such shareholders; and proxy and
shareholder meeting expenses.
SUBADVISER. Wellington Management Company has been retained by the Adviser
and the Fund, on behalf of INTERNATIONAL SECURITIES SERIES and GROWTH SERIES, as
each of those Series' investment subadviser. The Adviser has delegated
discretionary trading authority to WMC with respect to all the assets of
INTERNATIONAL SECURITIES SERIES and GROWTH SERIES, subject to the continuing
oversight and supervision of the Adviser and the Board of Trustees. As
compensation for its services, WMC is paid by the Adviser, and not by either
Series, a fee which is computed daily and paid monthly.
WMC, located at 75 State Street, Boston, MA 02109, is a Massachusetts general
partnership of which Robert W. Doran, Duncan M. McFarland and John B. Neff are
Managing Partners. WMC is a professional investment counseling firm which
provides investment services to investment companies, employee benefit plans,
endowment funds, foundations and other institutions and individuals. As of
December 31, 1994, WMC held discretionary investment authority with respect to
approximately $80.0 billion of assets. Of that amount, WMC acted as investment
adviser or subadviser to approximately 110 registered investment companies or
series of such companies, with net assets of approximately $58.3 billion as of
December 31, 1994. WMC is not affiliated with the Adviser or any of its
affiliates.
PORTFOLIO MANAGERS. Patricia D. Poitra, Director of Equities, has been
primarily responsible for the day-to-day management of the BLUE CHIP SERIES
since October 1994 and DISCOVERY SERIES since 1988. Ms. Poitra is assisted by a
team of portfolio analysts. Ms. Poitra has been responsible
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for the management of the Special Situations Series, the Blue Chip Series and
the small capitalization equity portion of Total Return Series, all series of
First Investors Series Fund. Ms. Poitra also is responsible for the management
of the Blue Chip Fund of Executive Investors Trust and the Made In The U.S.A.
Fund of First Investors Series Fund II, Inc. Ms. Poitra joined FIMCO in 1985 as
a Senior Equity Analyst.
George V. Ganter has been Portfolio Manager for HIGH YIELD SERIES since 1989.
Mr. Ganter joined FIMCO in 1985 as an Analyst. In 1986, he was made Portfolio
Manager for First Investors Special Bond Fund, Inc. In 1989, he was made
Portfolio Manager for First Investors High Yield Fund, Inc. and Executive
Investors High Yield Fund.
Margaret R. Haggerty is Portfolio Manager for UTILITIES INCOME SERIES. Ms.
Haggerty joined FIMCO in 1990 as an analyst for several First Investors equity
funds. In addition, she monitored the management of several First Investors
funds for which WMC was the subadviser. In early 1993, she was made Portfolio
Manager for First Investors Utilities Income Series of First Investors Series
Fund II, Inc.
Nancy Jones has been Portfolio Manager for INVESTMENT GRADE SERIES since its
inception in 1992 and CASH MANAGEMENT SERIES since 1989. Ms. Jones joined FIMCO
in 1983 as Director of Research in the High Yield Department. In 1989, she
became Portfolio Manager for First Investors Fund For Income, Inc. Ms. Jones
has been Portfolio Manager for Investment Grade Series of First Investors Series
Fund since its inception in 1991 and has managed the fixed income corporate
securities portion of Total Return Series of First Investors Series Fund since
1992.
Matthew E. Magargel, Vice President of WMC, has been Portfolio Manager for
GROWTH SERIES since 1992. He joined WMC in 1983 as a research analyst and took
on additional responsibilities as a portfolio manager in 1988. In 1991, Mr.
Magargel became solely a portfolio manager with WMC.
Since April 1995, John Tomasulo has been primarily responsible for the day-
to-day management of the GOVERNMENT SERIES and the TARGET MATURITY 2007 SERIES.
Mr. Tomasulo is also responsible for the management of the Government Fund and
for the U.S. Government and mortgage-backed securities portion of the Total
Return Series of First Investors Series Fund. Prior to joining FIMCO, Mr.
Tomasulo was affiliated with Seligman & Co. since 1987 where he assisted in the
management of a U.S. government fund and individual accounts and had primary
responsibility for three money market funds.
As of April 1, 1994, INTERNATIONAL SECURITIES SERIES is managed by WMC's
Global Equity Strategy Group, a group of global portfolio managers and senior
investment professionals headed by Trond Skramstad. Prior to joining WMC as a
portfolio manager in 1993, Mr. Skramstad was a global portfolio manager at
Scudder, Stevens & Clark since 1990.
DETERMINATION OF NET ASSET VALUE
The net asset value of shares of each Series is determined as of the close of
regular trading on the NYSE (generally 4:00 P.M., New York City time) on each
day the NYSE is open for trading, and at such other times as the Fund's Board of
Trustees deems necessary by dividing the value of the securities held by the
Series, plus any cash and other assets, less all liabilities, by the number of
28
<PAGE>
shares outstanding. If there is no available market value, securities will be
valued at their fair value as determined in good faith pursuant to procedures
adopted by the Board of Trustees. The NYSE currently observes the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The investments in CASH MANAGEMENT SERIES, when purchased at a discount, are
valued at amortized cost and when purchased at face value, are valued at cost
plus accrued interest.
DIVIDENDS AND OTHER DISTRIBUTIONS
For the purposes of determining dividends, the net investment income of each
Series, other than CASH MANAGEMENT SERIES, consists of interest and dividends,
earned discount and other income earned on portfolio securities less expenses.
Net investment income of CASH MANAGEMENT SERIES consists of (i) accrued
interest, plus or minus (ii) all realized and unrealized gains and losses on the
Series' securities, less (iii) accrued expenses. Dividends from net investment
income are generally declared and paid annually by each Series, other than CASH
MANAGEMENT SERIES. Dividends from net investment income are generally declared
daily and paid monthly by CASH MANAGEMENT SERIES. Distributions of a Series'
net capital gain (the excess of net long-term capital gain over net short-term
capital loss), if any, after deducting any available capital loss carryovers,
are declared and paid annually by each Series, other than CASH MANAGEMENT
SERIES, which does not anticipate realizing any such gain. INTERNATIONAL
SECURITIES SERIES, DISCOVERY SERIES and HIGH YIELD SERIES also distribute any
net realized gains from foreign currency transactions with their annual
distribution. All dividends and other distributions are paid in shares of the
distributing Series at net asset value (without sales charge), generally
determined as of the close of business on the business day immediately following
the record date of such distribution.
TAXES
Each Series has qualified and intends to continue to qualify, for treatment
as a regulated investment company ("RIC") under Subchapter M of the Internal
Revenue Code of 1986, as amended ("Code"), so that it will be relieved of
Federal income tax on that part of its investment company taxable income
(consisting generally of net investment income, net short-term capital gain and,
for INTERNATIONAL SECURITIES SERIES, HIGH YIELD SERIES and DISCOVERY SERIES, net
gains from certain foreign currency transactions) and net capital gain that is
distributed to its shareholders.
Shares of the Series are offered only to the Separate Accounts, which are
insurance company separate accounts that fund variable annuity and variable life
insurance contracts. Under the Code, no tax is imposed on an insurance company
with respect to income of a qualifying separate account that is properly
allocable to the value of eligible variable annuity (or variable life insurance)
contracts. Please refer to "Federal Income Tax Status" in the Prospectuses of
Separate Accounts B and C for information as to the tax status of those accounts
and the holders of the Contracts or Policies.
Each Series intends to comply with the diversification requirements imposed
by section 817(h) of the Code and the regulations thereunder. These
requirements, which are in addition to the diversification requirements imposed
on the Series by the 1940 Act and Subchapter M of the Code, place certain
limitations on the assets of Separate Accounts B and C -- and of the Series,
because section 817(h) and those regulations treat the assets of the Series as
assets of Separate Accounts B
29
<PAGE>
and C -- that may be invested in securities of a single issuer. Specifically,
the regulations provide that, except as permitted by the "safe harbor" described
below, as of the end of each calendar quarter (or within 30 days thereafter) no
more than 55% of a Series' total assets may be represented by any one
investment, no more than 70% by any two investments, no more than 80% by any
three investments and no more than 90% by any four investments. For this
purpose, all securities of the same issuer are considered a single investment,
and while each U.S. Government agency and instrumentality is considered a
separate issuer, a particular foreign government and its agencies,
instrumentalities and political subdivisions are considered the same issuer.
Section 817(h) provides, as a safe harbor, that a separate account will be
treated as being adequately diversified if the diversification requirements
under Subchapter M are satisfied and no more than 55% of the value of the
account's total assets are cash and cash items, government securities and
securities of other RICs. Failure of a Series to satisfy the section 817(h)
requirements would result in taxation of First Investors Life and treatment of
the Contract holders and Policyowners other than as described in the
Prospectuses of Separate Accounts B and C.
The foregoing is only a summary of some of the important Federal income tax
considerations generally affecting each Series and its shareholders; see the SAI
for a more detailed discussion. Shareholders are urged to consult their tax
advisers.
GENERAL INFORMATION
ORGANIZATION. The Fund is a Massachusetts business trust organized on June
12, 1985. The Board of Trustees of the Fund has authority to issue an unlimited
number of shares of beneficial interest of separate series, no par value, of the
Fund. The shares of beneficial interest of the Fund are presently divided into
ten separate and distinct series. The Fund does not hold annual shareholder
meetings. If requested to do so by the holders of at least 10% of the Fund's
outstanding shares, the Board of Trustees will call a special meeting of
shareholders for any purpose, including the removal of Trustees.
CUSTODIAN. The Bank of New York, 48 Wall Street, New York, NY 10286, is
custodian of the securities and cash of each Series, except the INTERNATIONAL
SECURITIES SERIES. Brown Brothers Harriman & Co., 40 Water Street, Boston, MA
02109, is custodian of the securities and cash of the INTERNATIONAL SECURITIES
SERIES and employs foreign sub-custodians to provide custody of the Series'
foreign assets.
TRANSFER AGENT. Administrative Data Management Corp., 10 Woodbridge Center
Drive, Woodbridge, NJ 07095-1198, an affiliate of FIMCO and FIC, acts as
transfer agent for each Series and as redemption agent for regular redemptions.
PERFORMANCE. Performance information is contained in the Fund's Annual
Report which may be obtained without charge by contacting First Investors Life
at 212-858-8200.
SHAREHOLDER INQUIRIES. Shareholder inquiries can be made by calling First
Investors Life at 212-858-8200.
ANNUAL AND SEMI-ANNUAL REPORTS TO SHAREHOLDERS. It is the Fund's practice to
mail only one copy of its annual and semi-annual reports to any address at which
more than one shareholder with the same last name has indicated that mail is to
be delivered. Additional copies of the reports
30
<PAGE>
will be mailed if requested in writing or by telephone by any shareholder. The
Fund will ensure that an additional copy of such reports are sent to any
shareholder who subsequently changes his or her mailing address.
APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS
STANDARD & POOR'S RATINGS GROUP
- -------------------------------
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
any audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default-capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization, or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.
AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C Debt rated "BB," "B," "CCC," "CC" and "C" is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal. "BB" indicates the least degree of speculation and "C" the
highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
31
<PAGE>
BB Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
CCC Debt rated "CCC" has a currently identifiable vulnerability to default
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
CC The rating "CC" typically is applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.
C The rating "C" typically is applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
CI The rating "CI" is reserved for income bonds on which no interest is
being paid.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The "D" rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
MOODY'S INVESTORS SERVICE, INC.
- -------------------------------
Aaa Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities,
32
<PAGE>
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risk appear somewhat greater
than the Aaa securities.
A Bonds which are rated "A" possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa Bonds which are rated "Baa" are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba Bonds which are rated "Ba" are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa Bonds which are rated "Caa" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca Bonds which are rated "Ca" represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated "C" are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
33
<PAGE>
TABLE OF CONTENTS
-----------------
Financial Highlights................ 4
Investment Objectives and Policies.. 8
How to Buy Shares................... 26
How to Redeem Shares................ 26
Management.......................... 26
Determination of Net Asset Value.... 28
Dividends and Other Distributions... 29
Taxes............................... 29
General Information................. 30
Appendix A.......................... 31
INVESTMENT ADVISER CUSTODIANS
First Investors Management The Bank of New York
Company, Inc. 48 Wall Street
95 Wall Street New York, NY 10286
New York, NY 10005
Brown Brothers
SUBADVISER Harriman & Co.
Wellington Management 40 Water Street
Company Boston, MA 02109
75 State Street
Boston, MA 02109 AUDITORS
Tait, Weller & Baker
TRANSFER AGENT Two Penn Center Plaza
Administrative Data Philadelphia, PA 19102-1707
Management Corp.
10 Woodbridge Center Drive LEGAL COUNSEL
Woodbridge, NJ 07095-1198 Kirkpatrick & Lockhart
1800 M Street, N.W.
Washington, D.C. 20036
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus or the Statement of Additional Information, and if given or made,
such information and representation must not be relied upon as having been
authorized by the Fund or any affiliate thereof. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any of the
shares offered hereby in any state to any person to whom it is unlawful to make
such offer in such state.
<PAGE>
First Investors
Life Series Fund
- ------------------------------------
Blue Chip Series
Cash Management Series
Discovery Series
Government Series
Growth Series
High Yield Series
International Securities Series
Investment Grade Series
Target Maturity 2007 Series
Utilities Income Series
- ------------------------------------
Prospectus
- ------------------------------------
May 1, 1995
First Investors Logo
Logo is described as follows: the arabic numeral one separated into seven
vertical segments followed by the words "First Investors."
Vertical line from top to bottom in center of page about 1/2 inch in thickness.
The following language appears to the left of the above language in the printed
piece:
The words "BULK RATE U.S. POSTAGE PAID PERMIT NO. 1796" in a box to the right of
a circle containing the words "MAILED FROM ZIP CODE 17604" appears on the
righthand side.
The following language appears on the lefthand side:
FIRST INVESTORS LIFE SERIES FUND
95 WALL STREET
NEW YORK, NY 10005
First Investors Logo (as described above)
A MEMBER OF THE
FIRST INVESTORS
FINANCIAL NETWORK
LIFE316
<PAGE>
FIRST INVESTORS LIFE SERIES FUND
95 WALL STREET (212) 858-8200
NEW YORK, NEW YORK 10005
STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 1995
This is a Statement of Additional Information for First Investors Life
Series Fund ("Fund") an open-end, diversified management investment company
consisting of ten separate investment portfolios ("Series"). The objectives of
each of the Series is set forth in the Prospectus. There can be no assurance
that any Series will achieve its investment objective. Investments in the
Series are made through purchases of the Level Premium Variable Life Insurance
Policies ("Policies") or the Individual Variable Annuity Contracts ("Contracts")
offered by First Investors Life Insurance Company ("First Investors Life").
Policy premiums net of certain expenses are paid into a unit investment trust,
First Investors Life Insurance Company Separate Account B ("Separate Account
B"). Purchase payments for the Contracts net of certain expenses also are paid
into a unit investment trust, First Investors Life Variable Annuity Fund C
("Separate Account C"). Separate Account B and Separate Account C pool these
proceeds to purchase shares of the Series designated by purchasers of the
Policies or Contracts. TARGET MATURITY 2007 SERIES is only offered to
Contractowners of Separate Account C.
This Statement of Additional Information is not a prospectus. It should be
read in connection with the Fund's Prospectus dated May 1, 1995, which may be
obtained free of cost from the Fund at the address or telephone number noted
above.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C>
Page
----
Investment Policies................... 2
Hedging and Option Income Strategies.. 7
Investment Restrictions............... 16
Trustees and Officers................. 17
Management............................ 19
Determination of Net Asset Value...... 21
Allocation of Portfolio Brokerage..... 22
Taxes................................. 23
General Information................... 25
Appendix A............................ 26
Appendix B............................ 27
Financial Statements.................. 28
</TABLE>
1
<PAGE>
INVESTMENT POLICIES
CERTIFICATES OF ACCRUAL ON U.S. TREASURY SECURITIES. GOVERNMENT
---------------------------------------------------
SERIES may purchase certificates, not issued by the U.S. Treasury, which
evidence ownership of future interest, principal or interest and principal
payments on obligations issued by the U.S. Treasury. The actual U.S. Treasury
securities will be held by a custodian on behalf of the certificate holder.
These certificates are purchased with original issue discount and are subject to
greater fluctuations in market value, based upon changes in market interest
rates, than income-producing securities.
COMMERCIAL PAPER. Commercial paper is a promissory note issued by a
----------------
corporation to finance short-term credit needs which may either be unsecured or
backed by a letter of credit. Commercial paper includes notes, drafts or
similar instruments payable on demand or having a maturity at the time of
issuance not exceeding nine months, exclusive of days of grace or any renewal
thereof. See Appendix B for a description of commercial paper ratings.
CONVERTIBLE SECURITIES. Each Series, other than CASH MANAGEMENT
----------------------
SERIES and TARGET MATURITY 2007 SERIES, may invest in convertible securities.
While no securities investment is without some risk, investments in convertible
securities generally entail less risk than the issuer's common stock, although
the extent to which such risk is reduced depends in large measure upon the
degree to which the convertible security sells above its value as a fixed income
security. The Series' investment adviser, First Investors Management Company,
Inc. ("Adviser" or "FIMCO"), or, for GROWTH SERIES and INTERNATIONAL SECURITIES
SERIES, their subadviser, Wellington Management Company ("Subadviser" or "WMC")
will decide to invest based upon a fundamental analysis of the long-term
attractiveness of the issuer and the underlying common stock, the evaluation of
the relative attractiveness of the current price of the underlying common stock
and the judgment of the value of the convertible security relative to the common
stock at current prices.
GLOBAL DEPOSITORY RECEIPTS. INTERNATIONAL SECURITIES SERIES may
--------------------------
invest in GDRs, which are receipts which represent, or are convertible into,
securities of foreign issues. GDRs are issued globally for trading in non-U.S.
securities markets and evidence ownership of the underlying foreign security.
LOANS OF PORTFOLIO SECURITIES. Each Series may loan securities to
------------------------------
qualified broker-dealers or other institutional investors provided: the
borrower pledges to the Series and agrees to maintain at all times with that
Series collateral equal to not less than 100% of the value of the securities
loaned (plus accrued interest or dividend, if any); the loan is terminable at
will by a Series; a Series pays only reasonable custodian fees in connection
with the loan; and the Adviser, or for INTERNATIONAL SECURITIES SERIES and
GROWTH SERIES, the Subadviser, monitors the creditworthiness of the borrower
throughout the life of the loan. Such loans may be terminated by a Series at
any time and a Series may vote the proxies if a material event affecting the
investment is to occur. The market risk applicable to any security loaned
remains a risk of a Series. The borrower must add to the collateral whenever
the market value of the securities rises above the level of such collateral. A
Series could incur a loss if the borrower should fail financially at a time when
the value of the loaned securities is greater than the collateral. Each Series
may make loans, together with illiquid securities, not in excess of 10% of its
total assets.
MORTGAGE-RELATED SECURITIES. GOVERNMENT SERIES may invest in
---------------------------
mortgage-backed securities, including those representing an undivided ownership
interest in a pool of mortgage loans. Each of the certificates described below
is characterized by monthly payments to the security holder, reflecting the
monthly payments made by the mortgagees of the underlying mortgage loans. The
payments to the security holders (such as the Series), like the payments on the
underlying loans, represent both principal and interest. Although the
underlying mortgage loans are for specified periods of time, such as twenty
2
<PAGE>
to thirty years, the borrowers can, and typically do, repay them sooner. Thus,
the security holders frequently receive prepayments of principal, in addition to
the principal which is part of the regular monthly payments. A borrower is more
likely to prepay a mortgage which bears a relatively high rate of interest.
Thus, in times of declining interest rates, some higher yielding mortgages might
be repaid resulting in larger cash payments to the Series, and the Series will
be forced to accept lower interest rates when that cash is used to purchase
additional securities.
Interest rate fluctuations may significantly alter the average
maturity of mortgage-backed securities, due to the level of refinancing by
homeowners. When interest rates rise, prepayments often drop, which should
increase the average maturity of the mortgage-backed security. Conversely, when
interest rates fall, prepayments often rise, which should decrease the average
maturity of the mortgage-backed security.
GNMA CERTIFICATES. Government National Mortgage Association ("GNMA")
-----------------
certificates ("GNMA Certificates") are mortgage-backed securities, which
evidence an undivided interest in a pool of mortgage loans. GNMA Certificates
differ from bonds in that principal is paid back monthly by the borrower over
the term of the loan rather than returned in a lump sum at maturity. GNMA
Certificates that the Series purchases are the "modified pass-through" type.
"Modified pass-through" GNMA Certificates entitle the holder to receive a share
of all interest and principal payments paid and owed on the mortgage pool net of
fees paid to the "issuer" and GNMA, regardless of whether or not the mortgagor
actually makes the payment.
GNMA GUARANTEE. The National Housing Act authorizes GNMA to guarantee
--------------
the timely payment of principal and interest on securities backed by a pool of
mortgages insured by the Federal Housing Administration ("FHA") or the Farmers'
Home Administration ("FMHA"), or guaranteed by the Department of Veteran Affairs
("VA"). The GNMA guarantee is backed by the full faith and credit of the U.S.
Government. GNMA also is empowered to borrow without limitation from the U.S.
Treasury if necessary to make any payments required under its guarantee.
LIFE OF GNMA CERTIFICATES. The average life of a GNMA Certificate is
-------------------------
likely to be substantially less than the original maturity of the mortgage pools
underlying the securities. Prepayments of principal by mortgagors and mortgage
foreclosures will usually result in the return of the greater part of principal
investment long before maturity of the mortgages in the pool. The Series
normally will not distribute principal payments (whether regular or prepaid) to
its shareholders. Rather, it will invest such payments in additional mortgage-
related securities of the types described above. Interest received by the
Series will, however, be distributed to shareholders. Foreclosures impose no
risk to principal investment because of the GNMA guarantee. As prepayment rates
of the individual mortgage pools vary widely, it is not possible to predict
accurately the average life of a particular issue of GNMA Certificates.
YIELD CHARACTERISTICS OF GNMA CERTIFICATES. The coupon rate of
------------------------------------------
interest on GNMA Certificates is lower than the interest rate paid on the VA-
guaranteed or FHA-insured mortgages underlying the Certificates by the amount of
the fees paid to GNMA and the issuer. The coupon rate by itself, however, does
not indicate the yield which will be earned on GNMA Certificates. First,
Certificates may trade in the secondary market at a premium or discount.
Second, interest is earned monthly, rather than semi-annually as with
traditional bonds; monthly compounding raises the effective yield earned.
Finally, the actual yield of a GNMA Certificate is influenced by the prepayment
experience of the mortgage pool underlying it. For example, if the higher-
yielding mortgages from the pool are prepaid, the yield on the remaining pool
will be reduced.
FHLMC SECURITIES. The Federal Home Loan Mortgage Corporation
----------------
("FHLMC") issues two types of mortgage pass-through securities, mortgage
participation certificates ("PCs") and guaranteed
3
<PAGE>
mortgage certificates ("GMCs"). PCs resemble GNMA Certificates in that each PC
represents a pro rata share of all interest and principal payments made and owed
on the underlying pool.
FNMA SECURITIES. The Federal National Mortgage Association ("FNMA")
---------------
issues guaranteed mortgage pass-through certificates ("FNMA Certificates").
FNMA Certificates resemble GNMA Certificates in that each FNMA Certificate
represents a pro rata share of all interest and principal payments made and owed
on the underlying pool. FNMA guarantees timely payment of interest on FNMA
Certificates and the full return of principal.
Risk of foreclosure of the underlying mortgages is greater with FHLMC
and FNMA securities because, unlike GNMA Certificates, FHLMC and FNMA securities
are not guaranteed by the full faith and credit of the U.S. Government.
PARTICIPATION INTERESTS. Participation interests which may be held by
-----------------------
GOVERNMENT SERIES are pro rata interests in securities held either by banks
which are members of the Federal Reserve System or securities dealers who are
members of a national securities exchange or are market makers in government
securities, which are represented by an agreement in writing between the Series
and the entity in whose name the security is issued, rather than possession by
the Series. The Series will purchase participation interests only in securities
otherwise permitted to be purchased by the Series, and only when they are
evidenced by deposit, safekeeping receipts, or book-entry transfer, indicating
the creation of a security interest in favor of the Series in the underlying
security. However, the issuer of the participation interests to the Series will
agree in writing, among other things: to promptly remit all payments of
principal, interest and premium, if any, to the Series once received by the
issuer; to repurchase the participation interest upon seven days' notice; and to
otherwise service the investment physically held by the issuer, a portion of
which has been sold to the Series.
PORTFOLIO TURNOVER. Although each Series generally will not invest
------------------
for short-term trading purposes, portfolio securities may be sold from time to
time without regard to the length of time they have been held when, in the
opinion of the Adviser, or for GROWTH SERIES and INTERNATIONAL SECURITIES
SERIES, the Subadviser, investment considerations warrant such action.
Portfolio turnover rate is calculated by dividing (1) the lesser of purchases or
sales of portfolio securities for the fiscal year by (2) the monthly average of
the value of portfolio securities owned during the fiscal year. A 100% turnover
rate would occur if all the securities in a Series' portfolio, with the
exception of securities whose maturities at the time of acquisition were one
year or less, were sold and either repurchased or replaced within one year. A
high rate of portfolio turnover generally leads to transaction costs and may
result in a greater number of taxable transactions. See "Portfolio
Transactions." The rate of portfolio turnover for the period January 7, 1992
(commencement of operations) through December 31, 1992 for the INVESTMENT GRADE
SERIES was 72%. The rate of portfolio turnover for the fiscal year ended
December 31, 1993 for the BLUE CHIP SERIES, DISCOVERY SERIES, GROWTH SERIES,
HIGH YIELD SERIES, INTERNATIONAL SECURITIES SERIES and INVESTMENT GRADE SERIES
was 37%, 68%, 51%, 96%, 37% and 64%, respectively. The rate of portfolio
turnover for the fiscal year ended December 31, 1994 for the BLUE CHIP SERIES,
DISCOVERY SERIES, GROWTH SERIES, HIGH YIELD SERIES, INTERNATIONAL SECURITIES
SERIES, INVESTMENT GRADE SERIES and UTILITIES INCOME SERIES was 82%, 53%, 40%,
50%, 36%, 15% and 31%, respectively. See the Prospectus for the portfolio
turnover rate for the GOVERNMENT SERIES and the expected portfolio turnover rate
for TARGET MATURITY 2007 SERIES.
