As filed with the Securities and Exchange Commission on April 22, 1997.
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. 21 X
-
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 21 X
-
----------
FIRST INVESTORS LIFE SERIES FUND
(Exact name of Registrant as specified in charter)
Ms. Concetta Durso
Secretary and Vice President
First Investors Life Series Fund
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 April 30, 1997 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 filed a
Rule 24f-2 Notice for its fiscal year ending December 31, 1996 on February 27,
1997.
<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....................
6. Capital Stock and Other Securities....... Dividends and Other
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................ Not Applicable
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 ("Life Series
Fund"), an open-end, diversified management investment company. The Fund offers
eleven separate investment series, each of which has different investment
objectives and policies: FIRST INVESTORS LIFE BLUE CHIP FUND ("BLUE CHIP FUND"),
FIRST INVESTORS LIFE CASH MANAGEMENT FUND ("CASH MANAGEMENT FUND"), FIRST
INVESTORS LIFE DISCOVERY FUND ("DISCOVERY FUND"), FIRST INVESTORS LIFE
GOVERNMENT FUND ("GOVERNMENT FUND"), FIRST INVESTORS LIFE GROWTH FUND ("GROWTH
FUND"), FIRST INVESTORS LIFE HIGH YIELD FUND ("HIGH YIELD FUND"), FIRST
INVESTORS LIFE INTERNATIONAL SECURITIES FUND ("INTERNATIONAL SECURITIES FUND"),
FIRST INVESTORS LIFE INVESTMENT GRADE FUND ("INVESTMENT GRADE FUND"), FIRST
INVESTORS LIFE TARGET MATURITY 2007 FUND ("TARGET MATURITY 2007 FUND"), FIRST
INVESTORS LIFE TARGET MATURITY 2010 FUND ("TARGET MATURITY 2010 FUND") and FIRST
INVESTORS LIFE UTILITIES INCOME FUND ("UTILITIES INCOME FUND") (each, a Fund,
and collectively, "Funds"). Each Fund's investment objectives are listed on the
inside cover.
Investments in a Fund are only available 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 Fund designated by purchasers of the Policies or Contracts.
Investments in a Fund are used to fund benefits under the Policies and
Contracts. TARGET MATURITY 2007 FUND and TARGET MATURITY 2010 FUND are only
offered to Contractowners of Separate Account C.
AN INVESTMENT IN LIFE SERIES FUND, INCLUDING CASH MANAGEMENT FUND, IS
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE
THAT THE CASH MANAGEMENT FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE
OF $1.00 PER SHARE. INVESTMENTS BY THE HIGH YIELD FUND 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 Funds
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 Funds. A Statement of Additional
Information ("SAI"), dated April 30, 1997 (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 Funds at the address or telephone
number indicated above.
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.
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.
The date of this Prospectus is April 30, 1997
<PAGE>
The investment objectives of each Fund of Life Series Fund offered by
this Prospectus are as follows:
BLUE CHIP FUND. The investment objective of the Fund 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 "Blue Chip" companies 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.
CASH MANAGEMENT FUND. The objective of the Fund is to seek to earn a
high rate of current income consistent with the preservation of capital and
maintenance of liquidity. The Fund 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 FUND. The investment objective of the Fund 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 FUND. The investment objective of the Fund 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-backed securities).
GROWTH FUND. The investment objective of the Fund 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 FUND. The primary objective of the Fund is to seek to earn a
high level of current income. The Fund actively seeks to achieve its secondary
objective of capital appreciation to the extent consistent with its primary
objective. The Fund 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"). Investments in High Yield Securities
may entail risks that are different or more pronounced than those involved in
higher-rated securities. See "High Yield Securities--Risk Factors."
INTERNATIONAL SECURITIES FUND. The primary objective of the Fund is to
seek long-term capital growth. As a secondary objective, the Fund 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.
2
<PAGE>
INVESTMENT GRADE FUND. The investment objective of the Fund is to seek
a maximum level of income consistent with investment in investment grade debt
securities. The Fund seeks to achieve its objective primarily by investing,
under normal market conditions, in debt securities of U.S. issuers that are
rated in one of the four highest rating categories by Moody's Investors Service,
Inc. or Standard & Poor's Ratings Group or, if unrated, are deemed to be of
comparable quality by the Adviser.
TARGET MATURITY 2007 FUND. The investment objective of the Fund is to
seek a predictable compounded investment return for investors who hold their
Fund shares until the Fund's maturity, consistent with preservation of capital.
The Fund intends to terminate in the year 2007.
TARGET MATURITY 2010 FUND. The investment objective of the Fund is to
seek a predictable compounded investment return for investors who hold their
Fund shares until the Fund's maturity, consistent with preservation of capital.
The Fund intends to terminate in the year 2010.
TARGET MATURITY 2007 FUND and TARGET MATURITY 2010 FUND each 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.
AS A RESULT OF THE VOLATILE NATURE OF THE MARKET FOR ZERO COUPON
SECURITIES, THE VALUE OF SHARES OF TARGET MATURITY 2007 FUND AND TARGET MATURITY
2010 FUND PRIOR TO EACH FUND'S MATURITY MAY FLUCTUATE SIGNIFICANTLY. THUS, TO
ACHIEVE A PREDICTABLE RETURN, INVESTORS SHOULD HOLD THEIR INVESTMENTS IN EITHER
OF THESE TWO FUNDS UNTIL THE FUND LIQUIDATES SINCE THE FUND'S VALUE CHANGES
DAILY WITH MARKET CONDITIONS. ACCORDINGLY, ANY INVESTOR WHO REDEEMS HIS OR HER
SHARES PRIOR TO A FUND'S 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.
UTILITIES INCOME FUND. The primary investment objective of the Fund 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 Fund will achieve its investment
objectives. See "Investment Objectives and Policies" for a detailed description
of each Fund's investment objectives and policies.
3
<PAGE>
Life Series Fund offers shares of each Fund to insurance company
separate accounts that fund Policies and Contracts. Due to differences in tax
treatment or other considerations, the interests of various Contract owners and
Policy owners might at some point be in conflict. Life Series Fund currently
does not foresee any such conflict. If such a conflict were to occur, one or
more Policies or Contracts offered by First Investors Life might be required to
withdraw its investments in one or more Funds. This might force a Fund to sell
securities at disadvantageous prices.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The following table sets forth the per share operating performance data
for a share outstanding, total return, ratios to average net assets and other
supplemental data for each period indicated. 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 Funds.