REPURCHASE AGREEMENTS. Each Series may enter into repurchase
---------------------
agreements with banks which are members of the Federal Reserve System or
securities dealers who are members of a national securities exchange or are
market makers in government securities. GOVERNMENT SERIES may enter into
repurchase agreements only where the debt instrument subject to the repurchase
agreement is a U.S. Government
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Obligation (as defined in the Prospectus). The period of these repurchase
agreements will usually be short, from overnight to one week, and at no time
will a Series invest in repurchase agreements with more than one year in time to
maturity. The securities which are subject to repurchase agreements, however,
may have maturity dates in excess of one year from the effective date of the
repurchase agreement. Each Series will always receive, as collateral,
securities whose market value, including accrued interest, which will at all
times be at least equal to 100% of the dollar amount invested by the Series in
each agreement, and the Series will make payment for such securities only upon
physical delivery or evidence of book entry transfer to the account of the
custodian. If the seller defaults, a Series might incur a loss if the value of
the collateral securing the repurchase agreement declines, and might incur
disposition costs in connection with liquidating the collateral. In addition,
if bankruptcy or similar proceedings are commenced with respect to the seller of
the security, realization upon the collateral by a Series may be delayed or
limited. Each Series, other than CASH MANAGEMENT SERIES, may not enter into a
repurchase agreement with more than seven days to maturity if, as a result more
than 15% of the market value of its net assets would be invested in such
repurchase agreements, together with any other illiquid investments. CASH
MANAGEMENT SERIES may not enter into a repurchase agreement with more than seven
days to maturity if, as a result more than 10% of the market value of its net
assets would be invested in such repurchase agreements, together with any other
illiquid securities.
RESTRICTED AND ILLIQUID SECURITIES. No Series, other than CASH
----------------------------------
MANAGEMENT SERIES, will purchase or otherwise acquire any security if, as a
result, more than 15% of its net assets (taken at current value) would be
invested in securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale. CASH
MANAGEMENT SERIES may invest up to 10% of its net assets in illiquid securities.
This policy includes foreign issuers' unlisted securities with a limited trading
market and repurchase agreements maturing in more than seven days. This policy
does not include restricted securities eligible for resale pursuant to Rule 144A
under the Securities Act of 1933, as amended ("1933 Act"), which the Fund's
Board of Trustees or the Adviser or Subadviser has determined under Board-
approved guidelines are liquid.
Restricted securities which are illiquid may be sold only in privately
negotiated transactions or in public offerings with respect to which a
registration statement is in effect under the 1933 Act. Such securities include
those that are subject to restrictions contained in the securities laws of other
countries. Securities that are freely marketable in the country where they are
principally traded, but would not be freely marketable in the United States,
will not be subject to each Series', other than CASH MANAGEMENT SERIES, 15%
limitation on illiquid securities. Where registration is required, the Series
may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time the Series may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions
were to develop, the Series might obtain a less favorable price than prevailed
when it decided to sell.
In recent years, a large institutional market has developed for
certain securities that are not registered under the 1933 Act, including private
placements, repurchase agreements, commercial paper, foreign securities and
corporate bonds and notes. These instruments are often restricted securities
because the securities are either themselves exempt from registration or sold in
transactions not requiring registration. Institutional investors generally will
not seek to sell these instruments to the general public, but instead will often
depend on an efficient institutional market in which such unregistered
securities can be readily resold or on an issuer's ability to honor a demand for
repayment. Therefore, the fact that there are contractual or legal restrictions
on resale to the general public or certain institutions is not dispositive of
the liquidity of such investments.
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Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
that might develop as a result of Rule 144A could provide both readily
ascertainable values for restricted securities and the ability to liquidate an
investment in order to satisfy share redemption orders. An insufficient number
of qualified institutional buyers interested in purchasing Rule 144A-eligible
securities held by a Series, however, could affect adversely the marketability
of such portfolio securities and the Series might be unable to dispose of such
securities promptly or at reasonable prices.
SEPARATED OR DIVIDED U.S. TREASURY SECURITIES. GOVERNMENT SERIES may
---------------------------------------------
invest in separated or divided U.S. Treasury securities. These instruments
represent a single interest, or principal, payment on a U.S. Treasury bond which
has been separated from all the other interest payments as well as the bond
itself. When the Series purchases such an instrument, it purchases the right to
receive a single payment of a set sum at a known date in the future. The
interest rate on such an instrument is determined by the price the Series pays
for the instrument when it purchases the instrument at a discount under what the
instrument entitles the Series to receive when the instrument matures. The
amount of the discount the Series will receive will depend upon the length of
time to maturity of the separated U.S. Treasury security and prevailing market
interest rates when the separated U.S. Treasury security is purchased.
Separated U.S. Treasury securities can be considered a zero coupon investment
because no payment is made to the Series until maturity. The market values of
these securities are much more susceptible to change in market interest rates
than income-producing securities. These securities are purchased with original
issue discount and such discount is includable as gross income to a Series
shareholder over the life of the security.
WARRANTS. INTERNATIONAL SECURITIES SERIES may purchase warrants,
--------
which are instruments that permit the Series to acquire, by subscription, the
capital stock of a corporation at a set price, regardless of the market price
for such stock. Warrants may be either perpetual or of limited duration. There
is a greater risk that warrants might drop in value at a faster rate than the
underlying stock. The Series may invest up to 15% of its total assets in
warrants.
WHEN-ISSUED SECURITIES. GROWTH SERIES, HIGH YIELD SERIES,
----------------------
INTERNATIONAL SECURITIES SERIES, INVESTMENT GRADE SERIES, TARGET MATURITY 2007
SERIES and UTILITIES INCOME SERIES may each invest up to 5% of their net assets
in securities issued on a when-issued or delayed delivery basis. A Series
generally would not pay for such securities or start earning interest on them
until they are issued or received. However, when a Series purchases debt
obligations on a when-issued basis, it assumes the risks of ownership, including
the risk of price fluctuation, at the time of purchase, not at the time of
receipt. Failure of the issuer to deliver a security purchased by a Series on a
when-issued basis may result in such Series incurring a loss or missing an
opportunity to make an alternative investment. When a Series enters into a
commitment to purchase securities on a when-issued basis, it establishes a
separate account with its custodian consisting of cash or liquid high-grade debt
securities equal to the amount of the Series' commitment, which are valued at
their fair market value. If on any day the market value of this segregated
account falls below the value of the Series' commitment, the Series will be
required to deposit additional cash or qualified securities into the account
until equal to the value of the Series' commitment. When the securities to be
purchased are issued, the Series will pay for the securities from available
cash, the sale of securities in the segregated account, sales of other
securities and, if necessary, from sale of the when-issued securities themselves
although this is not ordinarily expected. Securities purchased on a when-issued
basis are subject to the risk that yields available in the market, when delivery
takes place, may be higher than the rate to be received on the securities a
Series is committed to purchase. Sale of securities in the segregated account
or other securities owned by a Series and when-issued securities may cause the
realization of a capital gain or loss.
6
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HEDGING AND OPTION INCOME STRATEGIES
The Subadviser may engage in certain options and futures strategies to
hedge INTERNATIONAL SECURITIES SERIES' portfolio and in other circumstances
permitted by the Commodities Futures Trading Commission ("CFTC") and may engage
in certain options strategies to enhance income. The instruments described
below are sometimes referred to collectively as "Hedging Instruments." Certain
special characteristics of and risks associated with using Hedging Instruments
are discussed below. In addition to the non-fundamental investment guidelines
(described below) adopted by the Fund's Board of Trustees to govern the Series'
investments in Hedging Instruments, use of these instruments is subject to the
applicable regulations of the Securities and Exchange Commission ("SEC"), the
several options and futures exchanges upon which options and futures contracts
are traded, the CFTC and various state regulatory authorities. In addition, the
Series' ability to use Hedging Instruments will be limited by tax
considerations. See "Taxes."
INTERNATIONAL SECURITIES SERIES may buy and sell put and call options
on stock indices, domestic or foreign securities and foreign currencies that are
traded on national securities exchanges or in the over-the-counter ("OTC")
market to enhance income or to hedge the Series' portfolio. INTERNATIONAL
SECURITIES SERIES also may write put and covered call options to generate
additional income through the receipt of premiums, purchase put options in an
effort to protect the value of a security that it owns against a decline in
market value and purchase call options in an effort to protect against an
increase in the price of securities (or currencies) it intends to purchase.
INTERNATIONAL SECURITIES SERIES also may purchase put and call options to offset
previously written put and call options of the same series. INTERNATIONAL
SECURITIES SERIES also may write put and call options to offset previously
purchased put and call options of the same series. Other than to offset closing
transactions, INTERNATIONAL SECURITIES SERIES will write only covered call
options, including options on futures contracts.
INTERNATIONAL SECURITIES SERIES may buy and sell financial futures
contracts and options thereon that are traded on a commodities exchange or board
of trade for hedging purposes. These futures contracts and related options may
be on stock indices, financial indices, debt securities or foreign currencies.
INTERNATIONAL SECURITIES SERIES also may enter into forward currency contracts.
Participation in the options or futures markets involves investment
risks and transaction costs to which INTERNATIONAL SECURITIES SERIES would not
be subject absent the use of these strategies. If the Subadviser's prediction
of movements in the direction of the securities and interest rate markets are
inaccurate, the adverse consequences to the Series may leave the Series in a
worse position than if such strategies were not used. The Series might not
employ any of the strategies described below, and there can be no assurance that
any strategy will succeed. The use of these strategies involve certain special
risks, including (1) dependence on the Subadviser's ability to predict correctly
movements in the direction of interest rates and securities prices, (2)
imperfect correlation between the price of options, futures contracts and
options thereon and movements in the prices of the securities being hedged, (3)
the fact that skills needed to use these strategies are different from those
needed to select portfolio securities, (4) the possible absence of a liquid
secondary market for any particular instrument at any time, and (5) the possible
need to defer closing out certain hedged positions to avoid adverse tax
consequences.
COVER FOR HEDGING AND OPTION INCOME STRATEGIES. The Series will not
----------------------------------------------
use leverage in its hedging and option income strategies. In the case of each
transaction entered into as a hedge, the Series will hold securities, currencies
or other options or futures positions whose values are expected to offset
("cover") its obligations hereunder. The Series will not enter into a hedging
or option income strategy that exposes the Series to an obligation to another
party unless it owns either (1) an offsetting ("covered")
7
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position in securities, currencies or other options or futures contracts or (2)
cash, receivables and short-term debt securities with a value sufficient at all
times to cover its potential obligations. The Series will comply with
guidelines established by the SEC with respect to coverage of hedging and option
income strategies by mutual funds and, if required, will set aside cash and/or
liquid, high-grade debt securities in a segregated account with its custodian in
the prescribed amount. Securities, currencies or other options or futures
positions used for cover and securities held in a segregated account cannot be
sold or closed out while the hedging or option income strategy is outstanding
unless they are replaced with similar assets. As a result, there is a
possibility that the use of cover or segregation involving a large percentage of
the Series' assets could impede portfolio management or the Series' ability to
meet redemption requests or other current obligations.
OPTIONS STRATEGIES. INTERNATIONAL SECURITIES SERIES may purchase call
------------------
options on securities that the Subadviser intends to include in the Series'
portfolio in order to fix the cost of a future purchase. Call options also may
be used as a means of participating in an anticipated price increase of a
security. In the event of a decline in the price of the underlying security,
use of this strategy would serve to limit the Series' potential loss on the
option strategy to the option premium paid; conversely, if the market price of
the underlying security increases above the exercise price and the Series either
sells or exercises the option, any profit eventually realized will be reduced by
the premium. The Series may purchase put options in order to hedge against a
decline in the market value of securities held in its portfolio. The put option
enables the Series to sell the underlying security at the predetermined exercise
price; thus the potential for loss to the Series below the exercise price is
limited to the option premium paid. If the market price of the underlying
security is higher than the exercise price of the put option, any profit the
Series realizes on the sale of the security will be reduced by the premium paid
for the put option less any amount for which the put option may be sold.
INTERNATIONAL SECURITIES SERIES may write covered call options on
securities to increase income in the form of premiums received from the
purchasers of the options. Because it can be expected that a call option will
be exercised if the market value of the underlying security increases to a level
greater than the exercise price, the Series will write covered call options on
securities generally when the Subadviser believes that the premium received by
the Series, plus anticipated appreciation in the market price of the underlying
security up to the exercise price of the option, will be greater than the total
appreciation in the price of the security. The strategy may be used to provide
limited protection against a decrease in the market price of the security in an
amount equal to the premium received for writing the call option less any
transaction costs. Thus, if the market price of the underlying security held by
the Series declines, the amount of such decline will be offset wholly or in part
by the amount of the premium received by the Series. If, however, there is an
increase in the market price of the underlying security and the option is
exercised, the Series will be obligated to sell the security at less than its
market value. The Series gives up the ability to sell the portfolio securities
used to cover the call option while the call option is outstanding. Such
securities may also be considered illiquid in the case of over-the-counter
("OTC") options written by the Series, to the extent described under "Restricted
and Illiquid Securities," above, and therefore subject to the Series' limitation
on investments in illiquid securities. In addition, the Series could lose the
ability to participate in an increase in the value of such securities above the
exercise price of the call option because such an increase would likely be
offset by an increase in the cost of closing out the call option (or could be
negated if the buyer chose to exercise the call option at an exercise price
below the securities' current market value).
INTERNATIONAL SECURITIES SERIES may purchase put and call options and
write covered call options on stock indices in much the same manner as the more
traditional equity and debt options discussed above, except that stock index
options may serve as a hedge against overall fluctuations in the securities
markets (or a market sector) rather than anticipated increases or decreases in
the value of a particular security. A
8
<PAGE>
stock index assigns relative values to the stock included in the index and
fluctuates with changes in such values. Stock index options operate in the same
way as the more traditional equity options, except that settlements of stock
index options are effected with cash payments and do not involve delivery of
securities. Thus, upon settlement of a stock index option, the purchaser will
realize, and the writer will pay, an amount based on the difference between the
exercise price and the closing price of the stock index. The effectiveness of
hedging techniques using stock index options will depend on the extent to which
price movements in the stock index selected correlate with price movements of
the securities in which the Series invests.
INTERNATIONAL SECURITIES SERIES may write put options. A put option
gives the purchaser of the option the right to sell, and the writer (seller) the
obligation to buy, the underlying security at the exercise price during the
option period. So long as the obligation of the writer continues, the writer
may be assigned an exercise notice by the broker-dealer through which such
option was sold, requiring it to make payment of the exercise price against
delivery of the underlying security. The operation of put options in other
respects, including their related risks and rewards, is substantially identical
to that of call options. The Series may write covered put options in
circumstances when the Subadviser believes that the market price of the
securities will not decline below the exercise price less the premiums received.
If the put option is not exercised, the Series will realize income in the amount
of the premium received. This technique could be used to enhance current return
during periods of market uncertainty. The risk in such a transaction would be
that the market price of the underlying security would decline below the
exercise price less the premiums received, in which case the Series would expect
to suffer a loss.
Currently, many options on equity securities and options on currencies
are exchange-traded, whereas options on debt securities are primarily traded on
the OTC market. Although many options on currencies are exchange-traded, the
majority of such options are traded on the OTC market. Exchange-traded options
in the U.S. are issued by a clearing organization affiliated with the exchange
on which the option is listed which, in effect, guarantees completion of every
exchange-traded option transaction. In contrast, OTC options are contracts
between the Series and the opposite party with no clearing organization
guarantee. Thus, when the Series purchases an OTC option, it relies on the
dealer from which it has purchased the OTC option to make or take delivery of
the securities underlying the option. Failure by the dealer to do so would
result in the loss of the premium paid by the Series as well as the loss of the
expected benefit of the transaction.
FOREIGN CURRENCY OPTIONS AND RELATED RISKS. INTERNATIONAL SECURITIES
------------------------------------------
SERIES may take positions in options on foreign currencies in order to hedge
against the risk of foreign exchange rate fluctuations on foreign securities the
Series holds in its portfolio or intends to purchase. For example, if the
Series enters into a contract to purchase securities denominated in a foreign
currency, it could effectively fix the maximum U.S. dollar cost of the
securities by purchasing call options on that foreign currency. Similarly, if
the Series held securities denominated in a foreign currency, and anticipated a
decline in the value of that currency against the U.S. dollar, the Series could
hedge against such a decline by purchasing a put option on the currency
involved. The Series' ability to establish and close out positions in such
options is subject to the maintenance of a liquid secondary market. Although
the Series will not purchase or write such options unless and until, in the
Subadviser's opinion, the market for them has developed sufficiently to ensure
that the risks in connection with such options are not greater than the risks in
connection with the underlying currency, there can be no assurance that a liquid
secondary market will exist for a particular option at any specific time. In
addition, options on foreign currencies are affected by all of those factors
that influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of
9
<PAGE>
either or both currencies and may have no relationship to the investment merits
of a foreign security. Because foreign currency transactions occurring in the
interbank market involve substantially larger amounts than those that may be
involved in the use of foreign currency options, investors may be disadvantaged
by having to deal in an odd lot market for the underlying foreign currencies at
prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
where rates may be less favorable. The interbank market in foreign currencies
is a global, around-the-clock market. To the extent that the U.S. options
markets are closed while the markets for the underlying currencies remain open,
significant price and rate movements may take place in the underlying markets
that cannot be reflected in the options markets until they reopen.
OPTIONS GUIDELINES. In view of the risks involved in using options,
------------------
the Fund's Board of Trustees has adopted non-fundamental investment guidelines
to govern the Series' use of options that may be modified by the Board without
shareholder vote: (1) options will be purchased or written only when the
Subadviser believes that there exists a liquid secondary market in such options;
and (2) the Series may not purchase a put or call option if the value of the
option's premium, when aggregated with the premiums on all other options held by
the Series, exceeds 5% of the Series' total assets.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING. INTERNATIONAL
----------------------------------------------------
SECURITIES SERIES may effectively terminate its right or obligation under an
option by entering into a closing transaction. If the Series wishes to
terminate its obligation to sell securities or currencies under a call option it
has written, the Series may purchase a call option of the same series (that is,
a call option identical in its terms to the call option previously written);
this is known as a closing purchase transaction. Conversely, in order to
terminate its right to purchase or sell specified securities or currencies under
a call or put option it has purchased, the Series may write an option of the
same series, as the option held; this is known as a closing sale transaction.
Closing transactions essentially permit the Series to realize profits or limit
losses on its options positions prior to the exercise or expiration of the
option. Whether a profit or loss is realized from a closing transaction depends
on the price movement of the underlying index, security or currency and the
market value of the option.
The value of an option position will reflect, among other things, the
current market price of the underlying security, stock index or currency, the
time remaining until expiration, the relationship of the exercise price to the
market price, the historical price volatility of the underlying security, stock
index or currency and general market conditions. For this reason, the
successful use of options depends upon the Subadviser's ability to forecast the
direction of price fluctuations in the underlying securities or currency markets
or, in the case of stock index options, fluctuations in the market sector
represented by the index selected.
Options normally have expiration dates of up to nine months. Unless
an option purchased by the Series is exercised or unless a closing transaction
is effected with respect to that position, a loss will be realized in the amount
of the premium paid and any transaction costs.
A position in an exchange-listed option may be closed out only on an
exchange that provides a secondary market for identical options. The ability to
establish and close out positions on the exchanges is subject to the maintenance
of a liquid secondary market. Although the Series intends to purchase or write
only those exchange-traded options for which there appears to be a liquid
secondary market, there
10
<PAGE>
is no assurance that a liquid secondary market will exist for any particular
option at any particular time. Closing transactions may be effected with respect
to options traded in the OTC markets (currently the primary markets for options
on debt securities) only by negotiating directly with the other party to the
option contract or in a secondary market for the option if such market exists.
Although the Series will enter into OTC options only with dealers that agree to
enter into, and that are expected to be capable of entering into, closing
transactions with the Series, there is no assurance that the Series will be able
to liquidate an OTC option at a favorable price at any time prior to expiration.
In the event of insolvency of the opposite party, the Series may be unable to
liquidate an OTC option. Accordingly, it may not be possible to effect closing
transactions with respect to certain options, with the result that the Series
would have to exercise those options that it has purchased in order to realize
any profit. With respect to options written by the Series, the inability to
enter into a closing transaction may result in material losses to the Series.
For example, because the Series must maintain a covered position with respect to
any call option it writes, the Series may not sell the underlying assets used to
cover an option during the period it is obligated under the option. This
requirement may impair the Series' ability to sell a portfolio security or make
an investment at a time when such a sale or investment might be advantageous.
Stock index options are settled exclusively in cash. If the Series
purchases an option on a stock index, the option is settled based on the closing
value of the index on the exercise date. Thus, a holder of a stock index option
who exercises it before the closing index value for that day is available runs
the risk that the level of the underlying index may subsequently change. For
example, in the case of a call option, if such a change causes the closing index
value to fall below the exercise price of the option on the index, the
exercising holder will be required to pay the difference between the closing
index value and the exercise price of the option.
The Series' activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs; however, the Series also
may save on commissions by using options as a hedge rather than buying or
selling individual securities in anticipation or as a result of market
movements.
FUTURES STRATEGIES. INTERNATIONAL SECURITIES SERIES may engage in
------------------
futures strategies to attempt to reduce the overall investment risk that would
normally be expected to be associated with ownership of the securities in which
it invests. The Series may sell foreign currency futures contracts to hedge
against possible variations in the exchange rate of the foreign currency in
relation to the U.S. dollar. In addition, the Series may sell foreign currency
futures contracts when the Subadviser anticipates a general weakening of foreign
currency exchange rates that could adversely affect the market value of the
Series' foreign securities holdings. In this case, the sale of futures
contracts on the underlying currency may reduce the risk to the Series of a
reduction in market value caused by foreign currency variations and, by so
doing, provide an alternative to the liquidation of securities positions and
resulting transaction costs. When the Subadviser anticipates a significant
foreign exchange rate increase while intending to invest in a security
denominated in that currency, the Series may purchase a foreign currency futures
contract to hedge against that increase pending completion of the anticipated
transaction. Such a purchase would serve as a temporary measure to protect the
Series against any rise in the foreign exchange rate that may add additional
costs to acquiring the foreign security position. The Series also may purchase
call or put options on foreign currency futures contracts to obtain a fixed
foreign exchange rate at limited risk. The Series may purchase a call option on
a foreign currency futures contract to hedge against a rise in the foreign
exchange rate while intending to invest in a security denominated in that
currency. The Series may purchase put options or write call options on foreign
currency futures contracts as a partial hedge against a decline in the foreign
exchange rates or the value of its foreign portfolio securities.
INTERNATIONAL SECURITIES SERIES may sell stock index futures contracts
in anticipation of a general market or market sector decline that could
adversely affect the market value of the Series' portfolio. To
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<PAGE>
the extent that a portion of the Series' portfolio correlates with a given stock
index, the sale of futures contracts on that index could reduce the risks
associated with a market decline and thus provide an alternative to the
liquidation of securities positions. The Series may purchase a stock index
futures contract if a significant market or market sector advance is
anticipated. Such a purchase would serve as a temporary substitute for the
purchase of individual stocks, which stocks may then be purchased in an orderly
fashion. This strategy may minimize the effect of all or part of an increase in
the market price of securities that the Series intends to purchase. A rise in
the price of the securities should be partially or wholly offset by gains in the
futures position.
INTERNATIONAL SECURITIES SERIES may purchase a call option on a stock
index future to hedge against a market advance in equity securities that the
Series plans to purchase at a future date. The Series may write covered call
options on stock index futures as a partial hedge against a decline in the
prices of stocks held in the Series' portfolio. The Series also may purchase
put options on stock index futures contracts.
INTERNATIONAL SECURITIES SERIES may use interest rate futures
contracts and options thereon to hedge the debt portion of its portfolio against
changes in the general level of interest rates. The Series may purchase an
interest rate futures contract when it intends to purchase debt securities but
has not yet done so. This strategy may minimize the effect of all or part of an
increase in the market price of those securities because a rise in the price of
the securities prior to their purchase may either be offset by an increase in
the value of the futures contract purchased by the Series or avoided by taking
delivery of the debt securities under the futures contract. Conversely, a fall
in the market price of the underlying debt securities may result in a
corresponding decrease in the value of the futures position. The Series may
sell an interest rate futures contract in order to continue to receive the
income from a debt security, while endeavoring to avoid part or all of the
decline in the market value of that security that would accompany an increase in
interest rates.
INTERNATIONAL SECURITIES SERIES may purchase a call option on an
interest rate futures contract to hedge against a market advance in debt
securities that the Series plans to acquire at a future date. The Series also
may write covered call options on interest rate futures contracts as a partial
hedge against a decline in the price of debt securities held in the Series'
portfolio or purchase put options on interest rate futures contracts in order to
hedge against a decline in the value of debt securities held in the Series'
portfolio.
SPECIAL RISKS RELATED TO FOREIGN CURRENCY FUTURES CONTRACTS AND
---------------------------------------------------------------
RELATED OPTIONS. Buyers and sellers of foreign currency futures contracts are
- ---------------
subject to the same risks that apply to the use of futures generally. In
addition, there are risks associated with foreign currency futures contracts and
their use as a hedging device similar to those associated with options on
foreign currencies described above. Further, settlement of a foreign currency
futures contract must occur within the country issuing the underlying currency.
Thus, INTERNATIONAL SECURITIES SERIES must accept or make delivery of the
underlying foreign currency in accordance with any U.S. or foreign restrictions
or regulations regarding the maintenance of foreign banking arrangements by U.S.
residents and may be required to pay any fees, taxes or charges associated with
such delivery that are assessed in the issuing country.
Options on foreign currency futures contracts may involve certain
additional risks. Trading of such options is relatively new. The ability to
establish and close out positions on such options is subject to the maintenance
of a liquid secondary market. To reduce this risk, INTERNATIONAL SECURITIES
SERIES will not purchase or write options on foreign currency futures contracts
unless and until, in the Subadviser's opinion, the market for such options has
developed sufficiently that the risks in connection with such options are not
greater than the risks in connection with transactions in the underlying futures
contracts.