5
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
-------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
INCOME FROM INVESTMENT OPERATIONS FROM
--------------------------------- ------------------
NET REALIZED
NET ASSET AND
--------- UNREALIZED
VALUE NET GAIN (LOSS) TOTAL FROM NET NET
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAINS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BLUE CHIP
3/8/90* to 12/31/90 . . $ 10.00 $ .07 $ (.02) $ .05 $ -- $ -- $ --
1991 . . . . . . . . . . 10.05 .12 2.50 2.62 .05 -- .05
1992 . . . . . . . . . . 12.62 .16 .67 .83 .21 -- .21
1993 . . . . . . . . . . 13.24 .15 .97 1.12 .15 -- .15
1994 . . . . . . . . . . 14.21 .18 (.39) (.21) .08 .17 .25
1995 . . . . . . . . . 13.75 .26 4.11 4.37 .19 .95 1.14
1996 . . . . . . . . . . 16.98 .22 3.31 3.53 .25 .49 .74
CASH MANAGEMENT **
1988 . . . . . . . . . . 1.00 .048 -- .048 .048 -- .048
1989 . . . . . . . . . . 1.00 .075 -- .075 .075 -- .075
1990 . . . . . . . . . . 1.00 .072 -- .072 .072 -- .072
1991 . . . . . . . . . . 1.00 .054 -- .054 .054 -- .054
1992 . . . . . . . . . . 1.00 .029 -- .029 .029 -- .029
1993 . . . . . . . . . . 1.00 .027 -- .027 .027 -- .027
1994 . . . . . . . . . . 1.00 .037 -- .037 .037 -- .037
1995 . . . . . . . . . . 1.00 .054 -- .054 .054 -- .054
1996 . . . . . . . . . . 1.00 .049 -- .049 .049 -- .049
DISCOVERY
1988 . . . . . . . . . . 10.02 .26 .10 .36 -- -- --
1989 . . . . . . . . . . 10.38 .19 2.19 2.38 .27 .09 .36
1990 . . . . . . . . . . 12.40 .14 (.78) (.64) .15 .90 1.05
1991 . . . . . . . . . . 10.71 .07 5.42 5.49 .18 -- .18
1992 . . . . . . . . . . 16.02 -- 2.51 2.51 .03 .15 .18
1993 . . . . . . . . . . 18.35 -- 3.92 3.92 -- .91 .91
1994 . . . . . . . . . . 21.36 .06 (.62) (.56) -- .94 .94
1995 . . . . . . . . . . 19.86 .11 4.62 4.73 .06 1.26 1.32
1996 . . . . . . . . . . 23.27 .13 2.66 2.79 .11 .89 1.00
</TABLE>
* 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, 1996.
++ The effect of fees and charges incurred at the separate account level are
not reflected in these performance +++ figures. Average commission rate
(per share of security) as required by amended disclosure requirements
effective for
(a) fiscal years beginning on or after September 1, 1995. Annualized
6
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET
ASSETS BEFORE
RATIO TO AVERAGE EXPENSES WAIVED OR
NET ASSETS + ASSUMED
---------------- ------------------
NET ASSET NET ASSETS
VALUE END OF NET NET
--------- TOTAL PERIOD INVESTMENT INVESTMENT PORTFOLIO AVERAGE
END RETURN ** (IN EXPENSES INCOME EXPENSES INCOME TURNOVER COMMISSION
OF PERIOD (%) THOUSANDS) (%) (%) (%) (%) RATE (%) RATE++
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$10.05 .61(a) $ 3,656 -- 2.95(a) 1.92(a) 1.03(a) 15 $ N/A
12.62 26.17 13,142 1.00 1.88 1.55 1.34 21 N/A
13.24 6.67 23,765 .79 1.66 .86 1.60 40 N/A
14.21 8.51 34,030 .88 1.27 N/A N/A 37 N/A
13.75 (1.45) 41,424 .88 1.49 N/A N/A 82 N/A
16.98 34.00 66,900 .86 1.91 N/A N/A 26 N/A
19.77 21.52 100,078 .84 1.39 N/A N/A 45 .0692
1.00 4.94 33 -- 4.99 7.68 (2.69) N/A N/A
1.00 7.79 2,210 -- 7.84 1.35 6.49 N/A N/A
1.00 7.49 8,203 .39 6.90 1.15 6.15 N/A N/A
1.00 5.71 9,719 .57 5.39 .93 5.03 N/A N/A
1.00 3.02 8,341 .79 2.99 .98 2.81 N/A N/A
1.00 2.70 4,243 .60 2.67 1.05 2.22 N/A N/A
1.00 3.77 3,929 .60 3.69 1.04 3.25 N/A N/A
1.00 5.51 4,162 .60 5.36 1.10 4.87 N/A N/A
1.00 5.00 4,297 .60 4.89 1.11 4.38 N/A N/A
10.38 3.59 125 -- 3.80 3.10 .70 158 N/A
12.40 23.62 283 -- 2.43 4.78 (2.35) 231 N/A
10.71 (5.47) 960 -- 2.97 2.68 .28 104 N/A
16.02 51.73 4,661 .70 .48 1.49 (.31) 93 N/A
18.35 15.74 10,527 .91 .02 1.05 (.12) 91 N/A
21.36 22.20 21,221 .87 (.03) N/A N/A 69 N/A
19.86 (2.53) 30,244 .88 .36 N/A N/A 53 N/A
23.27 25.23 50,900 .87 .63 N/A N/A 78 N/A
25.06 12.48 70,899 .85 .63 N/A N/A 98 .0689
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
-------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
INCOME FROM INVESTMENT OPERATIONS FROM
--------------------------------- ------------------
NET REALIZED
NET ASSET AND
--------- UNREALIZED
VALUE NET GAIN (LOSS) TOTAL FROM NET NET
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAINS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
GOVERNMENT
1/7/92* to 12/31/92 . . $10.00 $ .47 $ .51 $ .98 $ .33 $ -- $ .33
1993 . . . . . . . . . . 10.65 .64 .02 .66 .70 .19 .89
1994 . . . . . . . . . . 10.42 .79 (1.21) (.42) .25 .05 .30
1995 . . . . . . . . . 9.70 .66 .78 1.44 .62 -- .62
1996 . . . . . . . . . . 10.52 .68 (.33) .35 .68 -- .68
GROWTH
1988 . . . . . . . . . . 10.02 .26 .51 .77 -- -- --
1989 . . . . . . . . . . 10.79 .02 2.51 2.53 .18 .12 .30
1990 . . . . . . . . . . 13.02 .16 (.55) (.39) .06 -- .06
1991 . . . . . . . . . . 12.57 .17 4.15 4.32 .18 -- .18
1992 . . . . . . . . . . 16.71 .08 1.41 1.49 .18 1.38 1.56
1993 . . . . . . . . . . 16.64 .07 .93 1.00 .09 .10 .19
1994 . . . . . . . . . . 17.45 .09 (.60) (.51) -- .21 .21
1995 . . . . . . . . . . 16.73 .18 3.94 4.12 .09 .29 .38
1996 . . . . . . . . . . 20.47 .18 4.68 4.86 .18 .59 .77
HIGH YIELD
1988 . . . . . . . . . . 10.00 .74 .82 1.56 -- -- --
1989 . . . . . . . . . . 11.56 .74 (.92) (.18) .56 .11 .67
1990 . . . . . . . . . . 10.71 1.08 (1.79) (.71) .83 -- .83
1991 . . . . . . . . . . 9.17 1.16 1.66 2.82 1.18 -- 1.18
1992 . . . . . . . . . . 10.81 1.11 .21 1.32 1.69 -- 1.69
1993 . . . . . . . . . . 10.44 .96 .88 1.84 1.12 -- 1.12
1994 . . . . . . . . . . 11.16 .87 (1.14) (.27) .31 -- .31
1995 . . . . . . . . . . 10.58 1.00 .95 1.95 .96 -- .96
1996 . . . . . . . . . . 10.57 1.02 .35 1.37 1.01 -- 1.01
</TABLE>
* Commencement of operations
+ Some or all expenses have been waived or assumed by the investment adviser
from commencement of operations through
++ December 31, 1996.
+++ The effect of fees and charges incurred at the separate account level are
not reflected in the performance figures.
(a) Average commission rate (per share of security) as required by amended
disclosure requirements effective for fiscal years beginning on or after
September 1, 1995. Annualized
8
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET
ASSETS BEFORE
RATIO TO AVERAGE EXPENSES WAIVED OR
NET ASSETS + ASSUMED
---------------- ------------------
NET ASSET NET ASSETS
VALUE END OF NET NET
--------- TOTAL PERIOD INVESTMENT INVESTMENT PORTFOLIO AVERAGE
END RETURN ** (IN EXPENSES INCOME EXPENSES INCOME TURNOVER COMMISSION
OF PERIOD (%) THOUSANDS) (%) (%) (%) (%) RATE (%) RATE++
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$10.65 9.95(a) $ 5,064 .03(a) 6.64(a) .89(a) 5.79(a) 301 $ N/A
10.42 6.35 8,234 .35 6.60 .84 6.11 525 N/A
9.70 (4.10) 7,878 .35 6.74 .90 6.19 457 N/A
10.52 15.63 9,500 .40 6.79 .93 6.26 198 N/A
10.19 3.59 9,024 .60 6.75 .94 6.41 199 N/A
10.79 7.68 38 -- 3.20 8.70 (5.50) 31 N/A
13.02 24.00 570 -- 2.91 5.21 (2.30) 24 N/A
12.57 (2.99) 2,366 -- 3.03 1.64 1.40 28 N/A
16.71 34.68 7,743 .69 1.21 1.34 .55 148 N/A
16.64 9.78 16,385 .76 .75 1.20 .30 45 N/A
17.45 6.00 25,658 .91 .43 N/A N/A 51 N/A
16.73 (2.87) 32,797 .90 .60 N/A N/A 40 N/A
20.47 25.12 51,171 .88 1.11 N/A N/A 64 N/A
24.56 24.45 78,806 .85 .92 N/A N/A 49 .0485
11.56 15.60 4,565 -- 13.22 1.32 11.90 46 N/A
10.71 (1.76) 14,354 -- 12.05 .88 11.17 22 N/A
9.71 (5.77) 18,331 -- 13.21 .91 12.30 35 N/A
10.81 33.96 23,634 .53 11.95 .89 11.60 40 N/A
10.44 13.15 24,540 .91 10.48 .96 10.43 84 N/A
11.16 18.16 30,593 .91 9.49 N/A N/A 96 N/A
10.58 (1.56) 32,285 .88 9.43 N/A N/A 50 N/A
11.57 19.82 41,894 .87 9.86 N/A N/A 57 N/A
11.93 12.56 49,474 .85 9.43 N/A N/A 34 N/A
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
-------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
INCOME FROM INVESTMENT OPERATIONS FROM
--------------------------------- ------------------
NET REALIZED
NET ASSET AND
--------- UNREALIZED
VALUE NET GAIN (LOSS) TOTAL FROM NET NET
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAINS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INTERNATIONAL SECURITIES
4/16/90* to 12/31/90 . . $10.00 $ .03 $ .34 $ .37 $ -- $ -- $ --
1991 . . . . . . . . . . 10.37 .09 1.49 1.58 .03 .05 .08
1992 . . . . . . . . . . 11.87 .15 (.28) (.13) .15 .22 .37
1993 . . . . . . . . . . 11.37 .10 2.41 2.51 .14 -- .14
1994 . . . . . . . . . . 13.74 .14 (.32) (.18) .05 -- .05
1995 . . . . . . . . . 13.51 .19 2.25 2.44 .12 .25 .37
1996 . . . . . . . . . . 15.58 .18 2.12 2.30 .19 .50 .69
INVESTMENT GRADE
1/7/92* to 12/31/92 . . 10.00 .43 .44 .87 .34 -- .34
1993 . . . . . . . . . . 10.53 .65 .49 1.14 .71 .01 .72
1994 . . . . . . . . . . 10.95 .67 (1.06) (.39) .16 .09 .25
1995 . . . . . . . . . . 10.31 .67 1.28 1.95 .53 -- .53
1996 . . . . . . . . . . 11.73 .72 (.42) .30 .67 -- .67
TARGET MATURITY 2007
4/26/95* to 12/31/95 . . 10.00 .26 2.00 2.26 -- -- --
1996 . . . . . . . . . . 12.26 .56 (.83) (.27) .23 .05 .28
TARGET MATURITY 2010
4/30/96* to 12/31/96 . . 10.00 .26 .90 1.16 -- -- --
UTILITIES INCOME
11/15/93* to 12/31/93 . 10.00 .01 (.07) (.06) -- -- --
1994 . . . . . . . . . . 9.94 .24 (.96) (.72) .03 -- .03
1995 . . . . . . . . . . 9.19 .28 2.46 2.74 .19 -- .19
1996 . . . . . . . . . . 11.74 .32 .78 1.10 .27 -- .27
</TABLE>
* Commencement of operations
+ Some or all expenses have been waived or assumed by the investment adviser
from commencement of operations through
++ December 31, 1996.
+++ The effect of fees and charges incurred at the separate account level are
not reflected in the performance figures.
(a) Average commission rate (per share of security) as required by amended
disclosure requirements effective for fiscal years beginning on or after
September 1, 1995. Annualized
10
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET
ASSETS BEFORE
RATIO TO AVERAGE EXPENSES WAIVED OR
NET ASSETS + ASSUMED
---------------- ------------------
NET ASSET NET ASSETS
VALUE END OF NET NET
--------- TOTAL PERIOD INVESTMENT INVESTMENT PORTFOLIO AVERAGE
END RETURN ** (IN EXPENSES INCOME EXPENSES INCOME TURNOVER COMMISSION
OF PERIOD (%) THOUSANDS) (%) (%) (%) (%) RATE (%) RATE++
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$10.37 5.21(a) $ 3,946 -- .99(a) 3.43(a) (2.43)(a) 29 $ N/A
11.87 15.24 8,653 1.70 .75 2.27 .18 70 N/A
11.37 (1.13) 12,246 1.03 1.55 1.38 1.20 36 N/A
13.74 22.17 21,009 1.14 .97 N/A N/A 37 N/A
13.51 (1.29) 31,308 1.03 1.22 N/A N/A 36 N/A
15.58 18.70 41,012 1.02 1.42 N/A N/A 45 N/A
17.19 15.23 57,955 1.12 1.25 N/A N/A 67 .0093
10.53 8.91(a) 4,707 .23(a) 6.16(a) .93(a) 5.46(a) 72 N/A
10.95 10.93 10,210 .35 6.32 .85 5.82 64 N/A
10.31 (3.53) 11,602 .37 6.61 .92 6.06 15 N/A
11.73 19.69 16,262 .51 6.80 .91 6.40 26 N/A
11.36 2.84 16,390 .60 6.47 .88 6.19 19 N/A
12.26 22.60 9,860 .04(a) 6.25(a) .87(a) 5.42(a) 28 N/A
11.71 (2.16) 14,647 .60 6.05 .82 5.83 13 N/A
11.16 11.60 2,195 .60(a) 6.05(a) .98(a) 5.67(a) 0 N/A
9.94 (4.66)(a) 494 -- 1.46(a) 3.99(a) (2.52)(a) 0 N/A
9.19 (7.24) 4,720 .17 4.13 .95 3.35 31 N/A
11.74 30.26 14,698 .41 4.23 .91 3.73 17 N/A
12.57 9.57 24,108 .60 3.48 .86 3.22 45 .0707
</TABLE>
11
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
BLUE CHIP FUND
BLUE CHIP FUND seeks to provide investors with high total investment return
consistent with the preservation of capital. The Fund seeks to achieve its
objective by investing, under normal market conditions, at least 65% of its
total assets in equity 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 Fund 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 Fund's objective, the Fund may invest up to 25% of its
total assets in fixed income securities.