12
<PAGE>
Compared to the purchase or sale of foreign currency futures contracts, the
purchase of call or put options thereon involves less potential risk to
INTERNATIONAL SECURITIES SERIES because the maximum amount at risk is the
premium paid for the options (plus transaction costs). However, there may be
circumstances when the purchase of a call or put option on a foreign currency
futures contract would result in a loss, such as when there is no movement in
the price of the underlying currency or futures contract.
FUTURES GUIDELINES. In view of the risks involved in using futures
------------------
strategies described below, the Fund's Board of Trustees has adopted non-
fundamental investment guidelines to govern the Fund's use of such investments
that may be modified by the Board without shareholder vote. Foreign currency
options traded on a commodities exchange are included and governed by these
guidelines. The Series will not purchase or sell futures contracts or related
options if, immediately thereafter, the sum of the amount of initial margin
deposits on the Series' existing futures positions and margin and premiums paid
for related options would exceed 5% of the market value of the Series' total
assets. The value of all futures sold will not exceed the total market value of
the Series' portfolio.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES TRADING. No price is
----------------------------------------------------
paid upon entering into futures contracts. Instead, upon entering into a
futures contract, INTERNATIONAL SECURITIES SERIES is required to deposit with
its custodian in a segregated account in the name of the futures broker through
which the transaction is effected an amount of cash, U.S. Government securities
or other liquid, high-grade debt instruments generally equal to 3%-5% or less of
the contract value. This amount is known as "initial margin." When writing a
call or put option on a futures contract, margin also must be deposited in
accordance with applicable exchange rules. Initial margin on futures contracts
is in the nature of a performance bond or good-faith deposit that is returned to
the Series upon termination of the transaction, assuming all obligations have
been satisfied. Under certain circumstances, such as periods of high
volatility, the Series may be required by an exchange to increase the level of
its initial margin payment. Additionally, initial margin requirements may be
increased generally in the future by regulatory action. Subsequent payments,
called "variation margin," to and from the broker, are made on a daily basis as
the value of the futures position varies, a process known as "marking to
market." Variation margin does not involve borrowing to finance the futures
transactions, but rather represents a daily settlement of the Series' obligation
to or from a clearing organization.
Holders and writers of futures positions and options thereon can enter
into offsetting closing transactions, similar to closing transactions on options
on securities, by selling or purchasing, respectively, a futures position or
options position with the same terms as the position or option held or written.
Positions in futures contracts and options thereon may be closed only on an
exchange or board of trade providing a secondary market for such futures or
options.
Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a futures contract or related option may
vary either up or down from the previous day's settlement price. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit. The daily limit governs only price movements
during a particular trading day and therefore does not limit potential losses
because prices could move to the daily limit for several consecutive trading
days with little or no trading and thereby prevent prompt liquidation of
unfavorable positions. In such event, it may not be possible for the Series to
close a position and, in the event of adverse price movements the Series would
have to make daily cash payments of variation margin (except in the case of
purchased options). However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the contracts
can be terminated. In such circumstances, an increase in the price of the
securities, if any, may partially or completely offset losses on the futures
contract. However, there is no guarantee that the price of the securities will,
in fact, correlate with the price movements in the contracts and thus provide an
offset to losses on the contracts.
13
<PAGE>
Successful use by INTERNATIONAL SECURITIES SERIES of futures contracts
and related options will depend upon the Subadviser's ability to predict
movements in the direction of the overall securities, currency and interest rate
markets, which requires different skills and techniques than predicting changes
in the prices of individual securities. Moreover, futures contracts relate not
to the current price level of the underlying instrument but to the anticipated
levels at some point in the future. There is, in addition, the risk that the
movements in the price of the futures contract or related option will not
correlate with the movements in prices of the securities or currencies being
hedged. In addition, if the Series has insufficient cash, it may have to sell
assets from its portfolio to meet daily variation margin requirements. Any such
sale of assets may or may not be made at prices that reflect the rising market.
Consequently, the Series may need to sell assets at a time when such sales are
disadvantageous to the Series. If the price of the futures contract or related
option moves more than the price of the underlying securities or currencies, the
Series will experience either a loss or a gain on the futures contract or
related option that may or may not be completely offset by movements in the
price of the securities or currencies that are the subject of the hedge.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between price movements in the futures or
related option position and the securities or currencies being hedged, movements
in the prices of futures contracts and related options may not correlate
perfectly with movements in the prices of the hedged securities or currencies
because of price distortions in the futures market. As a result, a correct
forecast of general market trends may not result in successful hedging through
the use of futures contracts and related options over the short term.
Positions in futures contracts and related options may be closed out
only on an exchange or board of trade that provides a secondary market for such
futures contracts or related options. Although the Series intends to purchase
or sell futures contracts and related options only on exchanges or boards of
trade where there appears to be a liquid secondary market, there is no assurance
that such a market will exist for any particular contract or option at any
particular time. In such event, it may not be possible to close a futures or
option position and, in the event of adverse price movements, the Series would
continue to be required to make variation margin payments.
Like options on securities and currencies, options on futures
contracts have a limited life. The ability to establish and close out options
on futures will be subject to the development and maintenance of liquid
secondary markets on the relevant exchanges or boards of trade. There can be no
certainty that liquid secondary markets for all options on futures contracts
will develop.
Purchasers of options on futures contracts pay a premium in cash at
the time of purchase. This amount and the transaction costs are all that is at
risk. Sellers of options on a futures contract, however, must post initial
margin and are subject to additional margin calls that could be substantial in
the event of adverse price movements. In addition, although the maximum amount
at risk when the Series purchases an option is the premium paid for the option
and the transaction costs, there may be circumstances when the purchase of an
option on a futures contract would result in a loss to the Series when the use
of a futures contract would not, such as when there is no movement in the level
of the underlying stock index or the value of the securities or currencies being
hedged.
The Series' activities in the futures and related options markets may
result in a higher portfolio turnover rate and additional transaction costs in
the form of added brokerage commissions; however, the Series also may save on
commissions by using futures and related options as a hedge rather than buying
or selling individual securities or currencies in anticipation or as a result of
market movements.
14
<PAGE>
FORWARD CURRENCY CONTRACTS. INTERNATIONAL SECURITIES SERIES may use
--------------------------
forward currency contracts to protect against uncertainty in the level of future
exchange rates. The Series will not speculate with forward currency contracts
or foreign currency exchange rates.
INTERNATIONAL SECURITIES SERIES may enter into forward currency
contracts with respect to specific transactions. For example, when the Series
enters into a contract for the purchase or sale of a security denominated in a
foreign currency, or when the Series anticipates the receipt in a foreign
currency of dividend or interest payments on a security that it holds, the
Series may desire to "lock-in" the U.S. dollar price of the security or the U.S.
dollar equivalent of such payment, as the case may be, by entering into a
forward contract for the purchase or sale, for a fixed amount of U.S. dollars or
foreign currency, of the amount of foreign currency involved in the underlying
transaction. The Series will thereby be able to protect itself against a
possible loss resulting from an adverse change in the relationship between the
currency exchange rates during the period between the date on which the security
is purchased or sold, or on which the payment is declared, and the date of which
such payments are made or received.
INTERNATIONAL SECURITIES SERIES also may use forward currency
contracts in connection with portfolio positions to lock in the U.S. dollar
value of those positions, to increase the Series' exposure to foreign currencies
that its Subadviser believes may rise in value relative to the U.S. dollar or to
shift the Series' exposure to foreign currency fluctuations from one country to
another. This investment practice generally is referred to as "cross-hedging"
when another foreign currency is used.
The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible because the future value
of such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. Accordingly, it may be necessary for
the Series to purchase additional foreign currency on the spot (i.e., cash)
----
market and bear the expense of such purchase if the market value of the security
is less than the amount of foreign currency the Series is obligated to deliver
and if a decision is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of
the foreign currency received upon the sale of the portfolio security if its
market value exceeds the amount of foreign currency the Series is obligated to
deliver. The projection of short-term currency market movements is extremely
difficult, and the successful execution of a short-term hedging strategy is
highly uncertain. Forward contracts involve the risk that anticipated currency
movements will not be accurately predicted, causing the Series to sustain losses
on these contracts and transactions costs. The Series may enter into formal
contracts or maintain a net exposure to such contracts only if the Series
maintains cash, U.S. Government securities or liquid, high-grade debt securities
in a segregated account in an amount not less than the value of the Series'
total assets committed to the consummation of the contract, as marked to market
daily.
At or before the maturity date of a forward contract requiring
INTERNATIONAL SECURITIES SERIES to sell a currency, the Series may either sell a
portfolio security and use the sale proceeds to make delivery of the currency or
retain the security and offset its contractual obligation to deliver the
currency by purchasing a second contract pursuant to which the Series will
obtain, on the same maturity date, the same amount of the currency that it is
obligated to deliver. Similarly, the Series may close out a forward contract
requiring it to purchase a specified currency by entering into a second contract
entitling it to sell the same amount of the same currency on the maturity date
of the first contract. The Series would realize a gain or loss as a result of
entering into an offsetting forward currency contract under either circumstance
to the extent the exchange rate or rates between the currencies involved moved
between the execution dates of the first contract and the offsetting contract.
There can be no assurance that new forward contracts or offsets always will be
available for the Series. Forward currency contracts also involve a risk that
the other party to the contract may fail to deliver currency when due, which
could result in substantial
15
<PAGE>
losses to the Series. The cost to the Series of engaging in forward currency
contracts varies with factors such as the currencies involved, the length of the
contract period and the market conditions then prevailing. Because forward
currency contracts are usually entered into on a principal basis, no fees or
commissions are involved.
INVESTMENT RESTRICTIONS
The Fund has adopted the investment restrictions set forth below,
which cannot be changed without the approval of a vote of a majority of the
outstanding shares of the Fund. As provided in the Investment Company Act of
1940, as amended ("1940 Act"), a "vote of a majority of the outstanding shares
of the Fund" means the affirmative vote of the lesser of (i) more than 50% of
the outstanding shares of the Fund or (ii) 67% or more of the shares present at
a meeting if more than 50% of the outstanding shares are represented at the
meeting in person or by proxy. The investment restrictions provide that each
Series of the Fund will not:
(1) Borrow money, except as a temporary or emergency measure in an
amount not to exceed 5% of the value of its total assets.
(2) Pledge assets, except that the Fund may pledge its assets to
secure borrowings made in accordance with paragraph (1) above, provided the Fund
maintains asset coverage of at least 300% for pledged assets; provided, however,
this limitation will not prohibit escrow, collateral or margin arrangements in
connection with the INTERNATIONAL SECURITIES SERIES' use of options, futures
contracts or options on futures contracts.
(3) Make loans, except by purchase of debt obligations and through
repurchase agreements. However, the Fund's Board of Trustees may, on the
request of broker-dealers or other unaffiliated institutional investors which
they deem qualified, authorize the Fund to loan securities to cover the
borrower's short position; provided, however, the borrower pledges to the Fund
and agrees to maintain at all times with the Fund cash collateral equal to not
less than 100% of the value of the securities loaned, the loan is terminable at
will by the Fund, the Fund receives interest on the loan as well as any
distributions upon the securities loaned, the Fund retains voting rights
associated with the securities, the Fund pays only reasonable custodian fees in
connection with the loan, and the Adviser or Subadviser monitors the
creditworthiness of the borrower throughout the life of the loan; provided
further, that such loans will not be made if the value of all loans, repurchase
agreements with more than seven days to maturity, and other illiquid assets is
greater than an amount equal to 10% of the Fund's total assets; provided,
however, securities that have legal or contractual restrictions as to resale but
have a readily available market are not deemed illiquid for purposes of this
limitation.
(4) Purchase, with respect to only 75% of the Fund's assets, the
securities of any issuer (other than the U.S. Government) if, as a result
thereof, (a) more than 5% of the Fund's total assets (taken at current value)
would be invested in the securities of such issuer; provided, however, that such
restrictions shall apply to 100% of the assets of the CASH MANAGEMENT SERIES; or
(b) the Fund would hold more than 10% of any class of securities (including any
class of voting securities) of such issuer (for this purpose, all debt
obligations of an issuer maturing in less than one year are treated as a single
class of securities).
(5) Purchase securities on margin (but the Fund may obtain such
credits as may be necessary for the clearance of purchases and sales of
securities); provided, however, that INTERNATIONAL
16
<PAGE>
SECURITIES SERIES may make margin deposits in connection with the use of
options, futures contracts and options on futures contracts.
(6) Make short sales of securities.
(7) Buy or sell puts, calls, straddles or spreads, except, as to
INTERNATIONAL SECURITIES SERIES, with respect to options on securities,
securities indices and foreign currencies or on futures contracts.
(8) Purchase the securities of other investment companies or
investment trusts, except as they may be acquired as part of a merger,
consolidation or acquisition of assets.
(9) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter under Federal securities laws.
(10) Buy or sell real estate, commodities, or commodity contracts
(unless acquired as a result of ownership of securities) or interests in oil,
gas or mineral explorations; provided, however, the Fund may invest in
securities secured by real estate or interests in real estate, and INTERNATIONAL
SECURITIES SERIES may purchase or sell options on securities, securities indices
and foreign currencies, stock index futures, interest rate futures and foreign
currency futures, as well as options on such futures contracts.
(11) Purchase the securities of an issuer if such purchase, at the
time thereof, would cause more than 5% of the value of the Fund's total assets
to be invested in securities of issuers which, including predecessors, have a
record of less than three years' continuous operation.
The following investment restrictions are not fundamental and can be
changed without prior shareholder approval:
1. The Fund will not invest in any securities of any issuer if, to the
knowledge of the Fund, any officer, director or trustee of the Fund or of the
Adviser owns more than 1/2 of 1% of the outstanding securities of such issuer,
and such officers, directors or trustees who own more than 1/2 of 1% own in the
aggregate more than 5% of the outstanding securities of such issuer.
2. The Fund will not purchase any security if, as a result, more than 15%
of its net assets would be invested in illiquid securities, including repurchase
agreements not entitling the holder to payment of principal and interest within
seven days and any securities that are illiquid by virtue of legal or
contractual restrictions on resale or the absence of a readily available market.
The Trustees, or the Fund's investment adviser acting pursuant to authority
delegated by the Trustees, may determine that a readily available market exists
for securities eligible for resale pursuant to Rule 144A under the Securities
Act of 1933, as amended, or any other applicable rule, and therefore that such
securities are not subject to the foregoing limitation.
TRUSTEES AND OFFICERS
The following table lists the Trustees and executive officers of the Fund,
their business address and principal occupations during the past five years.
Unless otherwise noted, an individual's business address is 95 Wall Street, New
York, New York 10005.
17
<PAGE>
GLENN O. HEAD*+, President and Trustee. Chairman of the Board, Director and
Treasurer, Administrative Data Management Corp. ("ADM"); Chairman of the Board
and Director, FIMCO, Executive Investors Management Company, Inc. ("EIMCO"),
First Investors Corporation ("FIC"), Executive Investors Corporation ("EIC") and
First Investors Consolidated Corporation ("FICC").
JAMES J. COY, Trustee, 90 Buell Lane, East Hampton, NY 11937. Retired; formerly
Senior Vice President, James Talcott, Inc. (financial institution).
ROGER L. GRAYSON*, Trustee. Director, FIC and FICC; President and Director,
First Investors Resources, Inc.; Commodities Portfolio Manager.
KATHRYN S. HEAD*+, Trustee, 10 Woodbridge Center Drive, Woodbridge, NJ 07095.
President, FICC and FIMCO; Vice President, Chief Financial Officer and Director,
FIC and EIC; President and Director, First Financial Savings Bank, S.L.A.;
Chief Financial Officer, ADM.
F. WILLIAM ORTMAN, JR., Trustee, 50 B Cambridge Circle, Lakehurst, NJ 08723.
Retired; formerly Management Consultant.
REX R. REED, Trustee, 76 Keats Way, Morristown, NJ 07960. Retired; formerly
Senior Vice President, American Telephone & Telegraph Company.
HERBERT RUBINSTEIN, Trustee, 145 Elm Drive, Roslyn, NY 11576. Retired; formerly
President, Belvac International Industries, Ltd.; President, Central Dental
Supply.
JOHN T. SULLIVAN*, Trustee and Chairman of the Board; Director, FIMCO, FIC, FICC
and ADM; Of Counsel, Hawkins, Delafield & Wood, Attorneys.
ROBERT F. WENTWORTH, Trustee, RR1, Box 2554, Upland Downs Road, Manchester
Center, VT 05255. Retired; formerly financial and planning executive with
American Telephone & Telegraph Company.
JOSEPH I. BENEDEK, Treasurer, 10 Woodbridge Center Drive, Woodbridge, NJ 07095.
Treasurer, FIC, FIMCO, EIMCO and EIC.
CONCETTA DURSO, Vice President and Secretary. Vice President, FIMCO, EIMCO and
ADM; Assistant Vice President and Assistant Secretary, FIC.
CAROL LERNER BROWN, Assistant Secretary. Secretary, FIMCO, EIMCO, FIC, EIC and
ADM.
- -------------------------------
* These Trustees may be deemed to be "interested persons," as defined in the
1940 Act.
+ Mr. Glenn O. Head and Ms. Kathryn S. Head are father and daughter.
All of the officers and Trustees hold identical or similar positions with
Executive Investors Trust, First Investors Cash Management Fund, Inc., First
Investors Global Fund, Inc., First Investors Government Fund, Inc., First
Investors Insured Tax Exempt Fund, Inc., First Investors High Yield Fund, Inc.,
First Investors Fund For Income, Inc., First Investors Series Fund, First
Investors Multi-State Insured Tax Free Fund, First Investors New York Insured
Tax Free Fund, Inc., First Investors Series Fund II, Inc., First Investors
Special Bond Fund, Inc., First Investors Tax-Exempt Money Market Fund, Inc. and
First Investors U.S. Government Plus Fund. Mr. Head is also an officer and/or
Director of First Investors Asset Management Company, Inc., First Investors
Credit Funding Corporation, First Investors Leverage
18
<PAGE>
Corporation, First Investors Realty Company, Inc., First Investors Resources,
Inc., N.A.K. Realty Corporation, Real Property Development Corporation, Route 33
Realty Corporation, First Investors Life Insurance Company, First Financial
Savings Bank, S.L.A., First Investors Credit Corporation and School Financial
Management Services, Inc. Ms. Head is also an officer and/or Director of First
Investors Life Insurance Company, First Investors Credit Corporation and School
Financial Management Services, Inc.
Compensation to officers and interested Trustees of the Fund is paid by the
Adviser and not by the Fund. In addition, compensation to non-interested
Trustees of the Fund is currently voluntarily paid by the Adviser.
MANAGEMENT
ADVISER. Investment advisory services to the Series are provided by First
-------
Investors Management Company, Inc. pursuant to an Investment Advisory Agreement
("Advisory Agreement") dated June 13, 1994. The Advisory Agreement was approved
by the Board of Trustees of the Fund, including a majority of the Trustees who
are not parties to the Advisory Agreement or "interested persons" (as defined in
the 1940 Act) of any such party ("Independent Trustees"), in person at a meeting
called for such purpose and by a majority of the shareholders of each Series.
Pursuant to the Advisory Agreement, FIMCO shall supervise and manage each
Series' investments, determine each Series' portfolio transactions and supervise
all aspects of each Series' operations, subject to review by the Trustees. The
Advisory Agreement also provides that FIMCO shall provide the Fund and each
Series with certain executive, administrative and clerical personnel, office
facilities and supplies, conduct the business and details of the operation of
the Fund and each Series and assume certain expenses thereof, other than
obligations or liabilities of the Series. The Advisory Agreement may be
terminated at any time without penalty by the Trustees or by a majority of the
outstanding voting securities of the applicable Series, or by FIMCO, in each
instance on not less than 60 days' written notice, and shall automatically
terminate in the event of its assignment (as defined in the 1940 Act). The
Advisory Agreement also provides that it will continue in effect, with respect
to a Series, for a period of over two years only if such continuance is approved
annually either by the Trustees or by a majority of the outstanding voting
securities of that Series, and, in either case, by a vote of a majority of the
Independent Trustees voting in person at a meeting called for the purpose of
voting on such approval.
Under the Advisory Agreement, each Series pays the Adviser an annual fee,
paid monthly, according to the following schedules:
Annual
Average Daily Net Assets Rate
- ------------------------ ------
Up to $250 million ....................................... 0.75%
In excess of $250 million up to $500 million ............. 0.72
In excess of $500 million up to $750 million ............. 0.69
Over $750 million ........................................ 0.66
The SEC staff takes the position that fees of 0.75% or greater are higher than
those paid by most investment companies.
The Adviser has an Investment Committee composed of George V. Ganter,
Margaret Haggerty, Glenn O. Head, Nancy W. Jones, Patricia D. Poitra, Ronald
Rolleri, Clark D. Wagner and John Tomasulo.
19
<PAGE>
The Committee usually meets weekly to discuss the composition of the portfolio
of each Series and to review additions to and deletions from the portfolios.
For the fiscal year ended December 31, 1992, BLUE CHIP SERIES' advisory
fees were $125,405, net of a waiver of $12,612; CASH MANAGEMENT SERIES' advisory
fees were $48,818, net of a waiver of $15,708; DISCOVERY SERIES' advisory fees
were $44,528, net of a waiver of $10,204; GROWTH SERIES' advisory fees were
$35,843, net of a waiver of $51,341; HIGH YIELD SERIES' advisory fees were
$176,602, net of a waiver of $12,251; and INTERNATIONAL SECURITIES SERIES'
advisory fees were $42,380, net of a waiver of $37,083. For the period January
7, 1992 (commencement of operations) through December 31, 1992, GOVERNMENT
SERIES' advisory fees were $900, net of a waiver of $19,140 and INVESTMENT GRADE
SERIES' advisory fees were $5,595, net of a waiver of $12,379.
For the fiscal year ended December 31, 1993, BLUE CHIP SERIES' advisory
fees were $214,369, CASH MANAGEMENT SERIES' advisory fees were $19,805, net of a
waiver of $29,519, DISCOVERY SERIES' advisory fees were $114,996, GOVERNMENT
SERIES' advisory fees were $24,232, net of a waiver of $27,694, GROWTH SERIES'
advisory fees were $154,256, HIGH YIELD SERIES' advisory fees were $205,249,
INTERNATIONAL SECURITIES SERIES' advisory fees were $112,984 and INVESTMENT
GRADE SERIES' advisory fees were $25,954, net of a waiver of $29,662. For the
period November 15, 1993 (commencement of operations) through December 31, 1993,
UTILITIES INCOME SERIES' advisory fees in the amounts of $600 and $2,046,
respectively, were waived.
For the fiscal year ended December 31, 1994, BLUE CHIP SERIES' advisory
fees were $286,413, CASH MANAGEMENT SERIES' advisory fees were $12,024, net of a
waiver of $17,258, DISCOVERY SERIES' advisory fees were $194,546, GOVERNMENT
SERIES' advisory fees were $27,509, net of a waiver of $31,440, GROWTH SERIES'
advisory fees were $218, 813, HIGH YIELD SERIES' advisory fees were $236,209,
INTERNATIONAL SECURITIES SERIES' advisory fees were $202,739, INVESTMENT GRADE
SERIES' advisory fees were $38,655, net of a waiver of $44,177 and UTILITIES
INCOME SERIES' advisory fees were $4,772, net of a waiver of $16,163.
SUBADVISER. Wellington Management Company has been retained by the Adviser
----------
and the Fund as the investment subadviser to INTERNATIONAL SECURITIES SERIES and
GROWTH SERIES under a subadvisory agreement dated June 13, 1994 ("Subadvisory
Agreement"). The Subadvisory Agreement was approved by the Board of Trustees of
the Fund, including a majority of Independent Trustees in person at a meeting
called for such purpose and by a majority of the shareholders of INTERNATIONAL
SECURITIES SERIES and GROWTH SERIES.
The Subadvisory Agreement provides that it will continue, with respect to a
Series, for a period of more than two years from the date of execution only so
long as such continuance is approved annually by either the Board of Trustees or
a majority of the outstanding voting securities of that Series and, in either
case, by a vote of a majority of the Independent Trustees voting in person at a
meeting called for the purpose of voting on such approval. The Subadvisory
Agreement provides that it will terminate automatically, with respect to a
Series, if assigned or upon the termination of the Advisory Agreement, and that
it may be terminated without penalty by the Board of Trustees or a vote of a
majority of the outstanding voting securities of that Series, upon not more than
60 days' written notice, or by the Adviser or Subadviser on not more than 30
days' written notice. The Subadvisory Agreement provides that WMC will not be
liable for any error of judgment or for any loss suffered by the Series or the
Adviser in connection with the matters to which the Subadvisory Agreement
relates, except a loss resulting from a breach of fiduciary duty with respect to
the receipt of compensation or from willful misfeasance, bad faith, gross
negligence or reckless disregard of duty.
20
<PAGE>
Under the Subadvisory Agreement, the Adviser will pay to the Subadviser a
fee at an annual rate of 0.400% of the average daily net assets of each Series
up to and including $50 million; 0.275% of the average daily net assets in
excess of $50 million up to and including $150 million, 0.225% of the average
daily net assets in excess of $150 million up to and including $500 million; and
0.200% of the average daily net assets in excess of $500 million. This fee is
calculated separately for each of the Series.
For the fiscal year ended December 31, 1992, the Subadviser received
$30,188 for its services with respect to the INTERNATIONAL SECURITIES SERIES and
$46,484 for its services with respect to the GROWTH SERIES. For the fiscal year
ended December 31, 1993, the Subadviser received $60,245 for its services with
respect to the INTERNATIONAL SECURITIES SERIES and $82,270 for its services with
respect to the GROWTH SERIES. For the fiscal year ended December 31, 1994, the
Subadviser received $108,127 for its services with respect to the INTERNATIONAL
SECURITIES SERIES and $116,700 for its services with respect to the GROWTH
SERIES.
DETERMINATION OF NET ASSET VALUE
Except as provided herein, a security listed or traded on an exchange or
the Nasdaq national market system is valued at its last sale price on the
exchange or market system where the security is primarily traded, and lacking
any sales on a particular day, the security is valued at the mean between the
closing bid and asked prices on that day. Each security traded in the OTC
market (including securities listed on exchanges whose primary market is
believed to be OTC) is valued at the mean between the closing bid and asked
prices based upon quotes furnished by a market maker for such securities. The
U.S. Government securities in which the Series invest are traded primarily in
the OTC markets. In the absence of market quotations, a Series will determine
the value of bonds based upon quotes furnished by market makers, if available,
or in accordance with the procedures described herein. In that connection, the
Board of Trustees has determined that a Series may use an outside pricing
service. The pricing service uses quotations obtained from investment dealers
or brokers for the particular securities being evaluated, information with
respect to market transactions in comparable securities and other available
information in determining value. Short-term debt securities that mature in 60
days or less are valued at amortized cost if their original term to maturity
from the date of purchase was 60 days or less, or by amortizing their value on
the 61st day prior to maturity if their term to maturity from the date of
purchase exceeded 60 days, unless the Board of Trustees determines that such
valuation does not represent fair value. Securities for which market quotations
are not readily available are valued at fair value as determined in good faith
by the Board of Trustees of the Fund.