The Fund defines Blue Chip companies as those companies that are included
in the S&P 500. S&P 500 companies tend to be the companies with larger
capitalizations and histories of payment of dividends. 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
Microsoft Corp., General Electric Co., Pepsico Inc. and Bristol-Myers Squibb Co.
The fixed income securities in which the Fund 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 or interest by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations") (including mortgage-backed
securities) and corporate debt securities. However, no more than 5% of the
Fund's 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 Fund may borrow money for temporary or emergency
purposes in amounts not exceeding 5% of its total assets. The Fund may also
invest up to 10% of its net assets in American Depository Receipts ("ADRs"),
enter into repurchase agreements and make loans of portfolio securities. See
"Description of Certain Securities, Other Investment Policies and Risk Factors,"
below, and the SAI for additional information concerning these securities.
CASH MANAGEMENT FUND
CASH MANAGEMENT FUND seeks to earn a high rate of current income
consistent with the preservation of capital and maintenance of liquidity. The
Fund generally can invest only in securities that mature within 397 days from
the date of purchase. In addition, the Fund maintains a dollar-weighted average
portfolio maturity of 90 days or less.
12
<PAGE>
CASH MANAGEMENT FUND 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 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 Fund 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 Fund 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 Fund also may invest in certificates of deposit
issued by London branches of domestic or foreign banks ("Eurodollar CDs"). The
Fund 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 Fund
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. Repurchase agreements maturing in over
7 days are deemed illiquid securities, and can constitute no more than 10% of
the Fund's net assets.
CASH MANAGEMENT FUND 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 Fund, 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
Fund may borrow money for temporary or emergency purposes in amounts not
exceeding 5% of its total assets and make loans of portfolio securities. When
market conditions warrant, the Fund may purchase short-term, high quality fixed
and variable rate instruments issued by state and municipal governments and by
public authorities ("Municipal Instruments"). See "Description of Certain
Securities, Other Investment Policies and Risk Factors" for additional
information concerning these securities.
CASH MANAGEMENT FUND may purchase only obligations that (1) the Adviser
determines present minimal credit risks based on procedures adopted by Life
Series Fund's Board of Trustees, and (2) are either (a) rated in one of the top
two rating categories by any 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, or unrated securities that the Adviser determines are of
comparable quality. The Fund's purchases of commercial paper are limited to
First Tier Securities. The Fund 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
13
<PAGE>
Securities of any one issuer are limited to the greater of 1% of the Fund's
total assets or $1 million. The Fund 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).
DISCOVERY FUND
DISCOVERY FUND seeks long-term capital appreciation, without regard to
dividend or interest income. The Fund 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 Fund 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 Adviser currently
considers to be market capitalization of up to $1.5 billion, but which could be
higher under certain market conditions. 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 Fund 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.
14
<PAGE>
The Fund may invest up to 15% 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 Fund invests are primarily denominated
in foreign currencies, the Fund 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."
The Fund may borrow money for temporary or emergency purposes in amounts
not exceeding 5% of its total assets. The Fund also may enter into repurchase
agreements and may make loans of portfolio securities. For temporary defensive
purposes, the Fund 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 FUND
GOVERNMENT FUND 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-backed securities). The Fund has no fixed policy
with respect to the duration of U.S. Government Obligations it purchases.
Securities issued or guaranteed as to principal and interest (but not market
value) 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 Fund are not insured or guaranteed by the U.S. Government or any agency or
instrumentality. The net asset value of shares of the Fund 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 Fund may invest in mortgage-backed 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 Fund 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 Fund normally reinvests principal payments
(whether regular or pre-paid) in additional mortgage-backed securities. See
"Mortgage-Backed Securities," below.
15
<PAGE>
The Fund may invest up to 35% of its assets in securities other than U.S.
Government Obligations and mortgage-backed 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 Fund also may make loans of portfolio
securities and invest in zero coupon securities. The Fund 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 Fund 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.
GROWTH FUND
The investment objective of GROWTH FUND is long-term capital appreciation.
Current income through the receipt of interest or dividends from investments
will merely be incidental to the Fund's efforts in pursuing its goal. It is the
policy of the Fund to invest, under normal market conditions, primarily in
common stocks and it is anticipated that the Fund 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 Fund's total assets (excluding
securities held for defensive purposes) shall be invested in securities of
companies in industries in which the Adviser, or the Fund's investment
subadviser, Wellington Management Company, LLP ("Subadviser" or "WMC"), believes
opportunities for capital growth exist. The Fund 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 Fund may invest up to 5% of
its total assets in common stocks issued by foreign companies that are
denominated in U.S. currency; provided, however, that the Fund may invest
without limit in U.S. dollar denominated foreign securities listed on the New
York Stock Exchange ("NYSE"). The Fund may also invest in ADRs and Global
Depository Receipts ("GDRs"), purchase securities on a when-issued or delayed
delivery basis and make loans of portfolio securities. The Fund may borrow money
for temporary or emergency purposes in amounts not exceeding 5% of its total
assets. For temporary defensive purposes, the Fund 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 FUND
HIGH YIELD FUND primarily seeks high current income and secondarily seeks
growth of capital. The Fund actively seeks to achieve its secondary objective to
the extent consistent with its primary objective. The Fund 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
16
<PAGE>
reorganization ("Deep Discount Securities"); and any securities convertible into
any of the foregoing. See "High Yield Securities--Risk Factors" and "Deep
Discount Securities."
The Fund may invest up to 5% of its total assets in debt securities issued
by foreign governments and companies located outside the United States and
denominated in U.S. or foreign currency. The Fund 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 Fund may also invest in securities
on a "when issued" or delayed delivery basis. See "Description of Certain
Securities, Other Investment Policies and Risk Factors," below, and the SAI for
more information concerning these securities.
The Fund 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. The
Adviser continually monitors the investments in the Fund's portfolio and
carefully calculates on a case-by-case basis whether to dispose of or retain a
debt obligation that has been downgraded.
In any period of market weakness or of uncertain market or economic
conditions, the Fund 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 "Description of Certain Securities,
Other Investment Policies and Risk Factors," below.
The medium- to lower-rated, and certain of the unrated securities in which
the Fund 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 Fund's net asset value.
When interest rates rise, the net asset value of the Fund tends to decrease.
When interest rates decline, the net asset value of the Fund tends to increase.