"When-issued securities" are reflected in the assets of a Series as of the
date the securities are purchased. Such investments are valued thereafter at
the mean between the most recent bid and asked prices obtained from recognized
dealers in such securities. For valuation purposes, quotations of foreign
securities in foreign currencies are converted into U.S. dollar equivalents
using the foreign exchange equivalents in effect. The investments in CASH
MANAGEMENT SERIES when purchased at a discount, are valued at amortized cost and
when purchased at face value, are valued at cost plus accrued interest.
The Fund's Board of Trustees may suspend the determination of a Series' net
asset value for the whole or any part of any period (1) during which trading on
the New York Stock Exchange ("NYSE") is restricted as determined by the SEC or
the NYSE is closed for other than weekend and holiday closings, (2) during which
an emergency, as defined by rules of the SEC in respect to the U.S. market,
exists as a result of which disposal by a Series of securities owned by it is
not reasonably practicable for the Series fairly to determine the value of its
net assets, or (3) for such other period as the SEC has by order permitted such
suspension.
21
<PAGE>
ALLOCATION OF PORTFOLIO BROKERAGE
Purchases and sales of portfolio securities by TARGET MATURITY 2007 SERIES,
INVESTMENT GRADE SERIES, GOVERNMENT SERIES and HIGH YIELD SERIES generally are
principal transactions. In principal transactions, portfolio securities are
normally purchased directly from the issuer or from an underwriter or market
maker for the securities. There will usually be no brokerage commissions paid
by the Series for such purchases. Purchases from underwriters will include the
underwriter's commission or concession and purchases from dealers serving as
market makers will include the spread between the bid and asked price. Certain
money market instruments may be purchased directly from an issuer, in which no
commissions or discounts are paid. Fixed income securities are generally
purchased on a "net" basis with dealers acting as principal for their own
accounts without a stated commission, although the price of the security usually
includes a profit to the dealer.
The Series may deal in securities which are not listed on a national
securities exchange or the Nasdaq national market system but are traded in the
OTC market. The Series also may purchase listed securities through the "third
market." When transactions are executed in the OTC market, the Series seek to
deal with the primary market makers, but when advantageous they utilize the
services of brokers.
In effecting portfolio transactions, the Adviser or, for GROWTH SERIES and
INTERNATIONAL SECURITIES SERIES, their Subadviser, seeks best execution of
trades either (1) at the most favorable and competitive rate of commission
charged by any broker or member of an exchange, or (2) with respect to agency
transactions, at a higher rate of commission if reasonable in relation to
brokerage and research services provided to a Series or the Adviser or, for
GROWTH SERIES and INTERNATIONAL SECURITIES SERIES, their Subadviser, by such
member or broker. Such services may include, but are not limited to, any one or
more of the following: information as to the availability of securities for
purchase or sale, statistical or factual information or opinions pertaining to
investments. The Adviser or, for GROWTH SERIES and INTERNATIONAL SECURITIES
SERIES, their Subadviser, may use research and services provided to it by
brokers in servicing all the funds in the First Investors Group of Funds;
however, not all such services may be used by the Adviser or, for GROWTH SERIES
and INTERNATIONAL SECURITIES SERIES, their Subadviser, in connection with a
Series. No portfolio orders are placed with an affiliated broker, nor does any
affiliated broker participate in these commissions.
The Adviser or, for GROWTH SERIES and INTERNATIONAL SECURITIES SERIES,
their Subadviser, may combine transaction orders placed on behalf of any of the
Series, any other fund in the First Investors Group of Funds, and any series of
Executive Investors Trust and First Investors Life, for the purpose of
negotiating brokerage commissions or obtaining a more favorable transaction
price; and where appropriate, securities purchased or sold may be allocated, in
terms of price and amount, to a Series according to the proportion that the size
of the transaction order actually placed by a Series bears to the aggregate size
of the transaction orders simultaneously made by other participants in the
transaction.
For the fiscal year ended December 31, 1992, INTERNATIONAL SECURITIES
SERIES paid $31,403 in brokerage commissions. For the fiscal year ended
December 31, 1992, BLUE CHIP SERIES paid $48,072 in brokerage commissions. Of
that amount, $1,125 was paid in brokerage commissions to brokers who furnished
research services on portfolio transactions in the amount of $511,787. For the
fiscal year ended December 31, 1992, DISCOVERY SERIES paid $21,498 in brokerage
commissions. Of that amount, $19,250 was paid in brokerage commissions to
brokers who furnished research services on portfolio transactions in the amount
of $4,749,709. For the fiscal year ended December 31, 1992, GROWTH SERIES paid
$15,436 in brokerage commissions. Of that amount, $512 was paid in brokerage
commissions to brokers who
22
<PAGE>
furnished research services on portfolio transactions in the amount of $489,693.
For the same periods, all other Series of the Fund did not pay brokerage
commissions.
Brokerage commissions for the fiscal year ended December 31, 1993 are as
follows: BLUE CHIP SERIES paid $43,811 in brokerage commissions. Of that
amount, $l,040 was paid in brokerage commissions to brokers who furnished
research services on portfolio transactions in the amount of $659,709.
INTERNATIONAL SECURITIES SERIES paid $40,600 in brokerage commissions. Of that
amount, $354 was paid in brokerage commissions to brokers who furnished research
services on portfolio transactions in the amount of $158,358. DISCOVERY SERIES
paid $21,875 in brokerage commissions. Of that amount, $8,062 was paid in
brokerage commissions to brokers who furnished research services on portfolio
transactions in the amount of $2,203,374. GROWTH SERIES paid $27,301 in
brokerage commissions. Of that amount, $11,318 was paid in brokerage
commissions to brokers who furnished research services on portfolio transactions
in the amount of $7,444,277. HIGH YIELD SERIES paid brokerage commissions of
$268. Of that amount, $176 was paid in brokerage commissions to brokers who
furnished research services on portfolio transactions in the amount of $42,600.
For the same period, all other Series of the Fund did not pay brokerage
commissions. For the period November 15 through December 31, 1993, UTILITIES
INCOME SERIES paid $1,284.
Brokerage commissions for the fiscal year ended December 31, 1994 are as
follows: BLUE CHIP SERIES, INTERNATIONAL SECURITIES SERIES, DISCOVERY SERIES
and UTILITIES INCOME SERIES paid $96,570, $69,494, $34,423 and $14,811,
respectively, in brokerage commissions. GROWTH SERIES paid $37,740 in brokerage
commissions. Of that amount $7,571 was paid in brokerage commissions to brokers
who furnished research services on portfolio transactions in the amount of
$4,437,997. HIGH YIELD SERIES paid $586 in brokerage commissions, all of which
was paid to brokers who furnished research services on portfolio transactions in
the amount of $16,600. For the same period, all other Series of the Fund did
not pay brokerage commissions.
TAXES
In order to qualify for treatment as a regulated investment company ("RIC")
under the Internal Revenue Code of 1986, as amended ("Code"), a Series -- each
Series being treated as a separate entity for these purposes -- must distribute
to its shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income, net short-term
capital gain and, for INTERNATIONAL SECURITIES SERIES, HIGH YIELD SERIES and
DISCOVERY SERIES, net gains from certain foreign currency transactions)
("Distribution Requirement") and must meet several additional requirements. For
each Series these requirements include the following: (1) the Series must
derive at least 90% of its gross income each taxable year from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of securities or, for INTERNATIONAL SECURITIES SERIES, HIGH
YIELD SERIES and DISCOVERY SERIES, foreign currencies, or other income
(including, for INTERNATIONAL SECURITIES SERIES, gains from options, futures or
forward contracts) derived with respect to its business of investing in
securities or, for INTERNATIONAL SECURITIES SERIES, HIGH YIELD SERIES and
DISCOVERY SERIES, those currencies ("Income Requirement"); (2) the Series must
derive less than 30% of its gross income each taxable year from the sale or
other disposition of securities, or any of the following, that were held for
less than three months -- options, futures or forward contracts (other than
those on foreign currencies), or, for INTERNATIONAL SECURITIES SERIES, HIGH
YIELD SERIES and DISCOVERY SERIES, foreign currencies (or options, futures or
forward contracts thereon) that are not directly related to the Fund's principal
business of investing in securities (or, for INTERNATIONAL SECURITIES SERIES,
options and futures with respect thereto) ("Short-Short Limitation"); (3) at the
close of each quarter of the Series' taxable year, at least 50% of the value of
its total assets must be represented by cash and cash items, U.S. Government
securities, securities
23
<PAGE>
of other RICs and other securities, with those other securities limited, in
respect of any one issuer, to an amount that does not exceed 5% of the value of
the Fund's total assets and that does not represent more than 10% of the
issuer's outstanding voting securities; and (4) at the close of each quarter of
the Fund's taxable year, not more than 25% of the value of its total assets may
be invested in securities (other than U.S. Government securities or the
securities of other RICs) of any one issuer.
Dividends and interest received by INTERNATIONAL SECURITIES SERIES, HIGH
YIELD SERIES and DISCOVERY SERIES may be subject to income, withholding or other
taxes imposed by foreign countries that would reduce the yield on its
securities. Tax conventions between certain countries and the United States may
reduce or eliminate these foreign taxes, however, and many foreign countries do
not impose taxes on capital gains in respect of investments by foreign
investors.
INTERNATIONAL SECURITIES SERIES and DISCOVERY SERIES each may invest in the
stock of "passive foreign investment companies" ("PFICs"). A PFIC is a foreign
corporation that, in general, meets either of the following tests: (1) at least
75% of its gross income is passive or (2) an average of at least 50% of its
assets produce, or are held for the production of, passive income. Under
certain circumstances, such a Series that holds stock of a PFIC will be subject
to Federal income tax on a portion of any "excess distribution" received on the
stock or of any gain on disposition of the stock (collectively "PFIC income"),
plus interest thereon, even if the Series distributes the PFIC income as a
taxable dividend to its shareholders. The balance of the PFIC income will be
included in the Series' investment company taxable income and, accordingly, will
not be taxable to it to the extent that income is distributed to its
shareholders.
If INTERNATIONAL SECURITIES SERIES or DISCOVERY SERIES invests in a PFIC
and elects to treat the PFIC as a "qualified electing fund," then in lieu of the
foregoing tax and interest obligation, the Series would be required to include
in income each year its pro rata share of the qualified electing fund's annual
ordinary earnings and net capital gain (the excess of net long-term capital gain
over net short-term capital loss) -- which would have to be distributed to
satisfy the Distribution Requirement -- even if those earnings and gain were not
received by the Series. In most instances it will be very difficult, if not
impossible, to make this election because of certain requirements thereof.
The "Tax Simplification and Technical Corrections Bill of 1993," passed in
May 1994 by the House of Representatives would substantially modify the taxation
of U.S. shareholders of foreign corporations, including eliminating the
provisions described above dealing with PFICs and replacing them (and other
provisions) with a regulatory scheme involving entities called "passive foreign
corporations." Three similar bills passed in 1991 and 1992 were vetoed. It is
unclear at this time whether, and in what form, the proposed modifications may
be enacted into law.
Proposed regulations have been published pursuant to which open-end RICs,
such as INTERNATIONAL SECURITIES SERIES and DISCOVERY SERIES, would be entitled
to elect to "mark-to-market" their stock in certain PFICs. "Marking-to-market,"
in this context, means recognizing as gain for each taxable year the excess, as
of the end of that year, of the fair market value of such a PFIC's stock over
the adjusted basis in that stock (including mark-to-market gain for each prior
year for which an election was in effect).
The use of hedging strategies, such as selling and purchasing options and
futures contracts and entering into forward contracts, involves complex rules
that will determine for income tax purposes the character and timing of
recognition of the gains and losses INTERNATIONAL SECURITIES SERIES realizes in
connection therewith. For INTERNATIONAL SECURITIES SERIES, HIGH YIELD SERIES
and DISCOVERY SERIES, income from foreign currencies (except certain gains
therefrom that may be excluded by future regulations), and income from
transactions in options, futures and forward contracts derived by such Series
24
<PAGE>
with respect to its business of investing in securities or foreign currencies,
will qualify as permissible income under the Income Requirement. However,
income from the Series' disposition of options and futures contracts (other than
those on foreign currencies) will be subject to the Short-Short Limitation if
they are held for less than three months. Income from the Series' disposition
of foreign currencies and options, futures and forward contracts that are not
directly related to its principal business of investing in securities (or
options and futures with respect to securities) also will be subject to the
Short-Short Limitation if they are held for less than three months.
If INTERNATIONAL SECURITIES SERIES satisfies certain requirements, then any
increase in value of a position that is part of a "designated hedge" will be
offset by any decrease in value (whether realized or not) of the offsetting
hedging position during the period of the hedge for purposes of determining
whether the Series satisfies the Short-Short Limitation. Thus, only the net
gain (if any) from the designated hedge will be included in gross income for
purposes of that limitation. The Series intends that, when it engages in
hedging strategies, they will qualify for this treatment, but at the present
time it is not clear whether this treatment will be available for all of the
Series' hedging transactions. To the extent this treatment is not available,
the Series may be forced to defer the closing out of certain options, futures or
forward contracts beyond the time when it otherwise would be advantageous to do
so, in order for the Series to continue to qualify as a RIC.
HIGH YIELD SERIES, GOVERNMENT SERIES, INVESTMENT GRADE SERIES, TARGET
MATURITY 2007 SERIES and UTILITIES INCOME SERIES may acquire zero coupon
securities issued with original issue discount. As a holder of those
securities, each such Series must include in its income the original issue
discount that accrues on the securities for the taxable year, even if the Series
receives no corresponding payment on the securities during the year. Similarly,
each such Series must include in its gross income securities it receives as
"interest" on pay-in-kind securities. Because each Series annually must
distribute substantially all of its investment company taxable income, including
any original issue discount and other non-cash income, in order to satisfy the
Distribution Requirement, each Series may be required in a particular year to
distribute as a dividend an amount that is greater than the total amount of cash
it actually receives. Those distributions will be made from a Series' cash
assets or from the proceeds of sales of portfolio securities, if necessary. A
Series may realize capital gains or losses from those sales, which would
increase or decrease its investment company taxable income and/or net capital
gain (the excess of net long-term capital gain over net short-term capital
loss). In addition, any such gains may be realized on the disposition of
securities held for less than three months. Because of the Short-Short
Limitation, any such gains would reduce the Series' ability to sell other
securities, or options futures or certain forward contracts, held for less than
three months that it might wish to sell in the ordinary course of its portfolio
management.
GENERAL INFORMATION
AUDITS AND REPORTS. The accounts of the Series are audited twice a year by
------------------
Tait, Weller & Baker, independent certified public accountants. Shareholders
receive semi-annual and annual reports of the Series, including audited
financial statements, and a list of securities owned.
SHAREHOLDER LIABILITY. The Fund is organized as an entity known as a
---------------------
"Massachusetts business trust." Under Massachusetts law, shareholders of such a
trust may, under certain circumstances, be held personally liable for the
obligations of the Fund. The Declaration of Trust however, contains, an express
disclaimer of shareholder liability for acts or obligations of the Fund and
requires that notice of such disclaimer be given in each agreement, obligation
or instrument entered into or executed by the Fund or the Trustees. The
Declaration of Trust provides for indemnification out of the property of the
Fund of
25
<PAGE>
any shareholder held personally liable for the obligations of the Fund. The
Declaration of Trust also provides that the Fund shall, upon request, assume the
defense of any claim made against any shareholder for any act or obligation of
the Fund and satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its obligations.
The Adviser believes that, in view of the above, the risk of personal liability
to shareholders is immaterial and extremely remote. The Declaration of Trust
further provides that the Trustees will not be liable for errors of judgment or
mistakes of fact or law, but nothing in the Declaration of Trust protects a
Trustee against any liability to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. The Fund may have an obligation
to indemnify Trustees and officers with respect to litigation.
APPENDIX A
DESCRIPTION OF COMMERCIAL PAPER RATINGS
STANDARD & POOR'S RATINGS GROUP
- -------------------------------
Standard & Poor's Rating Group ("S&P") commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market. Ratings are graded into several categories, ranging from
"A-1" for the highest quality obligations to "D" for the lowest.
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) designation.
MOODY'S INVESTORS SERVICE, INC.
- -------------------------------
Moody's Investors Service, Inc. ("Moody's") short-term debt ratings are
opinions of the ability of issuers to repay punctually senior debt obligations
which have an original maturity not exceeding one year. Obligations relying upon
support mechanisms such as letters-of-credit and bonds of indemnity are excluded
unless explicitly rated.
PRIME-1 Issuers (or supporting institutions) rated Prime-1 (P-1) have a
superior ability for repayment of senior short-term debt obligations. P-1
repayment ability will often be evidenced by many of the following
characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
26
<PAGE>
APPENDIX B
DESCRIPTION OF MUNICIPAL NOTE RATINGS
STANDARD & POOR'S RATINGS GROUP
- -------------------------------
S&P's note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in 3 years or less will likely receive a note
rating. Notes maturing beyond 3 years will most likely receive a long-term debt
rating. The following criteria will be used in making that assessment.
- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
- Source of Payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
MOODY'S INVESTORS SERVICE, INC.
- -------------------------------
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade (MIG). This distinction is in
recognition of the difference between short-term credit risk and long-term risk.
MIG-1. Loans bearing this designation are of the best quality, enjoying
strong protection from established cash flows of funds for their servicing or
from established and broad-based access to the market for refinancing, or both.
27
<PAGE>
Financial Statements as of December 31, 1994
28
<PAGE>
Portfolio of Investments
First Investors Life Series Fund--BLUE CHIP SERIES
December 31, 1994
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Amount
Invested
For Each
$10,000 of
Shares Security Value Net Assets
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--87.6%
Basic Industry--1.5%
8,550 Monsanto Co. $ 602,775 $ 146
- ----------------------------------------------------------------------------------------
Capital Goods--9.2%
4,200 Boeing Co. 196,350 47
400 Browning Ferris Industries, Inc. 11,350 3
5,200 Deere & Co. 344,500 83
8,500 Dover Corp. 438,812 106
2,100 Eaton Corp. 103,950 25
2,800 Emerson Electric Co. 175,000 42
21,200 General Electric Co. 1,081,200 261
3,500 Grainger (W.W.), Inc. 202,125 49
8,800 Ingersoll-Rand Co. 277,200 67
3,600 ITT Corp. 319,050 77
900 McDonnell Douglas Corp. 127,800 31
10,400 * Varity Corp. 377,000 91
6,000 WMX Technologies Inc. 157,500 38
- ----------------------------------------------------------------------------------------
3,811,837 920
- ----------------------------------------------------------------------------------------
Consumer Durables--2.5%
3,450 Chrysler Corp. 169,050 41
11,100 Ford Motor Co. 310,800 75
9,000 General Motors Corp. 380,250 92
1,500 Goodyear Tire & Rubber Co. 50,437 12
4,950 Masco Corp. 111,994 27
- ----------------------------------------------------------------------------------------
1,022,531 247
- ----------------------------------------------------------------------------------------
Consumer Non-Durables--18.7%
10,100 Abbott Laboratories 329,512 80
3,800 American Home Products Corp. 238,450 58
5,300 Anheuser Busch Companies, Inc. 269,637 65
6,300 Bristol-Myers Squibb Co. 364,612 88
15,950 Coca Cola Co. 821,425 198
1,400 Colgate-Palmolive Co. 88,725 21
4,700 CPC International, Inc. 250,275 60
4,550 Eastman Kodak Co. 217,262 52
2,700 Gillette Co. 201,825 49
8,000 Johnson & Johnson 438,000 106
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
4,200 Kellogg Co. 244,125 59
9,550 Kimberly-Clark Corp. 482,275 116
3,600 Lilly (Eli) & Co. 236,250 57
15,200 Merck & Co., Inc. 579,500 140
9,900 Pepsico Inc. 358,875 87
4,600 Pet, Inc. 90,850 22
3,750 Pfizer Inc. 289,688 70
14,400 Philip Morris Cos., Inc. 828,000 200
8,600 Procter & Gamble Co. 533,200 129
4,700 * Ralcorp Holdings Inc. 104,575 25
10,000 Sara Lee Corp. 252,500 61
2,400 Schering-Plough Corp. 177,600 43
10,700 Stride Rite Corp. 119,038 29
2,000 Unilever PLC 233,000 56
- ----------------------------------------------------------------------------------------
7,749,199 1,871
- ----------------------------------------------------------------------------------------
Consumer Services--7.9%
5,400 Albertson's, Inc. 156,600 38
2,800 Dayton-Hudson Corp. 198,100 48
6,300 Disney (Walt) Company 290,587 70
6,000 GAP, Inc. (The) 183,000 44
5,200 Home Depot Inc. (The) 239,200 58
4,400 * Kroger Co. 106,150 26
5,300 Mattel Inc. 133,163 32
4,400 May Department Stores Co. 148,500 36
9,100 McDonald's Corp. 266,175 64
5,200 Nordstrom Inc 218,400 53
3,150 * Officemax Inc. 83,475 20
4,300 Rite Aid Corp. 100,513 24
4,450 Sears, Roebuck & Co. 204,700 49
4,800 Time Warner Inc. 168,600 41
4,400 * Toys "R" Us, Inc. 134,200 32
3,400 * Viacom Inc. Class "B" 138,125 33
24,150 Wal-Mart Stores, Inc. 513,188 124
- ----------------------------------------------------------------------------------------
3,282,676 792
- ----------------------------------------------------------------------------------------
Energy--16.5%
11,300 Alcan Aluminum Ltd. 286,737 69
6,000 Amoco Corp. 354,750 86
3,000 Atlantic Richfield Co. 305,250 74
2,400 Burlington Resources, Inc. 84,000 20
7,800 Chevron Corp. 348,075 84
4,250 Dow Chemical Co. 285,812 69
8,800 Du Pont (E.I.) De Nemours & Co. 495,000 119
9,000 Enron Corp. 274,500 66
14,500 Exxon Corp. 880,875 213
4,900 Halliburton Co. 162,313 39
4,200 * Inland Steel Industries, Inc. 147,525 36
2,200 Kerr-Mcgee Corp. 101,200 24
5,500 Minnesota Mining & Manufacturing Co. 293,563 71
4,700 Mobil Corp. 395,975 96
11,700 NICOR, Inc. 266,175 64
6,200 Nucor Corp. 344,100 83
4,500 Pacific Enterprises 95,625 23
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
3,150 Phillips Petroleum Co. 103,163 25
5,225 Royal Dutch Petroleum Co. 561,687 136
3,800 Schlumberger, Ltd. 191,425 46
6,400 Scott Paper Co. 442,400 107
3,200 Texaco Inc. 191,600 46
7,800 Unocal Corp. 212,550 51
- ----------------------------------------------------------------------------------------
6,824,300 1,647
- ----------------------------------------------------------------------------------------
Financial--8.0%
5,250 American Express Co. 154,875 37
4,000 American International Group, Inc. 392,000 95
14,000 Banc One Corp. 355,250 86
9,700 BankAmerica Corp. 383,150 92
5,100 Chase Manhattan Corp. 175,312 42
4,800 Chemical Banking Corp. 172,200 42
5,600 Citicorp 231,700 56
5,600 Federal National Mortgage Assn. 408,100 99
4,150 First Fidelity Bancorp. 186,231 45
13,600 MGIC Investment Corp. 450,500 109
9,300 NationsBank Corp. 419,663 101
- ----------------------------------------------------------------------------------------
3,328,981 804
- ----------------------------------------------------------------------------------------
Health Care/Miscellaneous--2.0%
5,400 Columbia/HCA Healthcare Corp. 197,100 48
11,250 U.S. Healthcare, Inc. 464,063 111
2,400 Warner-Lambert Co. 184,800 45
- ----------------------------------------------------------------------------------------
845,963 204
- ----------------------------------------------------------------------------------------
Retail Trade--.1%
2,500 * Price/Costco, Inc. 32,188 8
- ----------------------------------------------------------------------------------------
Technology--8.9%
8,000 * Airtouch Communications Inc. 233,000 56
1,700 Autodesk, Inc. 67,362 16
2,600 Automatic Data Processing, Inc. 152,100 37
3,500 * Cisco Systems, Inc. 122,937 30
2,600 * Compaq Computers Corp. 102,700 25
3,500 Hewlett-Packard Co. 349,563 84
5,200 Intel Corp. 332,150 80
7,050 International Business Machines Corp. 518,175 125
13,800 MCI Communications Corp. 253,575 61
8,100 * Microsoft Corp. 495,113 120
10,700 Motorola, Inc. 619,263 149
6,500 * National Semiconductor Corp. 126,750 31
6,900 * Oracle Systems Corp. 304,462 73
- ----------------------------------------------------------------------------------------
3,677,150 887
- ----------------------------------------------------------------------------------------
Transportation--1.1%
3,600 * AMR Corp. 191,700 46
11,000 * Southern Pacific Rail Corp 199,375 48
4,200 Southwest Airlines Co. 70,350 17
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
461,425 111
- ----------------------------------------------------------------------------------------
Utilities--11.2%
17,750 A T & T Corp. 891,938 215
6,800 Ameritech Corp. 274,550 66
5,400 Bell Atlantic Corp. 268,650 65
7,100 BellSouth Corp. 384,287 93
7,700 Carolina Power & Light Co. 205,012 49
13,600 Cinergy Corp. 317,900 77
7,800 Duke Power Co. 297,375 72
9,400 FPL Group, Inc. 330,175 80
11,700 GTE Corp. 355,387 86
5,500 Nynex Corp. 202,125 49
5,400 Pacific Telesis Group 153,900 37
8,800 Pacificorp 159,500 39
7,400 SBC Communications Inc. 298,775 72
9,200 Texas Utilities Co. 294,400 71
5,500 U.S. West Inc. 195,938 47
- ----------------------------------------------------------------------------------------
4,629,912 1,118
- ----------------------------------------------------------------------------------------
Total Value of Common Stocks (cost 36,268,937 8,755
$35,818,111)
- ----------------------------------------------------------------------------------------
CONVERTIBLE BONDS--.7%
Leisure Time
$ 500 M Bellsport Corp. 4.25%, 11/15/00 (cost 321,875 78
$418,903)
- ----------------------------------------------------------------------------------------
SHORT-TERM CORPORATE NOTES--8.9%
500M Ford Motor Credit Co., 5.92%, 1/23/95 498,191 120
900M General Electric Credit Corp., 6.05%, 897,580 217
1/17/95
300M Oklahoma Gas & Electric Co., 5.90%, 1/11/95 299,508 72
2,000M Prudential Funding Corp., 5.98%, 1/17/95 1,994,685 482
- ----------------------------------------------------------------------------------------
Total Value of Short-Term Corporate Notes 3,689,964 891
(cost $3,689,964)
- ----------------------------------------------------------------------------------------
Total Value of Investments (cost $39,926,978) 97.2% 40,280,776 9,724
Other Assets, Less Liabilities 2.8 1,143,525 276
- ----------------------------------------------------------------------------------------
Net Assets 100.0% $41,424,301 $10,000
- ----------------------------------------------------------------------------------------
</TABLE>
* Non-income producing
See notes to financial statements
Portfolio of Investments
<PAGE>
<TABLE>
<CAPTION>
First Investors Life Series
Fund--CASH MANAGEMENT SERIES
December 31, 1994
- ------------------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal Annualized $10,000 of
Amount Security Yield* Value Net Assets
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT-TERM CORPORATE NOTES--92.1%
$ 150M Ameritech Corp., 1/9/95 5.95% $ 149,801 $ 381
175M A T & T Corp., 1/23/95 5.56 174,405 444
175M Bay States Gas Co., 1/25/95 5.90 174,312 444
175M Central Louisiana Electric Co., 1/10/95 6.00 174,737 445
175M CPC International Inc., 2/1/95 5.48 174,174 443
100M Florida Power & Light Co., 1/5/95 5.90 99,935 254
180M Ford Motor Credit, 1/24/95 6.05 179,304 456
175M General Electric Credit Corp., 2/21/95 5.93 173,530 442
150M Hartford Steam Boiler Inspection & Insurance, 1/17/95 5.50 149,633 381
175M Laclede Gas Co., 1/19/95 5.76 174,496 444
175M Metlife Funding Inc., 1/20/95 5.53 174,489 444
150M Motorola, Inc., 1/11/95 5.95 149,753 381
175M McGraw-Hill Inc., 2/7/95 5.93 173,934 443
150M Pepsico Inc., Floating Rate Note, 4/13/95 3.76 151,794 386
150M Pitney-Bowes, Inc., 2/13/95 5.92 148,940 379
175M Prudential Funding Corp., 1/26/95 5.88 174,286 444
150M Rockwell International Corp., 1/9/95 5.97 149,801 381
175M Southern California Gas Co., 2/6/95 5.77 173,990 443
175M The Stanley Works, 1/20/95 5.48 174,494 444
175M Tampa Electric Co., 1/30/95 5.96 174,160 443
175M Wisconsin Gas Co., 2/21/95 5.82 173,557 442
175M Wisconsin Power & Light Co., 1/13/95 5.67 174,669 446
- ------------------------------------------------------------------------------------------------------------------
Total Value of Short-Term Corporate Notes (cost $3,618,194) 3,618,194 9,210
- ------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--8.2%
150M Federal Farm Credit Bank, 3/13/94 6.12 148,190 378
175M Federal National Mortgage Association, 1/30/95 5.85 174,175 443
- ------------------------------------------------------------------------------------------------------------------
Total Value of U.S. Government Obligations (cost $322,365) 322,365 821
- ------------------------------------------------------------------------------------------------------------------
Total Value of Investments (cost $3,940,559) 100.3% 3,940,559 10,031
Excess of Liabilities Over Other Assets (.3) (12,004) (31)
- ------------------------------------------------------------------------------------------------------------------
Net Assets 100.0% $3,928,555 $10,000
==================================================================================================================
* The annualized Yield shown is the effective rate at the time of purchase
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments
First Investors Life Series Fund--DISCOVERY SERIES
December 31, 1994
- ------------------------------------------------------------------------------------------------
Amount
Invested
For Each
$10,000 of
Shares Security Value Net Assets
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--89.6%
Commercial Service--3.1%
9,400 Equifax, Inc. $ 247,925 $ 82
7,600 * Insurance Auto Auctions, Inc. 232,275 77
39,700 * International Post Ltd. 188,575 62
18,500 * Interpool Inc. 275,188 91
- ------------------------------------------------------------------------------------------------
943,963 312
- ------------------------------------------------------------------------------------------------
Computers/Software/Business Equipment--13.4%
14,200 * Adaptec, Inc. 335,475 110
5,400 * Altera Corp. 226,125 75
7,400 * Bysis Group, Inc. 163,725 54
12,000 * Convex Computer Corp. 94,500 31
4,100 * Cornerstone Imaging Inc. 62,525 21
17,500 * Data General Corp. 175,000 58
17,000 ECI Telecommunications Limited Designs (ADR) 231,625 77
6,400 * EMC Corp. 138,400 46
6,400 * FileNet Corp. 172,800 57
18,900 Fourth Shift Corp. 51,975 17
24,400 * Fulcrum Technologies, Inc. 289,750 96
26,000 * Integrated Micro Products PLC (ADR) 188,500 62
13,500 * Lasermaster Technologies, Inc. 94,500 31
3,900 * Lotus Development Corp. 159,900 53
12,100 * Metatec Corp. 116,463 39
3,800 * Microsoft Corp. 232,275 77
8,900 * Oracle Systems Corp. 392,713 129
11,400 * Perceptron Inc. 262,200 87
6,200 * Phoenix Technologies Ltd. 46,500 15
11,400 * Pyxis Corp. 216,600 72
11,600 Reynolds & Reynolds Co. 290,000 96
5,400 * Robotic Vision Systems, Inc. 33,750 11
5,600 * Sybron Chemicals, Inc. 86,800 29
- ------------------------------------------------------------------------------------------------
4,062,101 1,343
- ------------------------------------------------------------------------------------------------
Consumer Products--3.3%
8,200 * CUC International, Inc. 274,700 91
16,900 Dixie Yarns, Inc. 118,300 39
9,200 Falcon Products, Inc. 108,100 36
7,300 * Harvey Entertainment 104,025 34
21,800 * National R.V. Holdings, Inc. 164,863 55
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
6,200 Oakwood Homes Corp. 151,125 50
5,400 * Shuler Homes, Inc. 76,950 25
- ------------------------------------------------------------------------------------------------
998,063 330
- ------------------------------------------------------------------------------------------------
Electronics/Instruments/Components--2.5%
7,100 General Electric Co. 362,100 120
4,100 * Nokia Corp. (ADR) 307,500 102
3,900 * Recoton Corp. 73,125 24
- ------------------------------------------------------------------------------------------------
742,725 246
- ------------------------------------------------------------------------------------------------
Electronics/Semiconductors--7.8%
12,700 * Actel Corp. 104,775 35
3,050 * Alliance Semiconductor Corp. 95,313 32
4,100 * Applied Materials, Inc. 173,225 57
10,000 * Asyst Technologies, Inc. 235,000 78
5,500 * Electroglas, Inc. 183,563 61
13,600 * Integrated Device Technology, Inc. 401,200 132
8,800 * Megatest Corp. 56,925 19
6,000 Motorola, Inc. 347,250 114
15,600 * National Semiconductor Corp. 304,200 100
25,000 * Tower Semiconductor Ltd. 275,000 91
3,200 * Xilinx Inc. 189,600 63
- ------------------------------------------------------------------------------------------------
2,366,051 782
- ------------------------------------------------------------------------------------------------
Environmental Services--.2%
11,400 * Encon Systems, Inc. 52,725 17
- ------------------------------------------------------------------------------------------------
Financial/Miscellaneous--6.7%
9,800 * American Travellers Corp. 160,475 53
24,300 * Amvestors Financial Corp. 230,850 76
18,000 * Credit Acceptance Corp. 319,500 106
11,100 First USA, Inc. 364,913 121
15,050 Grupo Financiero Bancomer S.A. de C.V. (ADR) (Note 5) 178,458 59
22,500 Independent Bank Corp. 118,125 39
600 * Medaphis Corp. 27,900 9
5,550 NAC Re Corp. 185,925 61
10,700 Presidential Life Corp. 56,175 19
16,350 Reliance Group Holdings, Inc. 83,794 28
7,182 Southern National Corp. 137,356 45
4,400 Sunamerica Inc. 159,500 53
- ------------------------------------------------------------------------------------------------
2,022,971 669
- ------------------------------------------------------------------------------------------------
Foods--3.7%
6,800 * Canadaigua Wine Co. Class "A" 258,400 85
9,500 Dreyers Grand Ice Cream, Inc. 235,125 78
14,500 * Grist Mill Co. 135,938 45
15,300 * Ralcorp Holdings, Inc. 340,425 113
16,000 * Taco Cabana Class "A" 146,000 48
- ------------------------------------------------------------------------------------------------
1,115,888 369
- ------------------------------------------------------------------------------------------------
Gaming/Lodging--2.4%
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
12,500 * GTECH Holdings Corp. 254,688 84
18,400 * Monarch Casino & Resort, Inc. 101,200 33
8,300 * Players International, Inc. 186,750 62
16,100 * Rio Hotel and Casino, Inc. 195,213 65
- ------------------------------------------------------------------------------------------------
737,851 244
- ------------------------------------------------------------------------------------------------
Health Care/Miscellaneous--23.8%
6,400 * Advocat, Inc. 84,800 28
12,400 * American Medical Response, Inc. 358,050 118
26,500 * Applied Bioscience International, Inc. 145,750 48
3,700 * Arbor Health Care Co. 75,850 25
18,700 * Beverly Enterprises 268,813 89
9,000 * Boston Scientific Corp. 156,375 52
3,750 * Cellpro, Inc. 37,031 12
8,200 * Clinicom, Inc. 91,225 30
9,400 Dentsply International, Inc. 296,100 98
26,300 * Ethical Holdings PLC (ADR) 170,950 57
13,000 Fisher Scientific International 321,750 106
19,400 * Future Healthcare, Inc. 400,125 132
10,050 * GMIS, Inc. 195,975 65
9,200 Health Care & Retirement Corp. 277,150 92
10,975 * Healthcare Compare Corp. 374,522 124
5,400 * I-Stat Corp. 102,600 34
11,765 Ivax Corp. 223,726 64
12,300 * Living Centers of America, Inc. 410,513 136
3,800 * Medcath Inc. 54,150 18
19,200 Mid Atlantic Medical Services, Inc. 439,200 145
15,100 * North American Vaccine, Inc. 126,463 42
8,000 * Noven Pharmaceuticals, Inc. 99,000 33
10,900 * Pacific Physicians Services, Inc. 182,575 60
7,800 * Penederm, Inc. 48,750 16
7,700 * Pharmaceutical Resources, Inc. 71,225 24
1,200 * Physician Reliance Network, Inc. 23,100 8
58,800 * Plasma-Therm, Inc. (Note 5) 404,250 134
25,300 * Protocol Systems, Inc. 227,700 75
16,000 * Quantum Health Resources, Inc. 460,000 152
17,600 Rite Aid Corp. 411,400 136
19,200 Teva Pharmaceutical Industries Ltd. (ADR) 464,400 153
7,200 * Watson Pharmaceuticals, Inc. 189,000 62
- ------------------------------------------------------------------------------------------------
7,192,318 2,378
- ------------------------------------------------------------------------------------------------
Industrial Services--.6%
7,600 * SPS Technologies, Inc. 192,850 64
- ------------------------------------------------------------------------------------------------
Machinery/Diversified--4.9%
13,650 AGCO Corp. 414,619 137
4,200 Breed Technologies, Inc. 119,175 39
14,200 Case Corp. 305,300 101
4,900 * Clark Equipment Co. 265,825 88
8,200 Federal-Mogul Corp. 165,025 55
21,600 Owosso Corp. 216,000 71
- ------------------------------------------------------------------------------------------------
1,485,944 491
- ------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Manufacturing/Diversified--.6%
4,800 * Dovatron International, Inc. 123,600 41
8,450 * Figgie International, Inc. 51,756 17
- ------------------------------------------------------------------------------------------------
175,356 58
- ------------------------------------------------------------------------------------------------
Paper/Forest Products--1.9%
4,400 Chesapeake Corp. 145,200 48
6,700 Pope & Talbot, Inc. 106,363 35
6,600 Willamette Industries, Inc. 313,500 104
- ------------------------------------------------------------------------------------------------
565,063 187
- ------------------------------------------------------------------------------------------------
Retail Trade--4.4%
8,600 * Designs, Inc. 60,200 20
5,700 Haverty Furniture Co., Inc. 66,975 22
15,900 * Hi-Lo Automotive, Inc. 155,025 51
14,500 * Meyer (Fred), Inc. 445,875 148
11,000 * REX Stores Corp. 178,750 59
7,000 Talbots, Inc. 218,750 72
8,900 * The Men's Wearhouse, Inc. 200,250 66
- ------------------------------------------------------------------------------------------------
1,325,825 438
- ------------------------------------------------------------------------------------------------
Telecommunications--6.2%
4,400 A T & T Capital Corp. 221,100 73
10,100 * Boston Technology, Inc. 145,188 48
3,700 Ericsson (L.M.) Telephone Co. (ADR) 203,963 67
11,900 MCI Communications Corp. 218,663 72
10,700 * Nextel Communications, Inc. 153,813 51
12,700 * Octel Communications Corp. 263,525 87
10,700 * Porta Systems Corp. 54,838 18
5,600 * Rogers Cantel Mobile Communications Class "B" 163,275 54
11,100 * Viacom Inc. Class "B" 450,938 150
- ------------------------------------------------------------------------------------------------
1,875,303 620
- ------------------------------------------------------------------------------------------------
Transportation--4.1%
13,500 London & Overseas Freighters Limited 192,375 64
11,000 MK Rail Corp. 116,875 39
6,500 * Rural/Metro Corp. 121,875 40
7,900 Sea Container Ltd. Class "A" 104,675 35
17,400 * Southern Pacific Rail Corp. 315,375 104
31,000 Transportacion Maritima Mexicana S.A. (ADR) 236,375 78
7,200 * ValuJet Airlines, Inc. 153,000 51
- ------------------------------------------------------------------------------------------------
1,240,550 411
- ------------------------------------------------------------------------------------------------
Total Value of Common Stocks (cost $26,088,653) 27,095,547 8,959
- ------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS--.4%
$ 150M Pacific Physicians Services, Inc., 5 1/2%, 2003 116,250 38
(cost $150,000)
- ------------------------------------------------------------------------------------------------
SHORT-TERM CORPORATE NOTES--20.1%
1,400M Lubrizol Corp., 6%, 1/6/95 1,398,834 463
1,800M Oklahoma Gas & Electric Co., 5.90%, 1/11/95 1,797,050 594
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
1,400M Prudential Funding Corp., 5.98%, 1/17/95 1,396,279 462
1,500M Temple-Inland Inc., 5.85%, 1/3/95 1,499,512 496
- ------------------------------------------------------------------------------------------------
Total Value of Short-Term Corporate Notes (cost
$6,091,675) 6,091,675 2,015
- ------------------------------------------------------------------------------------------------
Total Value of Investments (cost $32,330,328) 110.1% 33,303,472 11,012
Excess of Liabilities Over Other Assets (10.1) (3,059,858) (1,012)
- ------------------------------------------------------------------------------------------------
Net Assets 100.0% $30,243,614 $10,000
- ------------------------------------------------------------------------------------------------
* Non income producing
</TABLE>
<TABLE>
<CAPTION>
Portfolio of Investments
First Investors Life Series
Fund--GOVERNMENT SERIES
December 31, 1994
- -----------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY
OBLIGATIONS--51.9%
$1,100M Federal Farm Credit 8.65%, 10/1/99 $1,126,239 $ 1,430
1,000M Federal Home Loan Bank, 7.36%, 7/1/04 952,889 1,209
656M Federal Home Loan Mortgage Corp., 9.00%, 4/1/22 660,197 838
349M Federal Home Loan Mortgage Corp., 9.00%, 9/1/21 350,811 445
991M Federal National Mortgage Association, 9.00%, 10/1/20 996,254 1,265
- -----------------------------------------------------------------------------------------------------------
Total Value of U.S. Government Agency Obligations (cost $4,327,023) 4,086,390 5,187
- -----------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED
CERTIFICATES--16.2%
1,300M Government National Mortgage Association,
8.50%, 12/15/2025
(cost $1,280,094) 1,277,250 1,621
- -----------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT
OBLIGATIONS--30.1%
2,385M U.S. Treasury Bill, 5.25%, 2/9/95 (cost $2,372,469) 2,372,469 3,012
- -----------------------------------------------------------------------------------------------------------
Total Value of Investments (cost
$7,979,586) 98.2% 7,736,109 9,820
Other Assets, Less Liabilities 1.8 141,854 180
- -----------------------------------------------------------------------------------------------------------
Net Assets 100.0% $7,877,963 $10,000
===========================================================================================================
</TABLE>
<PAGE>
See notes to financial statements
<TABLE>
<CAPTION>
Portfolio of Investments
First Investors Life Series Fund--GROWTH SERIES
December 31, 1994
Amount
Invested
For Each
$10,000 of
Shares Security Value Net Assets
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
COMMON STOCKS--93.5%
Beverages/Soft Drinks--2.2%
20,000 Pepsico Inc. $ 725,000 $ 221
- ---------------------------------------------------------------------------------------------------------------
Broadcast Media--3.5%
32,000 Comcast Corp. Special Shares Class "A" 502,000 153
27,000 Home Shopping Network 270,000 82
13,000 Multimedia Inc. 370,500 113
- ---------------------------------------------------------------------------------------------------------------
1,142,500 348
- ---------------------------------------------------------------------------------------------------------------
Chemicals/Diversified--2.6%
29,700 Engelhard Corp. 660,825 201
3,800 Loctite Corp. 176,700 54
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
837,525 255
- ---------------------------------------------------------------------------------------------------------------
Commercial Services--1.2%
18,800 * Fiserv Inc. 404,200 123
- ---------------------------------------------------------------------------------------------------------------
Computers/Software/Business Equipment--4.7%
40,700 Albemarle Corp. 564,712 172
15,700 * Cisco Systems Inc. 551,462 168
7,000 * Microsoft Corp. 427,875 130
- ---------------------------------------------------------------------------------------------------------------
1,544,049 470
- ---------------------------------------------------------------------------------------------------------------
Computer Software/Services--4.2%
8,000 Automatic Data Processing Inc. 468,000 143
10,000 * Computer Sciences Corporation 510,000 156
8,500 First Data Corporation 402,688 123
- ---------------------------------------------------------------------------------------------------------------
1,380,688 422
- ---------------------------------------------------------------------------------------------------------------
Consumer Non-Durables--1.7%
22,600 Sara Lee Corp. 570,650 174
- ---------------------------------------------------------------------------------------------------------------
Consumer Services--2.8%
20,000 Circuit City Stores Inc. 445,000 136
11,000 Walgreen Co. 481,250 147
- ---------------------------------------------------------------------------------------------------------------
926,250 283
- ---------------------------------------------------------------------------------------------------------------
Drugs--3.9%
25,000 * Perrigo Company 312,500 95
4,600 Pfizer Inc. 355,350 108
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
15,000 Zeneca Group PLC Inc. 616,875 188
- ---------------------------------------------------------------------------------------------------------------
1,284,725 391
- ---------------------------------------------------------------------------------------------------------------
Electrical Equipment--3.2%
7,200 AMP Inc. 523,800 160
18,000 * General Instrument Corp. 540,000 165
- ---------------------------------------------------------------------------------------------------------------
1,063,800 325
- ---------------------------------------------------------------------------------------------------------------
Electronics/Instruments/Components--4.9%
6,000 Hewlett-Packard Co. 599,250 183
10,625 Molex Inc. 366,563 112
10,800 Motorola Inc. 625,050 191
- ---------------------------------------------------------------------------------------------------------------
1,590,863 486
- ---------------------------------------------------------------------------------------------------------------
Energy--2.8%
12,000 Burlington Resources Inc. 420,000 128
10,500 Kerr-Mcgee Corp. 483,000 147
- ---------------------------------------------------------------------------------------------------------------
903,000 275
- ---------------------------------------------------------------------------------------------------------------
Financial/Miscellaneous--1.8%
8,320 Federal National Mortgage Association 606,320 185
- ---------------------------------------------------------------------------------------------------------------
Gaming/Lodging--1.2%
26,000 International Game Technology 403,000 123
- ---------------------------------------------------------------------------------------------------------------
Health Care/Miscellaneous--3.4%
18,000 Abbott Laboratories 587,250 179
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
5,100 * Biogen Inc. 212,925 65
9,000 Genetics Institute Inc. 324,000 99
- ---------------------------------------------------------------------------------------------------------------
1,124,175 343
- ---------------------------------------------------------------------------------------------------------------
Health Technology--1.3%
25,000 Boston Scientific Corp. 434,375 132
- ---------------------------------------------------------------------------------------------------------------
Insurance--6.8%
24,000 Ace Ltd. 561,000 171
5,450 American International Group 534,100 163
16,700 American Re Corporation 538,575 164
15,000 First Colony Corporation 335,625 102
12,700 Physician Corp. of America 260,350 79
- ---------------------------------------------------------------------------------------------------------------
2,229,650 679
- ---------------------------------------------------------------------------------------------------------------
Iron/Steel--1.1%
22,000 * LTV Corp. 357,500 109
- ---------------------------------------------------------------------------------------------------------------
Machine Tools--2.1%
15,700 Illinois Tool Works Inc. 686,875 209
- ---------------------------------------------------------------------------------------------------------------
Machinery/Diversified--1.0%
11,000 Foster Wheeler Corp. 327,250 100
- ---------------------------------------------------------------------------------------------------------------
Medical Supplies--1.9%
30,000 Hafslund Nycomed--Class "B" (ADR) 618,750 189
- ---------------------------------------------------------------------------------------------------------------
Miscellaneous--6.0%
26,400 Duriron Company 468,600 143
5,300 Omnicom Group 274,275 84
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
14,600 Republic New York Corp. 660,650 201
15,000 York International 553,125 169
- ---------------------------------------------------------------------------------------------------------------
1,956,650 597
- ---------------------------------------------------------------------------------------------------------------
Money Center Banks--1.7%
10,000 J.P. Morgan & Co. 560,000 171
- ---------------------------------------------------------------------------------------------------------------
Oil/Domestic--4.3%
10,000 Amoco Corp. 591,250 180
30,000 Unocal Corp. 817,500 249
- ---------------------------------------------------------------------------------------------------------------
1,408,750 429
- ---------------------------------------------------------------------------------------------------------------
Oil Service--1.0%
6,600 Schlumberger Ltd. 332,475 101
- ---------------------------------------------------------------------------------------------------------------
Paper/Forest Products--3.1%
4,800 International Paper Co. 361,800 110
13,000 Kimberly-Clark Corp. 656,500 200
- ---------------------------------------------------------------------------------------------------------------
1,018,300 310
- ---------------------------------------------------------------------------------------------------------------
Publishing/News--2.9%
17,500 EW Scripps Co. 529,375 161
1,700 Washington Post Class "B" 412,250 126
- ---------------------------------------------------------------------------------------------------------------
941,625 287
- ---------------------------------------------------------------------------------------------------------------
Publishing/Printing--3.9%
12,000 Dun & Bradstreet, Inc. 660,000 202
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
11,850 * Scholastic Corp. 604,350 184
- ---------------------------------------------------------------------------------------------------------------
1,264,350 386
- ---------------------------------------------------------------------------------------------------------------
Retail Stores--2.3%
9,100 May Department Stores Inc. 307,125 94
20,600 Wal-Mart Stores Inc. 437,750 133
- ---------------------------------------------------------------------------------------------------------------
744,875 227
- ---------------------------------------------------------------------------------------------------------------
Telecommunications--7.5%
10,000 A T & T Corp. 502,500 153
12,500 Ericsson (L.M.) Telephone Co. (ADR) Class "B" 689,063 210
24,200 MCI Communications Corp. 444,675 136
15,000 * Nextel Communications Inc. 215,625 66
18,000 Vodafone Group PLC (ADR) 605,250 185
- ---------------------------------------------------------------------------------------------------------------
2,457,113 750
- ---------------------------------------------------------------------------------------------------------------
Telephone/Utilities--1.1%
8,500 Telefonos De Mexico S.A. (ADR) 348,500 106
- ---------------------------------------------------------------------------------------------------------------
Transportation--1.4%
20,000 Werner Enterprises Inc. 475,000 145
- ---------------------------------------------------------------------------------------------------------------
Total Value of Common Stocks (cost $29,460,341) 30,668,783 9,351
- ---------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS-- .8%
3,600 Nokia Corporation (ADR) (cost $145,350) 270,000 82
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
REPURCHASE AGREEMENTS--5.4%
$1,761 M Shearson Lehman Brothers Inc., 5.85%, 1/3/95, (collateralized
by U.S. Treasury Bond, 8 1/2%, 2/15/20) (cost $1,761,000) 1,761,000 537
- ---------------------------------------------------------------------------------------------------------------
Total Value of Investments (cost $31,366,691) 99.7% 32,699,783 9,970
Other Assets, Less Liabilities .3 97,409 30
- ---------------------------------------------------------------------------------------------------------------
Net Assets 100.0% $32,797,192 $10,000
===============================================================================================================
* Non-income producing
</TABLE>
<TABLE>
<CAPTION>
Portfolio of Investments
First Investors Life Series Fund--HIGH YIELD SERIES
December 31, 1994
- --------------------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS--86.9%
Aerospace/Defense--2.9%
$ 700M Allison Engine Co., Inc., 10%, 2003 $ 721,000 $ 223
230M Dyncorp, PIK, 16%, 2003 217,265 67
- --------------------------------------------------------------------------------------------------------------------
938,265 290
- --------------------------------------------------------------------------------------------------------------------
Automotive--2.5%
800M SPX Corp., 11 3/4%, 2002 799,000 247
- --------------------------------------------------------------------------------------------------------------------
Chemicals--7.3%
700M Buckeye Cellulose, Inc., 10 1/4%, 2001 658,000 204
1,000M Harris Chemical North America, Inc., 0%-10 1/4%, 2001 830,000 257