Variable or floating rate debt obligations in which the Fund 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.
17
<PAGE>
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 Fund 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 Fund's investment
objectives depends more on the Adviser's research abilities than would be the
case if the Fund 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 (based on ratings by
Moody's) of all bonds held by the Fund during the 1996 fiscal year, computed on
a monthly basis, is set forth below. This information reflects the average
composition of the Fund's assets during the 1996 fiscal year and is not
necessarily representative of the Fund as of the end of its 1996 fiscal year,
the current fiscal year or at any other time in the future.
COMPARABLE QUALITY OF
UNRATED SECURITIES TO
RATED BY MOODY'S BONDS RATED BY MOODY'S
Ba 9.94% 0.0%
B 73.88 0.16
Caa 0.46 1.96
------- ------
Total 84.28% 2.12%
INTERNATIONAL SECURITIES FUND
INTERNATIONAL SECURITIES FUND primarily seeks long-term capital growth and
secondarily seeks to earn a reasonable level of current income. The Fund may
invest in all types of securities issued by companies and government
instrumentalities of any nation approved by the Board, subject only to industry
concentration and issuer diversification restrictions described below and in the
SAI. This investment flexibility permits the Fund 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 Fund 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 Fund presently does not intend to invest more than 35% of its
total assets in any one
18
<PAGE>
particular country. Further, except for temporary defensive purposes, the Fund's
assets will be invested in securities of at least three different countries
outside the United States. See "Foreign Securities--Risk Factors". For defensive
purposes, the Fund 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.
The Fund may purchase securities traded on any foreign stock exchange. The
Fund may also purchase ADRs and GDRs. See "American Depository Receipts and
Global Depository Receipts," below. The Fund 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 Fund may invest in warrants, which may or may not be listed on a
recognized United States or foreign exchange. The Fund also may enter into
repurchase agreements, purchase securities on a when-issued or delayed delivery
basis and make loans of portfolio securities. The Fund also may borrow money for
temporary or emergency purposes in amounts not exceeding 5% of its total assets.
In addition, the Fund can engage in hedging and options strategies. See the SAI
for further information concerning these securities.
INVESTMENT GRADE FUND
INVESTMENT GRADE FUND seeks to generate a maximum level of income
consistent with investment in investment grade debt securities. The Fund 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 securities that
are deemed to be of comparable quality by the Adviser ("investment grade
securities"). The Fund may invest up to 35% of its total assets in U.S.
Government Obligations (including mortgage-backed 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 Fund 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 Fund may also borrow money for
temporary or emergency purposes in amounts not exceeding 5% of its total assets.
The Fund 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 Fund's 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 Fund's 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 Fund's net assets may be invested in debt
securities rated lower than Baa by Moody's or BBB by S&P (including
19
<PAGE>
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 Fund's 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 Fund may invest all of its assets in
money market instruments, short-term fixed income securities or U.S. Government
Obligations. See "Description of Certain Securities, Other Investment Policies
and Risk Factors," below, and the SAI.
TARGET MATURITY 2007 FUND
TARGET MATURITY 2010 FUND
TARGET MATURITY 2007 FUND seeks to provide a predictable compounded
investment return for investors who hold their Fund shares until the Fund's
maturity, consistent with preservation of capital.
TARGET MATURITY 2010 FUND seeks to provide a predictable compounded
investment return for investors who hold their Fund shares until the Fund's
maturity consistent with the preservation of capital.
Each Fund 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. With respect to TARGET MATURITY 2007 FUND, these
investments will mature no later than December 31, 2007 and, with respect to
TARGET MATURITY 2010 FUND, these investments will mature no later than December
31, 2010. December 31, 2007 and December 31, 2010 are herein collectively
referred to as the "Maturity Date." On the Maturity Date, each Fund will be
converted to cash and distributed or reinvested in another Fund of Life Series
Fund at the investor's choice.
Each Fund 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 a Fund 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 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. This
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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, the entire return of a zero coupon security,
which consists of the accretion of the discount, comes from the difference
between its issue price and its 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.
Each Fund primarily will purchase three types of zero coupon securities:
(1) U.S. Treasury STRIPS (Separately Traded 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.
Each Fund 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"), including,
for TARGET MATURITY 2007 FUND, zero coupon securities maturing beyond 2007, and,
for TARGET MATURITY 2010 FUND, zero coupon securities maturing beyond 2010;
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. Each Fund 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 repay principal and make interest payments. See Appendix A
for a description of corporate bond ratings. Each Fund may also invest in
restricted and illiquid securities, make loans of portfolio securities and
purchase securities on a when-issued basis. See the SAI for more information
regarding these types of investments.
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UTILITIES INCOME FUND
The primary investment objective of UTILITIES INCOME FUND is to seek high
current income. Long-term capital appreciation is a secondary objective. The
Fund 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 Fund 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 Fund 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 Fund's 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 Fund and its shareholders. See Appendix A for a description of corporate
bond ratings. The portion of the Fund's 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 Fund invests 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" means 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 Fund 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 Fund 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 Fund 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 (including
mortgage-backed securities); cash; and money market instruments consisting of
prime commercial paper, bankers' acceptances, certificates of deposit and
repurchase agreements. The Fund may invest in securities on a "when-issued" or
delayed delivery basis and make loans of portfolio securities. The Fund may
invest up to 10% of its net assets in ADRs. The Fund may borrow money for
temporary or emergency purposes in amounts not exceeding 5% of its net assets.
The Fund 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 Fund may establish a temporary defensive position to preserve capital
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by having all of its assets invested in short-term fixed income securities or
retained in cash or cash equivalents. See the SAI for a description of these
securities.
GENERAL. Each Fund's net asset value fluctuates based mainly upon changes
in the value of its portfolio securities. Each Fund's 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 Fund will achieve its investment objectives.
DESCRIPTION OF CERTAIN SECURITIES, OTHER INVESTMENT POLICIES AND RISK FACTORS
AMERICAN DEPOSITORY RECEIPTS AND GLOBAL DEPOSITORY RECEIPTS. BLUE CHIP
FUND, INTERNATIONAL SECURITIES FUND, GROWTH FUND, UTILITIES INCOME FUND and
DISCOVERY FUND 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 FUND and
GROWTH FUND may also invest in sponsored and unsponsored 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 each of the above Funds, as appropriate.
BANKERS' ACCEPTANCES. Each Fund 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 Fund 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
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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.
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. Credit risk is
the risk that adverse changes in economic conditions can affect an issuer's
ability to pay principal and interest. 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 FUND 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 Fund
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 attempt to 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."
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EURODOLLAR CERTIFICATES OF DEPOSIT. CASH MANAGEMENT FUND 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.
FOREIGN SECURITIES--RISK FACTORS. INTERNATIONAL SECURITIES FUND, HIGH
YIELD FUND and DISCOVERY FUND 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 a Fund may
buy foreign currency outright to purchase securities denominated in that foreign
currency at a future date. Investing in foreign securities involves more risk
than investing in securities of U.S. companies. Because none of these Funds
intend to hedge their foreign investments, the Fund 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. GROWTH FUND may invest in securities issued by foreign
companies that are denominated in U.S. currency. 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 a Fund held in foreign
countries.