600M Rexene Corp., 11 3/4%, 2004 616,500 191
300M Synthetic Industries, Inc., 12 3/4%, 2002 265,500 82
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
2,370,000 734
- --------------------------------------------------------------------------------------------------------------------
Conglomerates--2.5%
1,250M Eagle Industries, Inc., 0%-10 1/2%, 2003 806,250 250
- --------------------------------------------------------------------------------------------------------------------
Consumer Non-Durables--2.0%
650M Calmar, Inc., 12%, 1997 653,250 202
- --------------------------------------------------------------------------------------------------------------------
Containers--3.2%
1,000M Container Corp., 11 1/4%, 2004 1,025,000 317
- --------------------------------------------------------------------------------------------------------------------
Electrical Equipment--4.2%
700M Essex Group, Inc., 10%, 2003 654,500 203
700M IMO Industries, Inc., 12%, 2001 703,500 219
- --------------------------------------------------------------------------------------------------------------------
1,358,000 422
- --------------------------------------------------------------------------------------------------------------------
Energy Services--7.2%
1,000M Clark R & M Holdings, Inc., 0%, 2000 568,750 176
405M Clark Oil & Refining Corp., 10 1/2%, 2001 412,087 128
800M Giant Industries, Inc., 9 3/4%, 2003 716,000 222
111M Synergy Group, Inc., 9 1/2%, 2000 88,800 28
500M Transco Energy Co., 11 1/4%, 1999 533,750 165
- --------------------------------------------------------------------------------------------------------------------
2,319,387 719
- --------------------------------------------------------------------------------------------------------------------
Financial Services--3.7%
660M Lomas Mortgage, USA, 10 1/4%, 2002 561,000 175
700M Olympic Financial, Ltd., 11 3/4%, 2000 644,000 199
- --------------------------------------------------------------------------------------------------------------------
1,205,000 374
- --------------------------------------------------------------------------------------------------------------------
Food/Beverage/Tobacco--2.2%
700M Fleming Co., Inc., 10 5/8%, 2001 703,500 218
- --------------------------------------------------------------------------------------------------------------------
Food Services--2.1%
750M Americold Corp., 11 1/2%, 2005 676,875 210
- --------------------------------------------------------------------------------------------------------------------
Gaming/Lodging--3.5%
650M GB Property Funding, Inc., 10 7/8%, 2004 529,750 164
700M Showboat, Inc., 9 1/4%, 2008 589,750 183
- --------------------------------------------------------------------------------------------------------------------
1,119,500 347
- --------------------------------------------------------------------------------------------------------------------
Healthcare--3.5%
750M Abbey Healthcare Group, Inc., 9 1/2%, 2002 675,000 209
500M Mediq/PRN Life Support Services, Inc., 11 1/8%, 1999 452,500 140
- --------------------------------------------------------------------------------------------------------------------
1,127,500 349
- --------------------------------------------------------------------------------------------------------------------
Information Technology/Office Equipment--1.5%
500M Bell & Howell Co., 10 3/4%, 2002 478,750 148
- --------------------------------------------------------------------------------------------------------------------
Insurance--2.1%
700M American Life Holding Co., 11 1/4%, 2004 682,500 211
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Media/Cable Television--7.9%
1,000M Affiliated Newspaper Investments, 0%-13 1/4%, 2006 520,000 161
300M Cablevision Industries, Inc., 10 3/4%, 2002 298,500 92
750M Outdoor Systems, Inc., 10 3/4%, 2003 678,750 210
500M Rogers Cablesystems, Ltd., 9 5/8%, 2002 491,250 152
600M World Color Press, Inc., 9 1/8%, 2003 556,500 173
- --------------------------------------------------------------------------------------------------------------------
2,545,000 788
- --------------------------------------------------------------------------------------------------------------------
Mining/Metals--6.9%
600M Geneva Steel Co., Inc., 9 1/2%, 2004 506,250 157
900M WCI Steel, Inc., 10 1/2%, 2002 866,250 268
1,000M Wheeling-Pittsburgh Steel Corp., 9 3/8%, 2003 855,000 265
- --------------------------------------------------------------------------------------------------------------------
2,227,500 690
- --------------------------------------------------------------------------------------------------------------------
Miscellaneous--1.0%
800M + Acme Holdings, Inc., 11 3/4%, 2000 336,000 104
- --------------------------------------------------------------------------------------------------------------------
Paper/Forest Products--7.3%
800M Rainy River Forest Products Co., Inc., 10 3/4%, 2001 798,000 247
600M S. D. Warren Co., Inc., 12%, 2004 (Note 5) 615,000 190
1,000M Stone Container Corp., 9 7/8%, 2001 950,000 295
- --------------------------------------------------------------------------------------------------------------------
2,363,000 732
- --------------------------------------------------------------------------------------------------------------------
Real Estate/Construction--2.2%
800M Oriole Homes, Inc., 12 1/2%, 2003 716,000 222
- --------------------------------------------------------------------------------------------------------------------
Retail-Food/Drug--3.1%
1,000M P&C Food Markets, Inc., 11 1/2%, 2001 1,015,000 314
- --------------------------------------------------------------------------------------------------------------------
Retail-General Merchandise--2.0%
1M Barry's Jewelers, Inc., 12 5/8%, 1996 495 --
750M General Host Co., Inc., 11 1/2%, 2002 660,000 205
- --------------------------------------------------------------------------------------------------------------------
660,495 205
- --------------------------------------------------------------------------------------------------------------------
Telecommunications--4.6%
550M Paging Network, Inc., 11 3/4%, 2002 548,625 170
400M PanAmSat Capital Corp., 0%-11 3/8%, 2003 250,000 77
700M PanAmSat Capital Corp., 9 3/4%, 2000 668,500 207
- --------------------------------------------------------------------------------------------------------------------
1,467,125 454
- --------------------------------------------------------------------------------------------------------------------
Transportation--1.5%
500M Trism, Inc., 10 3/4%, 2000 472,500 146
- --------------------------------------------------------------------------------------------------------------------
Total Value of Corporate Bonds (cost $29,813,297) 28,065,397 8,693
- --------------------------------------------------------------------------------------------------------------------
BOND UNITS--2.3%
Telecommunications
1,400 Echostar Communications Corp., 0%-12 7/8%, 2004(a) (cost $809,449) 731,500 227
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCKS--.1%
Gaming/Lodging--.0%
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
1,620 * Divi Hotels, Inc. (Note 4) 122 --
2,000 * Goldriver Hotel & Casino Corp., Series "B" 3,000 1
- --------------------------------------------------------------------------------------------------------------------
3,122 1
- --------------------------------------------------------------------------------------------------------------------
Media/Cable Television--.1%
1,000 * Affiliated Newspaper Investments 25,000 8
- --------------------------------------------------------------------------------------------------------------------
Total Value of Common Stocks (cost $66,096) 28,122 9
- --------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS--5.2%
Financial Services
7,000 California Federal Bank, 10 5/8%, Series "B" 700,000 216
10,000 First Nationwide Bank, 11 1/2% 980,000 304
- --------------------------------------------------------------------------------------------------------------------
Total Value of Preferred Stocks (cost $1,700,000) 1,680,000 520
- --------------------------------------------------------------------------------------------------------------------
WARRANTS--.1%
Financial Services--.0%
4,000 * Olympic Financial, Ltd. (expiring 9/1/99) ( Note 5) 7,000 2
18 * Reliance Group Holdings, Inc. (expiring 1/28/97) 23 --
- --------------------------------------------------------------------------------------------------------------------
7,023 2
- --------------------------------------------------------------------------------------------------------------------
Gaming/Lodging--.1%
200 * Goldriver Finance Corp., Liquidating Trust 3,000 1
4,200 * Presidential Riverboat Casinos, Inc. (expiring 9/15/96) (Note 5) 16,800 5
- --------------------------------------------------------------------------------------------------------------------
19,800 6
- --------------------------------------------------------------------------------------------------------------------
Retail-General Merchandise--.0%
100 * Payless Cashways, Inc. (expiring 11/1/96) 150 --
- --------------------------------------------------------------------------------------------------------------------
Total Value of Warrants (cost $5,375) 26,973 8
- --------------------------------------------------------------------------------------------------------------------
SHORT-TERM CORPORATE NOTES--2.3%
$ 750M Raytheon, 5.95%, 1/9/95 (cost $749,008) 749,008 232
- --------------------------------------------------------------------------------------------------------------------
Total Value of Investments
(cost $33,143,225) 96.9% 31,281,000 9,689
Other Assets, Less Liabilities 3.1 1,003,746 311
- --------------------------------------------------------------------------------------------------------------------
Net Assets 100.0% $32,284,746 $10,000
- --------------------------------------------------------------------------------------------------------------------
* Non-income producing
+ In default as to principal and/or interest (Note 8)
(a) Each unit consists of a $1,000 principal amount 12 7/8% senior
secured discount note due 6/1/04 and warrants to purchase six shares
of Class "A" common stock.
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments
First Investors Life Series Fund--INTERNATIONAL SECURITIES SERIES
December 31, 1994
- -------------------------------------------------------------------------------------
Amount
Invested
For Each
$10,000 of
Shares Security Value Net Assets
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--90.9%
Japan--18.8%
50,000 Chichibu Onoda Cement Corp. $ 284,650 $ 91
18,000 Fujisawa Pharmaceutical Co. 194,846 62
30,000 Hitachi Co., Ltd. 297,381 95
2,000 Ito Yokado Co., Ltd. 106,846 34
30,000 Kajima Corp. 256,788 82
20,000 Kawasaki Heavy Industries 90,206 29
12,000 Kokusai Electric Co., Ltd. 230,930 74
4,000 Kyocera Corp. 296,281 95
1,000 Kyoritsu Air Tech., Inc. 24,456 8
2,000 Mabuchi Motor 150,346 48
40,000 Minebea Co., Ltd. 336,772 108
28,000 Mitsui Petrochemical Industries 246,966 79
4,500 Murata Mfg. Co., Ltd. 173,649 55
1,000 Nihon Jumbo Co., Ltd. 41,094 13
25 Nippon Telephone & Telegraph Corp. 220,758 71
92,000 * NKK Corp 254,500 81
10,000 Nomura Securities, Ltd. 207,477 66
6,000 Orix Corp. 221,309 71
2,000 Riso Kagaku Corp. 173,198 55
10,000 Sankyo Co., Ltd. 248,571 79
2,500 Sanyo Shinpan Finance Co., Ltd. 240,804 77
2,000 Secom Co., Ltd. 124,286 40
4,000 Shimamura Corp. 200,461 64
30,000 Showa Corp. 291,669 93
6,000 Sony Corp. 339,781 109
35,000 Sumitomo Realty & Development 206,973 66
8,000 Sumitomo Trust &Banking 112,258 36
4,000 TDK Corp. 193,645 62
10,000 Tokio Marine & Fire Insurance Co., Ltd. 122,281 39
- -------------------------------------------------------------------------------------
5,889,182 1,882
- -------------------------------------------------------------------------------------
United States--16.6%
3,750 American International Group, Inc. 367,500 117
6,500 * American Re Corp. 209,625 67
6,500 A T & T Corp. 326,625 104
4,000 * AMR Corp 213,000 68
2,000 Capital Cities ABC Inc. 170,500 54
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
5,000 Chrysler Corp. 245,000 78
2,500 Dow Chemical Co. 168,125 54
5,000 Exxon Corp. 303,750 97
2,500 Federal National Mortgage Association 182,188 58
5,000 General Electric Co. 255,000 81
2,500 Gillette Co. 186,875 60
2,000 Hewlett-Packard Co 199,750 64
2,500 International Paper Co. 188,438 60
4,000 J.C. Penney Co. 178,500 57
6,000 Johnson & Johnson 328,500 105
5,000 Kimberly Clark Corp. 252,500 81
10,000 MCI Communications 183,750 59
2,000 Minnesota Mining & Manufacturing Co. 106,750 34
5,000 Pepsico, Inc. 181,250 58
15,000 Unocal Corp. 408,750 131
696 * Viacom Inc. Class "A" 28,971 9
5,273 * Viacom Inc. Class "B" 214,216 68
8,300 York International Corp. 306,063 99
- -------------------------------------------------------------------------------------
5,205,626 1,663
- -------------------------------------------------------------------------------------
United Kingdom--8.8%
14,000 Abbey National PLC 94,291 30
45,000 Bass PLC 362,218 116
212,000 BET PLC 336,635 108
15,000 British Telecommunications PLC 88,588 28
35,000 Cadbury Schwepps PLC 236,001 75
50,000 General Electric PLC 215,115 69
15,500 Kwik Save Group PLC 133,373 43
49,200 Redland PLC 354,078 113
35,000 Royal Insurance Holdings PLC 152,771 49
34,000 Smith (W.H.) & Son Group "A" PLC 254,793 81
72,000 Tomkins PLC 247,817 79
20,000 Zeneca Group PLC 275,038 88
- -------------------------------------------------------------------------------------
2,750,718 879
- -------------------------------------------------------------------------------------
France--6.0%
3,044 Compagnie De Saint Gobain 350,214 112
1,528 Euro Rscg Worldwide S.A. 157,473 50
1,000 Groupe Danone 140,347 45
7,600 * Renault S.A. 251,349 80
3,600 Societe Generale Paris 378,430 121
4,200 * Technip SA 191,947 61
5,000 Total SA 290,624 93
1,800 * Ugine SA (Note 5) 126,481 41
- -------------------------------------------------------------------------------------
1,886,865 603
- -------------------------------------------------------------------------------------
Germany-- 4.4%
1,300 Bayer AG 304,448 97
600 Deutsche Bank AG 278,707 89
900 Mannesmann AG 245,030 78
200 Schering AG 130,966 42
400 Siemens AG 166,450 53
750 Veba AG 259,739 83
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------
1,385,340 442
- -------------------------------------------------------------------------------------
Australia--4.4 %
50,892 Amcor Ltd. 367,903 118
26,235 Broken Hill Proprietary Ltd. 398,439 127
62,000 Coles Myer Ltd. 210,633 67
28,205 National Australia Bank Ltd. 226,210 72
67,492 Pacific Dunlop Ltd. 179,562 57
- -------------------------------------------------------------------------------------
1,382,747 441
- -------------------------------------------------------------------------------------
Netherlands--3.6 %
30,000 Elsevier NV CVA 312,909 100
5,050 International Nederlanden CVA 238,631 76
2,500 Royal Dutch Petroleum NV CVA 272,285 87
2,500 Unilever NV CVA 293,750 94
- -------------------------------------------------------------------------------------
1,117,575 357
- -------------------------------------------------------------------------------------
Spain--2.8%
4,000 ENDESA 162,880 52
4,000 Empresa Nacional De Electricidad 162,000 52
S.A.(ADR)
10,000 Repsol S.A. (ADR) 272,500 87
10,000 Tabacalera 266,656 85
- -------------------------------------------------------------------------------------
864,036 276
- -------------------------------------------------------------------------------------
Hong Kong--2.6%
100,000 Cathay Pacific Airways Ltd. 145,400 46
17,200 HSBC Holdings PLC 185,626 59
42,000 Hutchison Whampoa Ltd. 169,907 54
34,000 Swire Pacific Ltd. Class "A" 211,810 68
30,000 Wharf Holdings 101,199 32
- -------------------------------------------------------------------------------------
813,942 259
- -------------------------------------------------------------------------------------
Switzerland--2.4%
600 Ciba-Geigy AG Regd 358,076 114
400 Nestle SA Regd 381,153 122
- -------------------------------------------------------------------------------------
739,229 236
- -------------------------------------------------------------------------------------
Sweden--2.4%
13,000 AGA AB Series "B" Free 119,786 38
12,100 Astra AB Series "A" Free 312,507 100
19,000 Pharmacia AB Series "A" Free 304,139 97
- -------------------------------------------------------------------------------------
736,432 235
- -------------------------------------------------------------------------------------
Singapore--2.3%
25,000 Development Bank of Singapore 257,205 82
55,000 Keppel Corp. 467,769 149
- -------------------------------------------------------------------------------------
724,974 231
- -------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Canada--2.1%
23,000 Canadian Pacific Ltd. 345,000 110
20,000 Westcoast Energy Inc. 317,249 101
- -------------------------------------------------------------------------------------
662,249 211
- -------------------------------------------------------------------------------------
Malaysia--2.1%
33,333 Arab Malaysian Finance 86,152 28
98,400 Sime Darby Berhad 225,424 72
23,000 Telekom Malaysia 155,823 50
50,000 Tenaga Nasional Bhd 197,765 63
- -------------------------------------------------------------------------------------
665,164 213
- -------------------------------------------------------------------------------------
Mexico--1.8%
20,000 Kimberly Clark Mexican Class "A" 236,750 76
8,000 Telefonos De Mexico S.A. (ADR) Class "L" 328,000 105
- -------------------------------------------------------------------------------------
564,750 181
- -------------------------------------------------------------------------------------
New Zealand--1.8%
100,000 Carter Holt Havley Ltd. 204,840 65
60,000 Lion Nathan Ltd. 114,456 37
76,000 Telecom Corp New Zealand Ltd. (Note 5) 248,117 79
- -------------------------------------------------------------------------------------
567,413 181
- -------------------------------------------------------------------------------------
Norway--1.8%
10,000 Hafslund Nyco Series "A" Free 213,630 68
31,000 Saga Petroleum Series "A" Free 336,855 108
- -------------------------------------------------------------------------------------
550,485 176
- -------------------------------------------------------------------------------------
Denmark--1.7%
8,700 * Tele Danmark A/S Class "B" (ADS) 221,850 71
8,000 Unidanmark A/S Class "A" Regd (3,000 307,615 98
shares 144A Securities-Note 5)
- -------------------------------------------------------------------------------------
529,465 169
- -------------------------------------------------------------------------------------
Italy--1.6%
33,000 Istituto Mobiliare Italiano 202,808 65
110,000 Telecom Italia SPA 286,143 91
- -------------------------------------------------------------------------------------
488,951 156
- -------------------------------------------------------------------------------------
Argentina--.9%
3,450 Banco De Galicia Y Buenos Aires S.A. 59,512 19
Class "B" (ADR)
2,000 Telefonica De Argentina S.A. Class "B" 106,000 34
(ADR)
5,000 YPF Soceidad Anonima S.A. Class "D" 106,875 34
(ADR)
- -------------------------------------------------------------------------------------
272,387 87
- -------------------------------------------------------------------------------------
Chile--.9%
3,500 Compania De Telefonos De Chile S.A. 275,625 88
(ADR)
- -------------------------------------------------------------------------------------
Portugal--.6%
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
15,000 * Banco Commercial Portugese Regd 195,979 63
- -------------------------------------------------------------------------------------
Austria-- .4%
1,000 EVN 129,910 41
- -------------------------------------------------------------------------------------
India--.1%
2,000 ITC Ltd. (GDR) (Note 5) 24,228 8
1,000 * Reliance Industries (GDS) (Note 5) 21,996 7
- -------------------------------------------------------------------------------------
46,224 15
- -------------------------------------------------------------------------------------
Total Value of Common Stocks (cost 28,445,268 9,085
$26,219,411)
- -------------------------------------------------------------------------------------
Preferred Stocks--.3%
200 Krones AG (cost $142,932) 112,257 36
- -------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--5.5%
$1,730M United States Treasury Bill 5.395%,
3/23/95 (cost $1,709,000) 1,709,000 546
- -------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--.5%
151M Paine Webber Inc., 5.85%,1/3/95
(Collateralized by U.S. Treasury Notes
4 1/8%, 6/30/95) (cost $151,000) 151,000 48
- -------------------------------------------------------------------------------------
Total Value of Investments (cost
$28,222,343) 97.2% 30,417,525 9,715
Other Assets, Less Liabilities 2.8 890,972 285
- -------------------------------------------------------------------------------------
Net Assets 100.0% $31,308,497 $10,000
=====================================================================================
* Non-income producing
</TABLE>
See notes to financial statements
<TABLE>
<CAPTION>
Portfolio of Investments
First Investors Life Series Fund--INTERNATIONAL SECURITIES SERIES
At December 31, 1994, sector diversification of the portfolio was as follows:
- --------------------------------------------------------------------------------------------
Percentage
Sector Diversification of Net Assets Value
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Financial Services 12.6% $ 3,945,210
Energy 8.4 2,643,239
Drugs 7.9 2,457,091
Telecommunications 7.8 2,441,279
Electrical Equipment 5.2 1,628,484
Industrial Services 4.6 1,442,415
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Food/Beverage/Tobacco 4.6 1,439,653
Electronics/Instruments/Components 3.9 1,220,363
Household Products 3.1 969,875
Insurance 2.7 852,177
Building Materials 2.3 727,741
Transportation 2.3 703,400
Chemicals 2.2 696,826
Retail Trade 2.2 696,440
Conglomerates 2.2 679,579
Real Estate/Construction 2.1 642,637
Media/Cable Television 2.0 640,882
Miscellaneous 2.0 625,693
Machinery/Diversified 2.0 622,227
Automotive 1.6 496,349
Manufacturing/Diversified 1.4 424,592
Electric & Gas Utilities 1.0 324,880
Consumer Durables .9 291,669
Natural Gas .9 290,624
Gaming/Lodging .9 266,656
Retail/General Merchandise .8 254,793
Entertainment .8 243,187
Housing .7 206,973
Utilities .6 197,765
Paper/Forest Products .6 188,438
Consumer Non-Durables .5 169,907
Metals/Miscellaneous .4 126,481
Repurchase Agreements .5 151,000
U.S. Government Obligations 5.5 1,709,000
- --------------------------------------------------------------------------------------------
Total Investments 97.2 30,417,525
Other Assets, Less Liabilities 2.8 890,972
- --------------------------------------------------------------------------------------------
Net Assets 100.0% $31,308,497
============================================================================================
</TABLE>
See notes to financial statements
<TABLE>
<CAPTION>
Portfolio of Investments
First Investors Life Series Fund--INVESTMENT GRADE SERIES
December 31, 1994
- -------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
CORPORATE BONDS--74.4%
Aerospace/Defense--5.1%
$ 100M Allison Engine Co., Inc., 10%, 2003 $ 103,000 $ 89
300M Boeing Co., 6.35%, 2003 265,255 229
250M Lockheed Corp., 6 3/4%, 2003 224,726 194
- -------------------------------------------------------------------------------------------------------
592,981 512
- -------------------------------------------------------------------------------------------------------
Building Materials--.9%
100M Masco Corp., 9%, 2001 102,408 88
- -------------------------------------------------------------------------------------------------------
Computers/Software/Business Equipment--.9%
100M Card Establishment Services, Inc., 10%, 2003 104,500 90
- -------------------------------------------------------------------------------------------------------
Conglomerates--4.4%
300M Hanson Overseas, B.V., 7 3/8%, 2003 281,980 243
250M Tenneco, Inc., 7 7/8%, 2002 239,043 206
- -------------------------------------------------------------------------------------------------------
521,023 449
- -------------------------------------------------------------------------------------------------------
Consumer Products--2.0%
250M Mattel, Inc., 6 3/4%, 2000 230,963 199
- -------------------------------------------------------------------------------------------------------
Electric & Gas
Utilities--14.2%
250M Baltimore Gas & Electric Co., 6 1/2%, 2003 221,976 192
200M Carolina Power & Light Co., 7 3/4%, 2003 191,952 165
250M Duke Power Co., 5 7/8%, 2003 212,654 184
200M Kansas Gas & Electric Co., 7.6%, 2003 188,662 163
75M Old Dominion Electric Cooperative, 7.97%, 2002 73,447 63
300M Pennsylvania Power & Light Co., 6 7/8%, 2003 269,736 232
250M Philadelphia Electric Co., 8%, 2002 242,408 209
200M SCE Capital Corp., 7 3/8%, 2003 185,507 160
75M Southwestern Electric Power Co., 7%, 2007 66,707 57
- -------------------------------------------------------------------------------------------------------
1,653,049 1,425
- -------------------------------------------------------------------------------------------------------
Financial Services--13.1%
75M Banc One Corp., 7 1/4%, 2002 69,107 60
40M BankAmerica Corp., 9 1/2%, 2001 41,440 36
200M Barnett Banks, Inc., 8 1/2%, 1999 200,055 172
300M Chemical Bank, Inc., 7%, 2005 264,418 228
200M Citicorp, 8%, 2003 192,232 166
150M First Union Corp., 8 1/8%, 2002 145,675 126
250M Fleet Financial Group, 6 7/8%, 2003 223,559 193
250M Mellon Bank N.A., 6 1/2%, 2005 211,966 183
50M Meridian Bancorp, 7 7/8%, 2002 47,666 41
75M Morgan Guaranty Trust Co., 7 3/8%, 2002 71,691 62
50M Nationsbank Corp., 8 1/8%, 2002 48,351 42
- -------------------------------------------------------------------------------------------------------
1,516,160 1,309
- -------------------------------------------------------------------------------------------------------
Food/Beverage/Tobacco--1.8%
25M Coca-Cola Enterprises, Inc., 7 7/8%, 2002 24,362 21
200M Philip Morris Cos., Inc., 7 1/8%, 2002 182,111 157
- -------------------------------------------------------------------------------------------------------
206,473 178
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
Healthcare--1.3%
150M Healthtrust, Inc., 8 3/4%, 2005 144,750 125
- -------------------------------------------------------------------------------------------------------
Investment/Finance
Companies--7.7%
300M Associates Corp of North America, 7 7/8%, 2001 291,016 251
300M General Electric Capital Corp., 7 7/8%, 2006 290,150 250
300M General Motors Acceptance Corp., 7 1/8%, 1999 282,221 243
25M Heller Financial, Inc., 9 3/8%, 1998 25,642 22
- -------------------------------------------------------------------------------------------------------
889,029 766
- -------------------------------------------------------------------------------------------------------
Oil/Natural Gas--4.2%
250M BP America, Inc., 7 7/8%, 2002 243,918 210
250M Marathon Oil Co., 8 1/2%, 2000 248,871 214
- -------------------------------------------------------------------------------------------------------
492,789 424
- -------------------------------------------------------------------------------------------------------
Paper/Forest Products--4.4%
250M Stone Container Corp., 10 3/4%, 2002 249,375 215
250M Temple Inland, Inc., 9%, 2001 257,754 222
- -------------------------------------------------------------------------------------------------------
507,129 437
- -------------------------------------------------------------------------------------------------------
Retail/General
Merchandise--1.9%
250M Penney J.C & Co., 6 1/8%, 2003 216,303 186
- -------------------------------------------------------------------------------------------------------
Technology--4.2%
250M International Business Machines Corp., 6 3/8%, 2000 228,771 197
275M Xerox Corp., 7.15%, 2004 253,314 218
- -------------------------------------------------------------------------------------------------------
482,085 415
- -------------------------------------------------------------------------------------------------------