INTERNATIONAL SECURITIES FUND'S and DISCOVERY FUND'S investments in
emerging markets include investments in countries whose economies or securities
markets are not yet highly developed. Special considerations associated with
these emerging market 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 Fund's net asset
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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 Fund's net
asset value. Further, if the issuer of a security owned by a Fund defaults, that
Fund 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 Fund would
have to replace the security, which could result in a decreased return for
shareholders. Conversely, if a Fund 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 Fund expenses could be allocated and in a reduced rate of return for that
Fund. While it is impossible to protect entirely against this risk,
diversification of a Fund's 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 Fund's portfolio.
THE HIGH YIELD SECURITIES MARKET. The market for below investment
grade bonds expanded rapidly in recent years and its growth paralleled a long
economic expansion. In the past, the prices of many lower-rated debt securities
declined substantially, reflecting an expectation that many issuers of such
securities might experience financial difficulties. As a result, the yields on
lower-rated debt securities rose dramatically. However, such higher yields did
not reflect the value of the income streams that holders of such securities
expected, but rather the risk that holders of such securities could lose a
substantial portion of their value as a result of the issuers' financial
restructuring or default. 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 FUND may invest in
securities rated as low as 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 are in great danger of defaulting and are considered to be
highly speculative. See "Deep Discount Securities." The Adviser continually
monitors
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the investments in a Fund's 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 Fund's holdings and more difficulty in executing
trades at favorable prices during unsettled market conditions.
The ability of a Fund 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 reliable objective information
available and thus the responsibility of Life Series 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-BACKED 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-backed 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-backed 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.
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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 FUND 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 FUND, TARGET MATURITY
2007 FUND and TARGET MATURITY 2010 FUND 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 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 Fund 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-BACKED SECURITIES. Investments in mortgage-backed
securities entail both market and prepayment risk. Fixed-rate mortgage-backed
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-backed 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-backed
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-backed securities. CMOs and SMBS involve similar risks,
although they may be more volatile and even less liquid.
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.
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REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which a
Fund purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank or dealer at an
agreed-upon date and price reflecting a market rate of interest unrelated to the
coupon rate or maturity of the purchased securities. Each Fund's risk is limited
primarily to the ability of the seller to repurchase the securities at the
agreed-upon price upon the delivery date. See the SAI for more information
regarding repurchase agreements.
RESTRICTED AND ILLIQUID SECURITIES. Each Fund, other than CASH MANAGEMENT
FUND, may invest up to 15% of its net assets in illiquid securities. CASH
MANAGEMENT FUND 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, which Life Series Fund's Board of
Trustees or the Adviser or the Subadviser, as applicable, has determined are
liquid under Board-approved guidelines. See the SAI for more information
regarding restricted and illiquid securities.
Under current guidelines of the staff of the SEC, interest-only and
principal-only classes of fixed-rate mortgage-backed 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 Life Series Fund's Board of Trustees.
GOVERNMENT FUND, TARGET MATURITY 2007 FUND and TARGET MATURITY 2010 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 these Fund's net asset value.
TIME DEPOSITS. CASH MANAGEMENT FUND 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 Fund 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 or 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
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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 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 FUND, to realize any value
from the assets of the company upon liquidation or bankruptcy.
VARIABLE RATE AND FLOATING RATE NOTES. CASH MANAGEMENT FUND may invest in
derivative 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 Fund, 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.
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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 Fund's 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 Fund 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 Fund's cash assets
or, if necessary, from the proceeds of sales of portfolio securities. A Fund
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 FUND and TARGET MATURITY 2010 FUND may
fluctuate over a greater range than shares of the other Funds or mutual funds
that invest in debt obligations having similar maturities but that make current
distributions of interest.
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 both the TARGET MATURITY 2007 FUND and TARGET MATURITY 2010 FUND is to seek a
predictable compounded investment return for investors who hold their Fund
shares until that Fund's maturity, a Fund 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 to 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 a Fund 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 Life Series
Fund's Board of Trustees. In accordance with such guidelines, the Adviser will
monitor each Fund's investments in such securities with particular regard to
trading activity, availability of reliable price information and other relevant
information.
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OTHER INVESTMENT POLICIES -- PORTFOLIO TURNOVER
The increase in interest rates during 1996 caused the GOVERNMENT FUND'S
portfolio to be restructured during the year. In particular, increasing rates
decreased prepayments on mortgage-backed securities, causing their durations to
increase. In order to offset the increase in duration, the GOVERNMENT FUND
adjusted its holdings in mortgage-backed securities. This resulted in a
portfolio turnover rate for the fiscal year ended December 31, 1996 of 199%. 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 2010 FUND currently does
not expect its annual rate of portfolio turnover to exceed 100%. See the SAI for
the other Funds' portfolio turnover rate and for more information on portfolio
turnover.
HOW TO BUY SHARES
Investments in a Fund are only available 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 Fund designated by purchasers of the Policies
or Contracts. Orders for the purchase of Fund shares received prior to the close
of regular trading on the 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." For a discussion of pricing when FIC's Woodbridge offices are unable to
open for business due to an emergency, see the SAI.
HOW TO REDEEM SHARES
Shares of a Fund 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 Fund 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, Life Series 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 Fund is not reasonably practicable.
MANAGEMENT
BOARD OF TRUSTEES. Life Series Fund's Board of Trustees, as part of its
overall management responsibility, oversees various organizations responsible
for each Fund's day-to-day management.
ADVISER. First Investors Management Company, Inc. supervises and manages
each Fund's investments, supervises all aspects of each Fund's operations and,
except for INTERNATIONAL SECURITIES FUND and GROWTH Fund, determines each Fund's
portfolio transactions. The Adviser is a New York corporation located at 95 Wall
Street, New York, NY 10005. First
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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 controls FICC and, therefore, controls
the Adviser.
As compensation for its services, the Adviser receives an annual fee from
each Fund, which is payable monthly. For the fiscal year ended December 31,
1996, the advisory fees were 0.75% of average daily net assets for each of BLUE
CHIP FUND, DISCOVERY FUND, GROWTH FUND, HIGH YIELD FUND and INTERNATIONAL
SECURITIES FUND, 0.60% of average daily net assets, net of waiver, for each of
CASH MANAGEMENT FUND, GOVERNMENT FUND, INVESTMENT GRADE FUND, TARGET MATURITY
2007 FUND and UTILITIES INCOME FUND and 0.40% of average daily net assets for
TARGET MATURITY 2010 FUND.
SUBADVISER. Wellington Management Company, LLP has been retained by the
Adviser and Life Series Fund, on behalf of INTERNATIONAL SECURITIES FUND and
GROWTH FUND, as each of those Fund's investment subadviser. The Adviser has
delegated discretionary trading authority to WMC with respect to all the assets
of INTERNATIONAL SECURITIES FUND and GROWTH FUND, 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
Fund, a fee which is computed daily and paid monthly.
WMC, located at 75 State Street, Boston, MA 02109, is a Massachusetts
limited liability partnership of which Robert W. Doran, Duncan M. McFarland and
John R. Ryan 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, 1996, WMC held investment management authority
with respect to approximately $133 billion of assets. Of that amount, WMC acted
as investment adviser or subadviser to approximately 84 registered investment
companies or series of such companies, with net assets of approximately $90
billion as of December 31, 1996. WMC is not affiliated with the Adviser or any
of its affiliates.