Telecommunications--1.6%
200M Tele-Communications, Inc., 8 1/4%, 2003 188,625 163
- -------------------------------------------------------------------------------------------------------
Telephone--6.7%
30M GTE Corp., 8.85%, 1998 30,393 26
350M MCI Communication Corp., 7 1/2%, 2004 331,062 285
200M Pacific Bell Telephone Co., 7%, 2004 183,819 158
250M Southern Bell Telephone & Telegraph Co., Inc., 8 1/8%, 2017 235,962 203
- -------------------------------------------------------------------------------------------------------
781,236 672
- -------------------------------------------------------------------------------------------------------
Total Value of Corporate Bonds (cost $9,368,991) 8,629,503 7,438
- -------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--12.1%
300M Federal Home Loan Mortgage Corp., 7.88%, 2004 283,406 244
690M United States Treasury Notes, 8 7/8%, 1997 708,220 610
450M United States Treasury Notes, 5 1/4%, 1998 413,930 357
- -------------------------------------------------------------------------------------------------------
Total Value of U.S. Government Obligations (cost $1,534,779) 1,405,556 1,211
- -------------------------------------------------------------------------------------------------------
SHORT-TERM CORPORATE
NOTES--11.2%
550M Florida Power Corp., 5.95%, 1/6/95 549,546 474
400M Ford Motor Credit Co.,5.82%, 1/13/95 399,224 344
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
350M General Electric Credit Corp., 5.80%, 1/11/95 349,436 301
- -------------------------------------------------------------------------------------------------------
Total Value of Short-Term Corporate Notes (cost $1,298,206) 1,298,206 1,119
- -------------------------------------------------------------------------------------------------------
Total Value of Investments (cost $12,201,976) 97.7% 11,333,265 9,768
Other Assets, Less Liabilities 2.3 269,211 232
- -------------------------------------------------------------------------------------------------------
Net Assets 100.0% $11,602,476 $10,000
=======================================================================================================
</TABLE>
See notes to financial statements
<TABLE>
<CAPTION>
Portfolio of Investments
First Investors Life Series Fund--UTILITIES INCOME SERIES
December 31, 1994
- ------------------------------------------------------------------------------------
Amount
Invested
For Each
$10,000 of
Shares Security Value Net Assets
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--78.6%
Consumer Services--.2%
300 Time Warner Inc. $ 10,538 $ 22
- ------------------------------------------------------------------------------------
Electric Power--37.7%
3,100 American Electric Power Co. 101,913 216
3,000 Baltimore Gas & Electric Co. 66,375 141
1,800 Boston Edison Co. 42,975 91
2,000 Carolina Power & Light Co. 53,250 113
2,500 Cinergy Corp. 58,437 124
2,000 CMS Energy Corp. 45,750 97
4,000 DPL, Inc. 82,000 174
3,300 DQE, Inc. 97,762 207
3,000 Duke Power Co. 114,375 242
2,500 Eastern Utilities Association 55,000 117
300 Empresa Nacional De Electricidad 12,150 26
3,000 FPL Group, Inc. 105,375 222
2,000 General Public Utilities Corp. 52,500 111
2,500 Illinova Corp. 54,375 115
2,000 New England Electric System 64,250 136
3,000 Nipsco Industries, Inc. 89,250 189
2,000 Northern States Power Co. 88,000 186
5,000 PacifiCorp 90,625 192
1,500 Peco Energy Co. 36,750 78
6,000 Pinnacle West Capital Corp. 118,500 251
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
1,000 Public Service Co. of Colorado 29,375 62
3,000 * Public Service Co. of New Mexico 39,000 83
1,000 Public Service Enterprise Group Inc. 26,500 56
3,000 Southern Co. 60,000 127
4,000 Teco Energy Inc. 80,500 171
2,000 Texas Utilities Co. 64,000 136
2,000 Wisconsin Energy Corp. 51,750 110
- ------------------------------------------------------------------------------------
1,780,737 3,773
- ------------------------------------------------------------------------------------
Energy--6.4%
1,000 Coastal Corp. 25,750 55
2,500 Enron Corp. 76,250 161
1,700 NICOR, Inc. 38,675 82
3,100 Pacific Enterprises 65,875 140
500 Royal Dutch Petroleum Co. 53,750 114
1,400 Sonat, Inc. 39,200 83
- ------------------------------------------------------------------------------------
299,500 635
- ------------------------------------------------------------------------------------
Energy Exploration/Production--.4%
1,000 * Seagull Energy Corp. 19,125 41
- ------------------------------------------------------------------------------------
Natural Gas--7.6%
1,600 Atlanta Gas Light Co. 48,000 102
1,000 Brooklyn Union Gas Co. 22,250 47
500 KN Energy, Inc. 11,875 25
1,200 MCN Corp. 21,750 46
2,400 National Fuel Gas Co. 61,200 130
2,000 New Jersey Resources Corp. 45,250 96
1,500 Piedmont Natural Gas Co., Inc. 28,313 60
2,500 UGI Corp. 50,938 108
1,000 Washington Energy Co. 13,500 29
2,000 Wicor, Inc. 56,750 119
- ------------------------------------------------------------------------------------
359,826 762
- ------------------------------------------------------------------------------------
Technology--4.0%
1,500 * Airtouch Communications, Inc. 43,687 93
4,000 MCI Communications Corp. 73,500 156
600 Motorola, Inc. 34,725 74
300 Northern Telecom Ltd. 10,012 21
1,000 Sprint Corp. 27,625 59
- ------------------------------------------------------------------------------------
189,549 403
- ------------------------------------------------------------------------------------
Telecommunications--2.6%
1,000 * LDDS Communications, Inc. 19,437 41
1,000 * Mobile Telecommunication Technologies Corp. 19,500 41
2,000 SBC Communications Inc. 80,750 171
- ------------------------------------------------------------------------------------
119,687 253
- ------------------------------------------------------------------------------------
Telephone/Utilities--19.7%
3,000 Alltel Corp. 90,375 191
3,500 Ameritech Corp. 141,313 299
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
2,000 A T & T Corp. 100,500 213
2,000 Bell Atlantic Corp. 99,500 211
2,000 Bellsouth Corp. 108,250 229
3,500 GTE Corp. 106,312 225
1,000 * MFS Communications Co. 32,750 69
2,000 Nynex Corp. 73,500 156
2,000 Pacific Telesis Group 57,000 121
2,000 * Rochester Telephone Corp. 42,250 90
700 Telefonica De Espana (ADR) 24,588 52
1,500 U.S. West, Inc. 53,438 113
- ------------------------------------------------------------------------------------
929,776 1,969
- ------------------------------------------------------------------------------------
Total Value of Common Stocks (cost $3,843,448) 3,708,738 7,858
- ------------------------------------------------------------------------------------
SHORT-TERM CORPORATE NOTES--21.7%
$ 225M Central Louisiana Electric Co. 5.85%, 1/3/95 224,941 476
225M Lubrizol Corp. 6.00%, 1/6/95 224,812 476
225M Oklahoma Gas & Electric Co. 5.90%, 1/11/95 224,631 476
350M Pitney Bowes, Inc. 5.95%, 1/9/95 349,538 741
- ------------------------------------------------------------------------------------
Total Value of Short-Term Corporate Notes
(cost $1,023,922) 1,023,922 2,169
- ------------------------------------------------------------------------------------
Total Value of Investments (cost $4,867,370) 100.3% 4,732,660 10,027
Excess of Liabilities Over Other Assets (.3) (12,633) (27)
- ------------------------------------------------------------------------------------
Net Assets 100.0% $4,720,027 $10,000
====================================================================================
* Non-income producing
</TABLE>
See notes to financial statements
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
FIRST INVESTORS LIFE SERIES FUND
December 31, 1994
- ---------------------------------------------------------------------------------------------------------------------------------
CASH
BLUE CHIP MANAGEMENT DISCOVERY GOVERNMENT GROWTH
----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Assets
Investments in securities:
At identified cost $39,926,978 $3,940,559 $32,330,328 $7,979,586 $31,366,691
=========== ========== =========== ========== ===========
At value (Note 1A) $40,280,776 $3,940,559 $33,303,472 $7,736,109 $32,699,783
Cash (overdraft) 2,309,427 13,442 (194,076) 59,970 22,737
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Receivables:
Investment securities sold 2,279,986 -- -- -- --
Interest and dividends 100,719 -- 11,859 103,437 50,432
Trust shares sold 23,848 3,731 98,339 5,604 90,797
Other assets 141 644 578 -- 593
----------- ---------- ----------- ---------- -----------
Total Assets 44,994,897 3,958,376 33,220,172 7,905,120 32,864,342
----------- ---------- ----------- ---------- -----------
Liabilities
Payables:
Investment securities purchased 3,461,850 -- 2,895,677 -- --
Trust shares redeemed 73,721 22,810 55,729 24,865 41,062
Accrued advisory fee 25,655 988 18,376 2,292 20,027
Accrued expenses 9,370 6,023 6,776 -- 6,061
----------- ---------- ----------- ---------- -----------
Total Liabilities 3,570,596 29,821 2,976,558 27,157 67,150
----------- ---------- ----------- ---------- -----------
Net Assets $41,424,301 $3,928,555 $30,243,614 $7,877,963 $32,797,192
=========== ========== =========== ========== ===========
Net Assets Consist of:
Capital paid in $37,581,050 $3,928,555 $27,184,884 $8,402,775 $30,747,717
Undistributed net investment income 568,071 -- 93,202 506,859 176,061
Accumulated net realized gain (loss) on investments
and foreign currencies 2,921,382 -- 1,992,384 (788,194) 540,322
Net unrealized appreciation (depreciation) in value of
investments and foreign currency related transactions 353,798 -- 973,144 (243,477) 1,333,092
----------- ---------- ----------- ---------- -----------
Total $41,424,301 $3,928,555 $30,243,614 $7,877,963 $32,797,192
=========== ========== =========== ========== ===========
Shares of Beneficial Interest Outstanding (Note 2) 3,012,284 3,928,555 1,522,470 811,929 1,960,481
=========== ========== =========== ========== ===========
Net Asset Value, Offering and Redemption Price Per $13.75 $1.00 $19.86 $9.70 $16.73
=========== ========== =========== ========== ===========
(Net assets divided by shares outstanding)
</TABLE>
See notes to financial statements
<TABLE>
<CAPTION>
Statement of Assets and Liabilities (Cont'd)
FIRST INVESTORS LIFE SERIES FUND
December 31, 1994
- ------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL INVESTMENT UTILITIES
HIGH YIELD SECURITIES GRADE INCOME
----------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Assets
Investments in securities:
At identified cost $33,143,225 $28,222,343 $12,201,976 $4,867,370
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
=========== =========== =========== ==========
At value (Note 1A) $31,281,000 $30,417,525 $11,333,265 $4,732,660
Cash (overdraft) 371,436 616,473 72,125 31,020
Receivables:
Investment securities sold -- 166,638 -- --
Interest and dividends 663,762 79,162 196,168 15,541
Trust shares sold 56,743 163,906 45,790 73,286
Other assets 792 132 -- --
----------- ----------- ----------- ----------
Total Assets 32,373,733 31,443,836 11,647,348 4,852,507
----------- ----------- ----------- ----------
Liabilities
Payables:
Investment securities purchased -- 80,676 -- 127,937
Trust shares redeemed 60,005 16,964 39,255 3,085
Accrued advisory fee 19,920 19,192 3,376 1,325
Accrued expenses 9,062 18,507 2,241 133
----------- ----------- ----------- ----------
Total Liabilities 88,987 135,339 44,872 132,480
----------- ----------- ----------- ----------
Net Assets $32,284,746 $31,308,497 $11,602,476 $4,720,027
=========== =========== =========== ==========
Net Assets Consist of:
Capital paid in $32,264,201 $28,230,113 $11,913,551 $4,844,733
Undistributed net investment income 2,971,294 279,003 605,176 110,079
Accumulated net realized gain (loss) on investments
and foreign currencies (1,088,524) 605,023 (47,540) (100,075)
Net unrealized appreciation (depreciation) in value of
investments and foreign currency related transacti (1,862,225) 2,194,358 (868,711) (134,710)
----------- ----------- ----------- ----------
Total $32,284,746 $31,308,497 $11,602,476 $4,720,027
=========== =========== =========== ==========
Shares of Beneficial Interest Outstanding (Note 2) 3,050,689 2,317,817 1,125,041 513,634
=========== =========== =========== ==========
Net Asset Value, Offering and Redemption Price Per $10.58 $13.51 $10.31 $9.19
=========== =========== =========== ==========
(Net assets divided by shares outstanding)
</TABLE>
See notes to financial statements
<TABLE>
<CAPTION>
Statement of Operations
FIRST INVESTORS LIFE SERIES FUND
Year Ended December 31, 1994
- ------------------------------------------------------------------------------------------------------------
CASH
BLUE CHIP MANAGEMENT DISCOVERY GOVERNMENT
------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Investment Income
Income:
Interest $ 164,430 $167,684 $ 237,179 $ 557,614
Dividends 739,647 -- 84,495 --
Consent fees -- -- -- --
----------- -------- ----------- ---------
Total income 904,077 167,684 321,674 557,614
----------- -------- ----------- ---------
Expenses:
Advisory fee (Note 6) 286,413 29,282 194,546 58,949
Professional fees 17,084 3,889 12,844 5,373
Reports to shareholders 19,356 2,098 12,822 3,943
Custodian fees 46 4,347 -- --
Other expenses 12,959 1,076 8,260 2,453
----------- -------- ----------- ---------
Total expenses 335,858 40,692 228,472 70,718
Less: Expenses waived or assumed (Note 6) -- 17,258 -- 43,209
----------- -------- ----------- ---------
Expenses--net 335,858 23,434 228,472 27,509
----------- -------- ----------- ---------
Net investment income 568,219 144,250 93,202 530,105
----------- -------- ----------- ---------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currencies (Note 3):
Net realized gain (loss) on investments 2,931,871 61 1,992,419 (786,678)
and foreign currencies
Net unrealized depreciation of investments
and foreign currency related transactions (4,069,423) -- (2,687,366) (75,120)
----------- -------- ----------- ---------
Net gain (loss) on investments (1,137,552) 61 (694,947) (861,798)
----------- -------- ----------- ---------
Net Increase (Decrease) in Net Assets Resulting
from Operations $ (569,333) $144,311 $ (601,745) $(331,693)
=========== ======== =========== =========
+Net of $37,429 foreign taxes withheld.
(a)Includes $3,391 of net realized foreign
currency gains
(b)Includes $824 of net unrealized depreciation
on foreign currency transactions
</TABLE>
See notes to financial statements
<TABLE>
<CAPTION>
Statement of Operations (cont'd)
FIRST INVESTORS LIFE SERIES FUND
Year Ended December 31, 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL INVESTMENT UTILITIES
GROWTH HIGH YIELD SECURITIES GRADE INCOME
----------- ----------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Investment Income
Income:
Interest $ 65,229 $3,159,200 $ 96,348 $ 770,466 $ 12,334
Dividends 374,665 59,788 512,398+ -- 107,596
Consent fees -- 30,500 -- -- --
--------- ---------- --------- --------- ---------
Total income 439,894 3,249,488 608,746 770,466 119,930
--------- ---------- --------- --------- ---------
Expenses:
Advisory fee (Note 6) 218,813 236,209 202,739 82,832 20,935
Professional fees 13,337 15,278 12,390 6,335 2,841
Reports to shareholders 14,711 15,185 14,588 5,672 848
Custodian fees 8,121 -- 42,160 430 672
Other expenses 8,851 11,425 5,763 6,161 1,129
--------- ---------- --------- --------- ---------
Total expenses 263,833 278,097 277,640 101,430 26,425
Less: Expenses waived or assumed (Note 6) -- -- -- 60,546 21,652
--------- ---------- --------- --------- ---------
Expenses--net 263,833 278,097 277,640 40,884 4,773
--------- ---------- --------- --------- ---------
Net investment income 176,061 2,971,391 331,106 729,582 115,157
--------- ---------- --------- --------- ---------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currencies (Note 3):
Net realized gain (loss) on investments
and foreign currencies 555,580 (106,914) 913,209(a) (47,540) (100,075)
Net unrealized depreciation of investments and
currency related transactions foreign (1,490,527) (3,352,582) (1,619,867)(b) (1,054,894) (132,614)
--------- ---------- --------- --------- ---------
Net gain (loss) on investments (934,947) (3,459,496) (706,658) (1,102,434) (232,689)
--------- ---------- --------- --------- ---------
Net Increase (Decrease) in Net Assets Resulting
from Operations $(758,886) $ (488,105) $(375,552) $(372,852) $(117,532)
========= ========== ========= ========= =========
+Net of $37,429 foreign taxes withheld.
(a)Includes $3,391 of net realized
foreign currency gains
(b)Includes $824 of net unrealized depreciation
on foreign currency transactions
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
FIRST INVESTORS LIFE SERIES FUND
- -----------------------------------------------------------------------------------------------------------------
BLUE CHIP CASH MANAGEMENT
-------------------------- --------------------------
Year Ended December 31, 1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
from Operations
Net investment income (loss) $ 568,219 $ 362,657 $ 144,250 $ 175,573
Net realized gain (loss) on investments
and foreign currencies 2,931,871 440,707 61 81
Net unrealized appreciation (depreciation)
of investments and foreign currency
related transactions (4,069,423) 1,544,756 -- --
----------- ----------- ----------- -----------
Total increase (decrease) in net assets
resulting from operations (569,333) 2,348,120 144,311 175,654
----------- ----------- ----------- -----------
Distributions to Shareholders from:
Net investment income (204,030) (316,583) (144,311) (175,573)
Net realized gain on investments (416,537) -- -- (81)
----------- ----------- ----------- -----------
Total distributions (620,567) (316,583) (144,311) (175,654)
----------- ----------- ----------- -----------
Trust Share Transactions (a)
Issued 9,253,157 9,385,494 828,637 430,084
Issued on reinvestments 620,566 316,582 144,311 175,653
Redeemed (1,289,081) (1,468,952) (1,286,977) (4,703,726)
----------- ----------- ----------- -----------
Net increase (decrease) from trust share
transactions 8,584,642 8,233,124 (314,029) (4,097,989)
----------- ----------- ----------- -----------
Total increase (decrease) 7,394,742 10,264,661 (314,029) (4,097,989)
Net Assets
Beginning of year 34,029,559 23,764,898 4,242,584 8,340,573
----------- ----------- ----------- -----------
End of year+ $41,424,301 $34,029,559 $ 3,928,555 $ 4,242,584
=========== =========== =========== ===========
+Includes undistributed net investment
income of $ 568,071 $ 203,882 $ -- $ --
=========== =========== =========== ===========
(a)Trust Shares Issued and Redeemed
Issued 664,327 683,578 828,637 430,084
Issued on reinvestments 45,969 22,751 144,311 175,653
Redeemed (92,113) (107,325) (1,286,977) (4,703,726)
----------- ----------- ----------- -----------
Increase (decrease) in shares 618,183 599,004 (314,029) (4,097,989)
=========== =========== =========== ===========
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets (CONT'D)
FIRST INVESTORS LIFE SERIES FUND
- ----------------------------------------------------------------------------------------------------------------
DISCOVERY GOVERNMENT
-------------------------- -------------------------
Year Ended December 31, 1994 1993 1994 1993
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
from Operations
Net investment income (loss) $ 93,202 $ (4,695) $ 530,105 $ 457,094
Net realized gain (loss) on investments
and foreign currencies 1,992,419 1,124,458 (786,678) 137,176
Net unrealized appreciation (depreciation)
of investments and foreign currency
related transactions (2,687,366) 2,129,876 (75,120) (174,980)
----------- ----------- ----------- ----------
Total increase (decrease) in net assets
resulting from operations (601,745) 3,249,639 (331,693) 419,290
----------- ----------- ----------- ----------
Distributions to Shareholders from:
Net investment income -- -- (84,143) (460,450)
Net realized gain on investments (1,014,247) (630,159) (138,692) (99,213)
----------- ----------- ----------- ----------
Total distributions (1,014,247) (630,159) (222,835) (559,663)
----------- ----------- ----------- ----------
Trust Share Transactions (a)
Issued 10,106,014 7,831,209 1,488,126 3,687,209
Issued on reinvestments 1,014,247 630,159 222,836 559,663
Redeemed (481,564) (386,765) (1,512,005) (936,521)
----------- ----------- ----------- ----------
Net increase (decrease) from trust share
transactions 10,638,697 8,074,603 198,957 3,310,351
----------- ----------- ----------- ----------
Total increase (decrease) 9,022,705 10,694,083 (355,571) 3,169,978
Net Assets
Beginning of year 21,220,909 10,526,826 8,233,534 5,063,556
----------- ----------- ----------- ----------
End of year+ $30,243,614 $21,220,909 $ 7,877,963 $8,233,534
=========== =========== =========== ==========
+Includes undistributed net investment
income of $ 93,202 $ -- $ 506,859 $ 60,897
=========== =========== =========== ==========
(a)Trust Shares Issued and Redeemed
Issued 501,020 406,157 151,268 350,524
Issued on reinvestments 51,897 34,131 22,959 53,327
Redeemed (24,001) (20,400) (152,565) (88,958)
----------- ----------- ----------- ----------
Increase (decrease) in shares 528,916 419,888 21,662 314,893
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
=========== =========== =========== ==========
</TABLE>
See notes to financial statements
<TABLE>
<CAPTION>
Statement of Changes in Net Assets (CONT'D)
FIRST INVESTORS LIFE SERIES FUND
- -----------------------------------------------------------------------------------------------------------------
GROWTH HYGH YIELD
-------------------------- --------------------------
Year Ended December 31, 1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
from Operations
Net investment income (loss) $ 176,061 $ 89,167 $ 2,971,391 $ 2,596,525
Net realized gain (loss) on investments
and foreign currencies 555,580 610,321 (106,914) 1,274,083
Net unrealized appreciation (depreciation)
of investments and foreign currency
related transactions (1,490,527) 615,307 (3,352,582) 678,815
----------- ----------- ----------- -----------
Total increase (decrease) in net assets
resulting from operations (758,886) 1,314,795 (488,105) 4,549,423
----------- ----------- ----------- -----------
Distributions to Shareholders from:
Net investment income -- (105,229) (1,135,309) (2,797,473)
Net realized gain on investments (336,304) (119,293) -- --
----------- ----------- ----------- -----------
Total distributions (336,304) (224,522) (1,135,309) (2,797,473)
----------- ----------- ----------- -----------
Trust Share Transactions (a)
Issued 8,593,462 8,646,886 4,464,152 4,827,225
Issued on reinvestments 336,304 224,522 1,135,309 2,797,473
Redeemed (695,724) (688,752) (2,284,666) (3,323,008)
----------- ----------- ----------- -----------
Net increase (decrease) from trust share
transactions 8,234,042 8,182,656 3,314,795 4,301,690
----------- ----------- ----------- -----------
Total increase (decrease) 7,138,852 9,272,929 1,691,381 6,053,640
Net Assets
Beginning of year 25,658,340 16,385,411 30,593,365 24,539,725
----------- ----------- ----------- -----------
End of year+ $32,797,192 $25,658,340 $32,284,746 $30,593,365
=========== =========== =========== ===========
+Includes undistributed net investment
income of $ 176,061 $ -- $ 2,971,294 $ 1,135,212
=========== =========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
(a)Trust Shares Issued and Redeemed
Issued 510,485 513,769 416,564 441,212
Issued on reinvestments 20,645 13,153 107,326 254,481
Redeemed (41,089) (41,155) (214,630) (304,969)
----------- ----------- ----------- -----------
Increase (decrease) in shares 490,041 485,767 309,260 390,724
=========== =========== =========== ===========
</TABLE>
See notes to financial statements
<TABLE>
<CAPTION>
Statement of Changes in Net Assets (CONT'D)
FIRST INVESTORS LIFE SERIES FUND
- -----------------------------------------------------------------------------------------------------------------
INTERNATIONAL SECURITIES INVESTMENT GRADE
-------------------------- --------------------------
Year Ended December 31, 1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
from Operations
Net investment income (loss) $ 331,106 $ 145,789 $ 729,582 $ 468,954
Net realized gain (loss) on investments
and foreign currencies 913,209 (2,151) (47,540) 90,556
Net unrealized appreciation (depreciation)
of investments and foreign currency
related transactions (1,619,867) 3,063,342 (1,054,894) 104,080
----------- ----------- ----------- -----------
Total increase (decrease) in net assets
resulting from operations (375,552) 3,206,980 (372,852) 663,590
----------- ----------- ----------- -----------
Distributions to Shareholders from:
Net investment income (87,059) (168,456) (154,441) (479,485)
Net realized gain on investments -- -- (90,556) (5,447)
----------- ----------- ----------- -----------
Total distributions (87,059) (168,456) (244,997) (484,932)
----------- ----------- ----------- -----------
Trust Share Transactions (a)
Issued 11,075,210 6,412,595 2,762,399 5,237,027
Issued on reinvestments 87,058 168,456 244,996 484,931
Redeemed (399,664) (857,140) (997,487) (397,160)
----------- ----------- ----------- -----------
Net increase (decrease) from trust share
transactions 10,762,604 5,723,911 2,009,908 5,324,798
----------- ----------- ----------- -----------
Total increase (decrease) 10,299,993 8,762,435 1,392,059 5,503,456
Net Assets
Beginning of year 21,008,504 12,246,069 10,210,417 4,706,961
----------- ----------- ----------- -----------
End of year+ $31,308,497 $21,008,504 $11,602,476 $10,210,417
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
=========== =========== =========== ===========
+Includes undistributed net investment
income of $ 279,003 $ 47,517 $ 605,176 $ 30,035
=========== =========== =========== ===========
(a)Trust Shares Issued and Redeemed
Issued 811,007 512,067 264,613 477,794
Issued on reinvestments 6,642 13,339 24,055 44,044
Redeemed (29,290) (72,804) (96,249) (36,013)
----------- ----------- ----------- -----------
Increase (decrease) in shares 788,359 452,602 192,419 485,825
=========== =========== =========== ===========
</TABLE>
See notes to financial statements
<TABLE>
<CAPTION>
Statement of Changes in Net Assets (CONT'D)
FIRST INVESTORS LIFE SERIES FUND
- ----------------------------------------------------------------------
UTILITIES INCOME
-----------------------
Year Ended December 31, 1994 1993*
------------ ---------
<S> <C> <C>
Increase (Decrease) in Net Assets
from Operations
Net investment income (loss) $ 115,157 $ 457
Net realized gain (loss) on investments
and foreign currencies (100,075) --
Net unrealized appreciation (depreciation)
of investments and foreign currency
related transactions (132,614) (2,096)
---------- --------
Total increase (decrease) in net assets
resulting from operations (117,532) (1,639)
---------- --------
Distributions to Shareholders from:
Net investment income (5,535) --
Net realized gain on investments -- --
---------- --------
Total distributions (5,535) --
---------- --------
Trust Share Transactions (a)
Issued 4,449,169 495,195
Issued on reinvestments 5,534 --
Redeemed (105,265) --
---------- --------
Net increase (decrease) from trust share 4,349,438 495,195
---------- --------
Total increase (decrease) 4,226,371 493,556
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Net Assets
Beginning of year 493,656 100
---------- --------
End of year+ $4,720,027 $493,656
========== ========
+Includes undistributed net investment
income of $ 110,079 $ 457
========== ========
(a)Trust Shares Issued and Redeemed
Issued 474,683 49,647
Issued on reinvestments 600 --
Redeemed (11,306) --
---------- --------
Increase (decrease) in shares 463,977 49,647
========== ========
</TABLE>
See notes to financial statements
Notes to Financial Statements
FIRST INVESTORS LIFE SERIES FUND
1. Significant Accounting Policies--The Fund, a Massachusetts business
trust, is registered under the Investment Company Act of 1940 as a
diversified, open-end management investment company. The Fund operates
as a series fund, issuing shares of beneficial interest in the Blue
Chip, Cash Management, Discovery, Government, Growth, High Yield,
International Securities, Investment Grade and Utilities Income Series
and accounts separately for the assets, liabilities and operations of
each Series.
A. Security Valuation--A security listed or traded on an exchange or
the NASDAQ National Market System is valued at its last sale price on
the exchange or system where the security is principally traded, and
lacking any sales, the security is valued at the mean between the
closing bid and asked prices. Securities traded in the over-the-counter
markets are valued at the mean between the last bid and asked prices.
For the Government, High Yield and Investment Grade Series, each
security traded in the over-the-counter market (including securities
listed on exchanges or systems whose primary market is believed to be
over-the-counter) is valued at the mean between the last bid and asked
prices based upon quotes furnished by a market maker for such
securities. The High Yield, International Securities and Investment
Grade Series may use prices provided by a pricing service. The pricing
service uses quotations obtained from investment dealers or brokers,
information with respect to market transactions in comparable
securities and other available information in determining value.
Securities for which market quotations are not readily available and
any other assets 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 the manner specifically authorized by the Trustees of the
Fund.
The investments in the Cash Management Series, when purchased at a
<PAGE>
discount, are valued at amortized cost and when purchased at face
value, are valued at cost plus accrued interest.
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,
federal income taxes.
At December 31, 1994, capital loss carryovers were as follows:
<TABLE>
<CAPTION>
Year Capital Loss Carryovers Expire
-----------------------------------
Series Total 1998 1999 2002
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
GOVERNMENT $ 788,194 $ -- $ -- $788,194
HIGH YIELD 1,088,524 625,684 355,926 106,914
INVESTMENT GRADE 47,540 -- -- 47,540
UTILITIES INCOME 100,075 -- -- 100,075
</TABLE>
C. Foreign Currency Translations--For valuation purposes, quotations of
foreign securities in foreign currency are translated to U.S. dollar
equivalents using the daily rate of exchange. Purchases and sales of
investment securities, dividend income and certain expenses are
translated to U.S. dollars at the rates of exchange prevailing on the
respective dates of such transactions.
The fund does not isolate that portion of gains and lossses on
investments which is due to changes in foreign exchange rates from that
which is due to changes in market prices of the investments. Such
fluctuations are included with the net realized and unrealized gains
and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses arising from the sales of
foreign currency, and gains and losses between the ex and payment dates
on dividends and foreign withholding taxes.
D. Distributions to Shareholders--Distributions to shareholders from
net investment income and net realized gains are declared and paid
annually on all series except for the Cash Management Series which
declares daily and pays monthly. Income distributions 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 foreign
currency transactions, capital loss carryforwards and deferral of wash
<PAGE>
sales.
E. Expense Allocation--Expenses directly charged or attributable to a
Series are paid from the assets of that Series. General expenses of the
Fund are allocated among and charged to the assets of each Series on a
fair and equitable basis, which may be based on the relative assets of
each Series or the nature of the services performed and relative
applicability to each Series.
F. 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 securities and the
amortized cost basis for short-term securities, for both financial
statement and federal income tax purposes. Dividend income is recorded
on the ex-dividend date, except that certain dividends from foreign
securities are recorded on the ex-dividend date or as soon thereafter
as the Fund is informed of the dividend. Interest income and estimated
expenses are accrued daily.
2. Trust Shares--The Declaration of Trust permits the issuance of an
unlimited number of shares of beneficial interest, of one or more
Series. Shares in the Fund are acquired through the purchase of
variable annuity or variable life insurance contracts sold by First
Investors Life Insurance Company.
3. Purchases and Sales of Securities--For the year ended December 31,
1994, purchases and sales of securities and long-term U.S. Government
obligations, excluding foreign currencies, short-term corporate notes
and repurchase agreements were as follows:
<TABLE>
<CAPTION>
Long-Term
Securities U.S. Government Obligations
------------------------ ---------------------------
Cost Proceeds Cost Proceeds
of of of of
Series Purchases Sales Purchases Sales
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BLUE CHIP $35,397,341 $28,869,597 $ -- $ --
DISCOVERY 20,142,942 11,196,978 -- --
GOVERNMENT -- -- 31,846,462 33,631,190
GROWTH 18,359,605 10,960,242 -- --
HIGH YIELD 20,506,451 14,460,159 -- --
INTERNATIONAL SECURITIES 18,616,178 8,882,379 -- --
INVESTMENT GRADE 3,105,346 1,213,788 300,000 195,326
UTILITIES INCOME 4,225,435 703,164 -- --
</TABLE>
At December 31, 1994, aggregate cost and net unrealized appreciation
<PAGE>
(depreciation) of securities for federal income tax purposes were as
follows:
<TABLE>
<CAPTION>
Gross Gross Net Unrealized
Aggregate Unrealized Unrealized Appreciation
Series Cost Appreciation Depreciation (Depreciation)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BLUE CHIP $39,926,978 $1,630,385 $1,276,587 $ 353,798
CASH MANAGEMENT 3,940,559 -- -- --
DISCOVERY 32,330,328 3,955,011 2,981,867 973,144
GOVERNMENT 7,979,586 -- 243,477 (243,477)
GROWTH 31,416,730 3,240,315 1,957,262 1,283,053
HIGH YIELD 33,143,225 198,189 2,060,414 (1,862,225)
INTERNATIONAL SECURITIES 28,222,343 3,036,344 841,162 2,195,182
INVESTMENT GRADE 12,201,976 10,426 879,137 (868,711)
UTILITIES INCOME 4,867,370 52,521 187,231 (134,710)
</TABLE>
4. Restricted Securities--On April 23, 1992, the High Yield Series
purchased 1,620 shares of common stock of Divi Hotels, Inc. at a cost
of $35,810. This security, which was acquired through a private
placement, may not be sold or transferred without prior registration
under the Securities Act of 1933 or pursuant to an exemption therefrom.
If and when the High Yield Series sells this security, additional costs
for registration may be required. Restricted securities are valued
pursuant to procedures established by the Life Series Fund's Trustees
which include using data provided by certain dealers that participate
in any secondary market that may exist for these securities. At
December 31, 1994, the value of the above restricted security was $122.
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 sold to qualified institutional investors. At
December 31, 1994, the Discovery, High Yield and International Series
held 144A securities with aggregate values of $582,708, $638,800 and
$536,178, respectively. These securities represent 1.9%, 2.0% and 1.7%,
respectively of the Series' net assets and are valued as set forth in
Note 1A.
6. Advisory Fee and Other Transactions With Affiliates (All Series)--
Certain officers and trustees of the Fund are officers and directors of
its investment adviser, First Investors Management Company,
Inc.("FIMCO") and/or its transfer agent, Administrative Data Management
Corp. Officers and trustees of the Fund received no remuneration from
the Fund for serving in such capacities. Their remuneration (together
with certain other expenses of the Fund) is paid by FIMCO or FIC.
The Investment Advisory Agreement provides as compensation to FIMCO an
annual fee, payable monthly, at the rate of .75% on the first $250
<PAGE>
million of each Series' average daily net assets, declining by .03% on
each $250 million thereafter, down to .66% on average daily net assets
over $750 million. For the year ended December 31, 1994, total advisory
fees were $1,330,718 of which $109,038 was waived by the investment
adviser. In addition, $33,627 of expenses were assumed by FIMCO.
Pursuant to certain state regulations, FIMCO has agreed to reimburse a
Series if and to the extent that any Series' aggregate operating
expenses, including the advisory fee but generally excluding interest,
taxes, brokerage commissions and extraordinary expenses, exceed any
limitation on expenses applicable to the Series in those states (unless
waivers of such limitations have been obtained). The amount of any such
reimbursement is limited to the yearly advisory fee. For the year ended
December 31, 1994, no reimbursement was required pursuant to these
provisions.
Wellington Management Company serves as investment subadviser to the
Growth Series and the International Securities Series. The subadviser
is paid by FIMCO and not by the Fund.
7. Commencement of Operations--The Utilities Income Series commenced
operations in November 1993 following the sale of 10 shares of
beneficial interest to First Investors Life Insurance Company for $100.
8. Concentration of Credit Risk--The High Yield Series' investments in
high yield securities, whether rated or unrated, may be considered
speculative and subject to greater market fluctuations and risks 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. At December 31, 1994,
the High Yield Series held one defaulted security with a value of
$336,000, representing less than 1.0% of the Series' net assets.
The Utilities Income Series invests in securities issued by companies
primarily engaged in the public utilities industries. As a result,
there are certain credit risks which may subject the Series more
significantly to economic changes occurring in the public utilities
industry.
<PAGE>
Independent Auditor's Report
To the Shareholders and Trustees of
First Investors Life Series Fund
We have audited the accompanying statement of assets and liabilities,
including the portfolios of investments, of the nine series comprising
First Investors Life Series Fund as of December 31, 1994, 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 the periods indicated thereon.
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, 1994, by
correspondence with the custodian and brokers. 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 each of the nine series comprising First
Investors Life Series Fund as of December 31, 1994, and the results of
their operations, changes in their net assets and financial highlights
for each of the respective periods presented, in conformity with
generally accepted accounting principles.
Tait, Weller & Baker
Philadelphia, Pennsylvania
January 31, 1995
<PAGE>
TARGET MATURITY 2007 SERIES
A Series of First Investors Life Series Fund
FINANCIAL STATEMENTS
February 10, 1995
<PAGE>
TARGET MATURITY 2007 SERIES
(A Series of First Investors
Life Series Fund)
STATEMENT OF NET ASSETS
February 10, 1995
<TABLE>
<CAPTION>
<S> <C>
Cash on deposit with Custodian........................ $ 100
Liabilities........................................... None
------
Net Assets............................................ $ 100
======
Net Asset Value, Offering Price and Redemption Price
Per Share ($100 divided by 10 shares of beneficial
interest outstanding)............................... $10.00
======
</TABLE>
NOTES TO STATEMENT OF NET ASSETS
Note 1 -- Target Maturity 2007 Series (the "Series"), a separate designated
series of First Investors Life Series Fund (the "Fund"), raised its
initial capital through a private offering in which First Investors
Life Insurance Company purchased 10 shares, at $10.00 per share.
Note 2 -- The Fund was organized under the laws of the Commonwealth of
Massachusetts on June 12, 1985 and presently contains nine other
operating series. Except for the outstanding shares of beneficial
interest reflected in the Statement of Net Assets, the Series has
not commenced operations.
Note 3 -- Organizational expenses of the Series will be borne by First
Investors Management Company, Inc., and not by the Series.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Trustees of First Investors
Life Series Fund and the
Shareholder of
Target Maturity 2007 Series
We have audited the accompanying Statement of Net Assets of Target
Maturity 2007 Series (a series of First Investors Life Series Fund) as of
February 10, 1995. This financial statement is the responsibility of the Fund's
management. Our responsibility is to express an opinion on this financial
statement based on our audit. We conducted our audit 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
statement is free of material misstatement. An audit includes examining
evidence supporting the amounts and disclosures in the financial statements. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the accompanying Statement of Net Assets presents
fairly the financial position of Target Maturity 2007 Series at February 10,
1995 in conformity with generally accepted accounting principles.
/S/TAIT, WELLER & BAKER
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 13, 1995
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Financial Statements are set forth in Part B, Statement of Additional
Information.
(b) Exhibits:
(1)/1/ Declaration of Trust
(2)/1/ By-laws
(3) Not Applicable
(4)/2/ Specimen Certificate
(5)a./8/ Investment Advisory Agreement between Registrant and First
Investors Management Company, Inc., including form of
Schedule A for Zero Coupon 2007 Series
b./8/ Subadvisory Agreement relating to International Securities
Series and Growth Series
(6) Not Applicable
(7) Not Applicable
(8)a./1/ Custodian Agreement between Registrant and Irving Trust
Company
b./3/ Custodian Agreement between Registrant and Brown Brothers
Harriman & Co.
c./6/ Supplement to Custodian Agreement between Registrant and
The Bank of New York
(9)/1/ Administration Agreement between Registrant, First
Investors Management Company, Inc., First Investors
Corporation and Administrative Data Management Corp.
(10)/9/ Opinion of Counsel
(11)a. Consent of independent accountants
b./6,8/ Powers of Attorney
(12) Not Applicable
C-1
<PAGE>
(13)/4,7/ Undertakings
(14) Not Applicable
(15) Not Applicable
(16) Not Applicable
- -----------------
1 Incorporated by reference from Registrant's Registration Statement
(File No. 2-98409).
2 Incorporated by reference from Pre-Effective Amendment No. 2 to
Registrant's Registration Statement (File No. 2-98409).
3 Incorporated by reference from Post-Effective Amendment No. 8 to
Registrant's Registration Statement (File No. 2-98409) filed with the
Commission on April 13, 1990.
4 Incorporated by reference from Post-Effective Amendment No. 10 to
Registrant's Registration Statement (File No. 2-98409) filed with the
Commission on October 31, 1991.
5 Incorporated by reference from Post-Effective Amendment No. 11 to
Registrant's Registration Statement (File No. 2-98409) filed with the
Commission on April 30, 1992.
6 Incorporated by reference from Post-Effective Amendment No. 12 to
Registrant's Registration Statement (File No. 2-98409) filed with the
Commission on April 29, 1993.
7 Incorporated by reference from Post-Effective Amendment No. 13 to
Registrant's Registration Statement (File No. 2-98409) filed with the
Commission on September 16, 1993.
8 Incorporated by reference from Post-Effective Amendment No. 15 to
Registrant's Registration Statement (File No. 2-98409) filed with the
Commission on February 15, 1995.
9 Incorporated by reference from Registrant's Rule 24f-2 Notice for its
fiscal year ending December 31, 1994 filed with the Commission on
February 21, 1995.
Item 25. Persons Controlled by or under common control with Registrant
There are no persons controlled by or under common control with the
Registrant.
C-2
<PAGE>
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Number of
Record Holders as of
Title of Class February 28, 1995
-------------- --------------------
<S> <C>
Shares of
Beneficial Interest,
no par value
Investment Grade Series 2
Government Series 2
Cash Management Series 2
Discovery Series 2
Growth Series 2
High Yield Series 2
Blue Chip Series 2
International Securities Series 2
Utilities Income Series 2
Zero Coupon 2007 Series 1
</TABLE>
Item 27. Indemnification
Article XI, Section 2 of Registrant's Declaration of Trust provides as
follows:
"Section 2.
(a) Subject to the exceptions and limitations contained in Section (b)
below:
(i) every person who is, or has been, a Trustee or officer of the Trust (a
"Covered Person") shall be indemnified by the Trust to the fullest extent
permitted by law against liability and against expenses reasonably incurred or
paid by him in connection with any claim, action, suit or proceeding which he
becomes involved as a party or otherwise by virtue of his being or having been a
Trustee or officer and against amounts paid or incurred by him in the settlement
thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall apply to
all claims, actions, suits or proceedings (civil, criminal or other, including
appeals), actual or threatened, and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) Who shall have been adjudicated by a court or body before which the
proceeding was brought (A) to be liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office or (B) not to have acted in
good faith in the
C-3
<PAGE>
reasonable belief that his action was in the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a determination
that such Trustee or officer did not engage in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office,
(A) by the court or other body approving the settlement; or
(B) by at least a majority or those Trustees who are neither
interested persons of the Trust nor are parties to the matter
based upon a review of readily available facts (as opposed to a
full trial-type inquiry); or
(C) by written opinion of independent legal counsel based upon a
review of readily available facts (as opposed to a full trial-type
inquiry); provided, however, that any Shareholder may, by
appropriate legal proceedings, challenge any such determination by
the Trustees, or by independent counsel.
(c) The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not be exclusive of
or affect any other rights to which any Covered Person may now or hereafter be
entitled, shall continue as to a person who has ceased to be such Trustee or
officer and shall inure to the benefit of the heirs, executors and
administrators of such a person. Nothing contained herein shall affect any
rights to indemnification to which Trust personnel, other than Trustees and
officers, and other persons may be entitled by contract or otherwise under the
law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character described in
paragraph (a) of this Section 2 may be paid by the Trust from time to time prior
to final disposition thereof upon receipt of an undertaking by or on behalf of
such Covered Person that such amount will be paid over by him to the Trust if it
is ultimately determined that he is not entitled to indemnification under this
Section 2; provided, however, that either (a) such Covered Person shall have
provided appropriate security for such undertaking, (b) the Trust is insured
against losses arising out of any such advance payments or (c) either a majority
of the Trustees who are neither interested persons of the Trust nor are parties
to the matter, or independent legal counsel in a written opinion, shall have
determined, based upon a review of readily available facts (as opposed to a full
trial-type inquiry), that there is a reason to believe that such Covered Person
will be found entitled to indemnification under this Section 2."
C-4
<PAGE>
The general effect of this Indemnification will be to indemnify the
officers and Trustees of the Registrant from costs and expenses arising from any
action, suit or proceeding to which they may be made a party by reason of their
being or having been a Trustee or officer of the Registrant, except where such
action is determined to have arisen out of the willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
the Trustee's or officer's office.
The Registrant's Investment Advisory Agreement provides as follows:
The Manager shall not be liable for any error of judgment or mistake of law
or for any loss suffered by the Company or any Series in connection with the
matters to which this Agreement relate except a loss resulting from the willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement. Any person, even though also an officer, partner, employee, or agent
of the Manager, who may be or become an officer, Board member, employee or agent
of the Company shall be deemed, when rendering services to the Company or acting
in any business of the Company, to be rendering such services to or acting
solely for the Company and not as an officer, partner, employee, or agent or one
under the control or direction of the Manager even though paid by it.
Item 28. Business and Other Connections of Investment Adviser
First Investors Management Company, Inc., the Registrant's Investment
Adviser, also serves as Investment Adviser to:
First Investors Cash Management Fund, Inc.
First Investors Series Fund
First Investors Fund For Income, Inc.
First Investors Government Fund, Inc.
First Investors High Yield Fund, Inc.
First Investors Insured Tax Exempt Fund, Inc.
First Investors Global Fund, Inc.
First Investors Multi-State Insured Tax Free Fund
First Investors New York Insured Tax Free Fund, Inc.
First Investors Special Bond Fund, Inc.
First Investors Tax-Exempt Money Market Fund, Inc.
First Investors U.S. Government Plus Fund
First Investors Series Fund II, Inc.
Affiliations of the officers and directors of the Investment Adviser are
set forth in Part B, Statement of Additional Information, under "Trustees and
Officers."
Item 29. Principal Underwriters
Not applicable
C-5
<PAGE>
Item 30. Location of Accounts and Records
Physical possession of the books, accounts and records of the Registrant
are held by First Investors Management Company, Inc. and its affiliated
companies, First Investors Corporation and Administrative Data Management Corp.,
at their corporate headquarters, 95 Wall Street, New York, NY 10005 and
administrative offices, 10 Woodbridge Center Drive, Woodbridge, NJ 07095, except
for those maintained by the Registrant's Custodians, The Bank of New York, 48
Wall Street, New York, NY 10286, and Brown Brothers Harriman & Co., 40 Water
Street, Boston, MA 02109.
Item 31. Management Services
Inapplicable
Item 32. Undertakings
The Registrant undertakes to carry out all indemnification provisions of
its Declaration of Trust, Advisory Agreement, Subadvisory Agreement and
Underwriting Agreement in accordance with Investment Company Act Release No.
11330 (September 4, 1980) and successor releases.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant pursuant to the provisions under Item 27 herein, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The Registrant hereby undertakes to furnish a copy of its latest annual
report to shareholders, upon request and without charge, to each person to whom
a prospectus is delivered.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant represents that this Amendment
meets all the requirements for effectiveness pursuant to Rule 485(b) under the
Securities Act of 1933, and has duly caused this Post-Effective Amendment to
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New York, on the
17th day of April, 1995.
FIRST INVESTORS LIFE
SERIES FUND
(Registrant)
By: /s/ Glenn O. Head
---------------------------
Glenn O. Head
President and Trustee
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, this Amendment to this Registration Statement
has been signed below by the following persons in the capacities and on the
dates indicated.
/s/ Glenn O. Head Principal Executive April 17, 1995
- --------------------- Officer and Trustee
Glenn O. Head
/s/ Joseph I. Benedek Principal Financial April 17, 1995
- --------------------- and Accounting Officer
Joseph I. Benedek
/s/ Kathryn S. Head Trustee April 17, 1995
- ---------------------
Kathryn S. Head
/s/ James J. Coy Trustee April 17, 1995
- ---------------------
James J. Coy
/s/ F. William Ortman Trustee April 17, 1995
- ---------------------
F. William Ortman, Jr.
<PAGE>
/s/ Roger L. Grayson Trustee April 17, 1995
- ---------------------
Roger L. Grayson
/s/ Herbert Rubinstein Trustee April 17, 1995
- ----------------------
Herbert Rubinstein
/s/ James M. Srygley Trustee April 17, 1995
- ---------------------
James M. Srygley
/s/ John T. Sullivan Trustee April 17, 1995
- ---------------------
John T. Sullivan
/s/ Rex R. Reed Trustee April 17, 1995
- ---------------------
Rex R. Reed
/s/ Robert F. Wentworth Trustee April 17, 1995
- -----------------------
Robert F. Wentworth
*By: /s/ Larry R. Lavoie
-------------------------
Larry R. Lavoie
Attorney-in-fact
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
23 Consent of Accountants
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
27.4 Financial Data Schedule
27.5 Financial Data Schedule
27.6 Financial Data Schedule
27.7 Financial Data Schedule
27.8 Financial Data Schedule
27.9 Financial Data Schedule
<PAGE>
EXHIBIT 23
Consent of Independent Certified Public Accountants
First Investors Life Series Fund
95 Wall Street
New York, New York 10005
We consent to the use in Post-Effective Amendment No. 16 to the
Registration Statement on Form N-1A (File No. 2-98409) of our report dated
January 31, 1995 relating to the December 31, 1994 financial statements of First
Investors Life Series Fund, which are included in said Registration Statement.
/s/ Tait, Weller & Baker
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
April 11, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> HIGH YIELD
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 33143
<INVESTMENTS-AT-VALUE> 31281
<RECEIVABLES> 721
<ASSETS-OTHER> 372
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 32374
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 89
<TOTAL-LIABILITIES> 89
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32264
<SHARES-COMMON-STOCK> 3051
<SHARES-COMMON-PRIOR> 2741
<ACCUMULATED-NII-CURRENT> 2971
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1089
<ACCUM-APPREC-OR-DEPREC> (1862)
<NET-ASSETS> 32285
<DIVIDEND-INCOME> 60
<INTEREST-INCOME> 3159
<OTHER-INCOME> 31
<EXPENSES-NET> (278)
<NET-INVESTMENT-INCOME> 2971
<REALIZED-GAINS-CURRENT> (107)
<APPREC-INCREASE-CURRENT> (3353)
<NET-CHANGE-FROM-OPS> (488)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1135
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4464
<NUMBER-OF-SHARES-REDEEMED> 2285
<SHARES-REINVESTED> 1135
<NET-CHANGE-IN-ASSETS> 1691
<ACCUMULATED-NII-PRIOR> 1135
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 982
<GROSS-ADVISORY-FEES> 236
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 278
<AVERAGE-NET-ASSETS> 31495
<PER-SHARE-NAV-BEGIN> 11.16
<PER-SHARE-NII> .87
<PER-SHARE-GAIN-APPREC> (1.14)
<PER-SHARE-DIVIDEND> .31
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.58
<EXPENSE-RATIO> .88
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> .0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> DISCOVERY SERIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 32330
<INVESTMENTS-AT-VALUE> 33303
<RECEIVABLES> 110
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 33414
<PAYABLE-FOR-SECURITIES> 2896
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 274
<TOTAL-LIABILITIES> 3170
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27185
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<PAGE>
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<TABLE> <S> <C>
<PAGE>
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<NAME> GROWTH SERIES
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<S> <C>
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<PAGE>
<ARTICLE> 6
<SERIES>
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<NAME> CASH MANAGEMENT SERIES
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<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
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<NAME> INTERNATIONAL SERIES
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<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
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<NAME> GOVERNMENT FUND
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<S> <C>
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<TABLE> <S> <C>
<PAGE>
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<SERIES>
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<NAME> INVESTMENT GRADE SERIES
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<S> <C>
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<ACCUM-APPREC-OR-DEPREC> (869)
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<PAGE>
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<NAME> UTILITIES INCOME SERIES
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<S> <C>
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