For the fiscal year ended December 31, 1996, the Subadviser's fees
amounted to 0.31% of GROWTH FUND's average daily net assets and 0.40% of
INTERNATIONAL SECURITIES FUND's average daily net assets, all of which was paid
by the Adviser and not by the Funds.
PORTFOLIO MANAGERS. Patricia D. Poitra, Director of Equities, has been
primarily responsible for the day-to-day management of the DISCOVERY FUND since
1988. Since February 1997, the BLUE CHIP FUND has been co-managed by Ms. Poitra
and Dennis T. Fitzpatrick. From October 1994 to February 1997, Ms. Poitra had
primary responsibility for the day-to-day management of the BLUE CHIP FUND. Ms.
Poitra and Mr. Fitzpatrick also co-manage the Blue Chip Fund of Executive
Investors Trust and the Blue Chip Fund of First Investors Series Fund. Ms.
Poitra also is responsible for the management of the Special Situations Fund and
the equity portion of the Total Return Fund, series of First Investors Series
Fund, and the U.S.A. Mid-Cap Opportunity Fund of First Investors Series Fund II,
Inc. Ms. Poitra joined FIMCO in 1985 as a Senior Equity Analyst. Mr. Fitzpatrick
joined FIMCO in October 1995 as a Large Cap Analyst. From July 1995 to October
1995, Mr. Fitzpatrick was a Regional Surety Manager at United States Fidelity &
Guaranty Co. and from 1988 to 1995 he was Northeast Surety Manager at American
International Group.
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George V. Ganter has been Portfolio Manager for HIGH YIELD FUND since
1989. Mr. Ganter joined FIMCO in 1985 as a Senior Analyst. He has been Portfolio
Manager for First Investors Special Bond Fund, Inc. since 1986 and Portfolio
Manager for First Investors High Yield Fund, Inc. and Executive Investors High
Yield Fund since 1989.
Margaret R. Haggerty is Portfolio Manager for UTILITIES INCOME FUND. 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 became Portfolio
Manager for First Investors Utilities Income Fund of First Investors Series Fund
II, Inc.
Nancy Jones has been Portfolio Manager for INVESTMENT GRADE FUND since its
inception in 1992. 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
Fund of First Investors Series Fund since its inception in 1991 and has managed
the fixed income corporate securities portion of Total Return Fund of First
Investors Series Fund since 1992.
Since August 1995, WMC's Growth Investment Team, a group of equity
portfolio managers and senior investment professionals, has assumed
responsibility for managing the GROWTH FUND.
Since October 1995, Clark D. Wagner has been primarily responsible for the
day-to-day management of the GOVERNMENT FUND and the TARGET MATURITY 2007 FUND.
Mr. Wagner has also been primarily responsible for the day-to-day management of
TARGET MATURITY 2010 FUND since its inception in 1996. Since he joined FIMCO in
1991, Mr. Wagner has been Portfolio Manager for all of the First Investors
municipal bond funds. Mr. Wagner also is responsible for the day-to-day
management of First Investors Government Fund, Inc. Mr. Wagner has been Chief
Investment Officer of FIMCO since 1992.
Since April 1, 1994, INTERNATIONAL SECURITIES FUND has been 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 Fund 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 Life Series Fund's
Board of Trustees deems necessary by dividing the value of the securities held
by a Fund, plus any cash and other assets, less all liabilities, by the number
of 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
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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 FUND, 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
Dividends from net investment income are generally declared and paid
annually by each Fund, other than CASH MANAGEMENT FUND. Dividends from net
investment income are generally declared daily and paid monthly by CASH
MANAGEMENT FUND. For the purposes of determining dividends, the net investment
income of each Fund, other than CASH MANAGEMENT FUND, consists of interest and
dividends, earned discount and other income earned on portfolio securities less
expenses. Net investment income of CASH MANAGEMENT FUND consists of (i) accrued
interest, plus or minus (ii) all realized and unrealized gains and losses on the
Fund's securities, less (iii) accrued expenses. Dividends from net investment
income are generally declared and paid Distributions of a Fund's 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 Fund, other than CASH MANAGEMENT FUND, which
does not anticipate realizing any such gain. INTERNATIONAL SECURITIES FUND and
HIGH YIELD FUND 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 Fund 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 Fund 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
FUND and HIGH YIELD FUND, net gains from certain foreign currency transactions)
and net capital gain that is distributed to its shareholders.
Shares of the Funds 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 Fund intends to continue 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 Funds by the Investment Company Act of 1940, as
amended, and Subchapter M of the Code, place certain limitations on the assets
of Separate Accounts B and C -- and of a Fund, because section 817(h) and those
regulations treat the assets of a Fund as assets of Separate Accounts B 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
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more than 55% of a Fund's 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 Fund 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 Fund and its shareholders; see the
SAI for a more detailed discussion. Shareholders are urged to consult their tax
advisers.
GENERAL INFORMATION
ORGANIZATION. Life Series Fund is a Massachusetts business trust organized
on June 12, 1985. The Board of Trustees of Life Series Fund has authority to
issue an unlimited number of shares of beneficial interest of separate series,
no par value, of Life Series Fund. The shares of beneficial interest of Life
Series Fund are presently divided into eleven separate and distinct series. Life
Series Fund does not hold annual shareholder meetings. If requested to do so by
the holders of at least 10% of Life Series 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 Fund, except the INTERNATIONAL
SECURITIES FUND. Brown Brothers Harriman & Co., 40 Water Street, Boston, MA
02109, is custodian of the securities and cash of the INTERNATIONAL SECURITIES
FUND and employs foreign sub-custodians to provide custody of the Fund's foreign
assets.
TRANSFER AGENT. Administrative Data Management Corp., 581 Main Street,
Woodbridge, NJ 07095-1198, an affiliate of FIMCO and FIC, acts as transfer agent
for each Fund and as redemption agent for regular redemptions.
PERFORMANCE. Performance information is contained in Life Series 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 Life Series Fund's
practice to mail only one copy of its annual and semi-annual reports to any
address at which more than one shareholder with the same last name has indicated
that mail is to be delivered. Additional copies of the reports will be mailed if
requested in writing or by telephone by any shareholder.
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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.
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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.
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.
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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, 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.
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TABLE OF CONTENTS
Financial Highlights...................................................... 4
Investment Objectives and Policies........................................ 11
How to Buy Shares......................................................... 31
How to Redeem Shares...................................................... 31
Management................................................................ 31
Determination of Net Asset Value.......................................... 33
Dividends and Other Distributions......................................... 34
Taxes..................................................................... 34
General Information....................................................... 35
Appendix A................................................................ 36
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, LLP 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.
581 Main Street LEGAL COUNSEL
Woodbridge, NJ 07095-1198 Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036
This Prospectus is intended to constitute an offer by Life Series Fund only of
the securities of which it is the issuer and is not intended to constitute an
offer by any Fund of the securities of any other Fund whose securities are also
offered by this Prospectus. No Fund intends to make any representation as to the
accuracy or completeness of the disclosure in this Prospectus relating to any
other Fund. 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 Life Series Fund, First Investors Corporation, 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 Fund
Cash Management Fund
Discovery Fund
Government Fund
Growth Fund
High Yield Fund
International Securities Fund
Investment Grade Fund
Target Maturity 2007 Fund
Target Maturity 2010 Fund
Utilities Income Fund
Prospectus
- ----------------------------
April 30, 1997
First Investors Logo
Logo is described as follows: the arabic numeral one separated into seven
vertical segments followed by the words "First Investors."
Verticle 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. 7379" in a box to the right of
a circle containing the words "MAILED FROM ZIP CODE 11201" 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
LIFE325
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FIRST INVESTORS LIFE SERIES FUND
95 WALL STREET (212) 858-8200
NEW YORK, NEW YORK 10005
STATEMENT OF ADDITIONAL INFORMATION
DATED APRIL 30, 1997
This is a Statement of Additional Information for First Investors Life
Series Fund ("Life Series Fund") an open-end, diversified management investment
company consisting of eleven separate investment portfolios (each, a "Fund," and
collectively, the "Funds"). The objectives of each of the Funds is set forth in
the Prospectus. There can be no assurance that any Fund will achieve its
investment objective. Investments in the Funds 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
Fund designated by purchasers of the Policies or Contracts. TARGET MATURITY 2007
FUND and TARGET MATURITY 2010 FUND are only offered to Contractowners of
Separate Account C.
This Statement of Additional Information is not a prospectus. It should
be read in connection with Life Series Fund's Prospectus dated April 30, 1997,
which may be obtained free of cost from the Funds at the address or telephone
number noted above.
TABLE OF CONTENTS
Page
Investment Policies................................................... 2
Hedging and Option Income Strategies.................................. 7
Investment Restrictions............................................... 17
Trustees and Officers................................................. 19
Management............................................................ 21
Determination of Net Asset Value...................................... 24
Allocation of Portfolio Brokerage..................................... 25
Emergency Pricing Procedures ......................................... 26
Taxes................................................................. 27
General Information................................................... 29
Appendix A............................................................ 30
Appendix B............................................................ 31
Financial Statements.................................................. 32
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INVESTMENT POLICIES
CERTIFICATES OF ACCRUAL ON U.S. TREASURY SECURITIES. GOVERNMENT FUND
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.
CONVERTIBLE SECURITIES. Each Fund, other than CASH MANAGEMENT FUND,
TARGET MATURITY 2007 FUND and TARGET MATURITY 2010 FUND, 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 Funds investment adviser, First
Investors Management Company, Inc. ("Adviser" or "FIMCO"), or, for GROWTH FUND
and INTERNATIONAL SECURITIES FUND, their subadviser, Wellington Management
Company, LLP ("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.
FOREIGN GOVERNMENT OBLIGATIONS. HIGH YIELD FUND may invest in foreign
government obligations, which generally consist of obligations supported by
national, state or provincial governments or similar political subdivisions.
Investments in foreign government debt obligations involve special risks. The
issuer of the debt may be unable or unwilling to pay interest or repay principal
when due in accordance with the terms of such debt, and the Fund may have
limited legal resources in the event of default. Political conditions,
especially a sovereign entity's willingness to meet the terms of its debt
obligations, are of considerable significance.
LOANS OF PORTFOLIO SECURITIES. Each Fund may loan securities to
qualified broker dealers or other institutional investors provided: the borrower
pledges to a Fund and agrees to maintain at all times with that Fund 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 Fund; a Fund
pays only reasonable custodian fees in connection with the loan; and the Adviser
or the Subadviser monitors the creditworthiness of the borrower throughout the
life of the loan. Such loans may be terminated by a Fund at any time and a Fund
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 Fund. The
borrower must add to the collateral whenever the market value of the securities
rises above the level of such collateral. A Fund 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 Fund may make loans, together
with illiquid securities, not in excess of 10% of its total assets.
MORTGAGE-BACKED SECURITIES. BLUE CHIP FUND, GOVERNMENT FUND, HIGH YIELD
FUND, INVESTMENT GRADE FUND and UTILITIES INCOME FUND 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
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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 Fund), 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 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 a Fund, and a Fund 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 Fund 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
Fund normally will not distribute principal payments (whether regular or
prepaid) to its shareholders. Rather, it will invest such payments in additional
mortgage-backed securities of the types described above. Interest received by
the Fund 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
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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 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 FUND 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 Fund and the entity
in whose name the security is issued, rather than possession by the Fund. The
Fund will purchase participation interests only in securities otherwise
permitted to be purchased by the Fund, 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 Fund in the underlying security. However,
the issuer of the participation interests to the Fund will agree in writing,
among other things: to promptly remit all payments of principal, interest and
premium, if any, to the Fund 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 Fund.
REPURCHASE AGREEMENTS. A repurchase agreement essentially is a
short-term collateralized loan. The lender (a Fund) agrees to purchase a
security from a borrower (typically a broker-dealer) at a specified price. The
borrower simultaneously agrees to repurchase that same security at a higher
price on a future date (which typically is the next business day). The
difference between the purchase price and the repurchase price effectively
constitutes the payment of interest. In a standard repurchase agreement, the
securities which serve as collateral are transferred to a Fund's custodian bank.
In a "tri-party" repurchase agreement, these securities would be held by a
different bank for the benefit of the Fund as buyer and the broker-dealer as
seller. In a "quad-party" repurchase agreement, the Fund's custodian bank also
is made a party to the agreement. Each Fund may enter into repurchase agreements
with banks which are members of the Federal
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Reserve System or securities dealers who are members of a national securities
exchange or are market makers in government securities. GOVERNMENT FUND may
enter into repurchase agreements only where the debt instrument subject to the
agreement is a U.S. Government 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 Fund 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 Fund 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 Fund in each agreement, and the Fund 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 Fund 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 Fund may be delayed
or limited.
RESTRICTED AND ILLIQUID SECURITIES. No Fund, other than CASH MANAGEMENT
FUND, 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 FUND 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 Life Series 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 Fund's limitation on illiquid securities. Where
registration is required a Fund 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 a Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, a Fund 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 Fund, however, could affect adversely the marketability of
such portfolio securities and the Fund might be unable to dispose of such
securities promptly or at reasonable prices.
STRIPPED U.S. TREASURY SECURITIES. GOVERNMENT FUND, TARGET MATURITY
2007 FUND and TARGET MATURITY 2010 FUND 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 a Fund 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 a Fund pays for the instrument when it purchases the
instrument at a discount under what the instrument entitles a Fund to receive
when the instrument matures. The amount of the discount a Fund 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 a Fund 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 Fund shareholder over the life of the security.
WARRANTS. HIGH YIELD FUND, INTERNATIONAL SECURITIES FUND and UTILITIES
INCOME FUND may purchase warrants, which are instruments that permit the Fund 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. HIGH YIELD FUND may invest up
to 35% of its total assets in warrants. INTERNATIONAL SECURITIES FUND may invest
up to 15% of its total assets in warrants. UTILITIES INCOME FUND may invest up
to 65% of its total assets in warrants.
WHEN-ISSUED SECURITIES. GROWTH FUND, HIGH YIELD FUND, INTERNATIONAL
SECURITIES FUND, INVESTMENT GRADE FUND, TARGET MATURITY 2007 FUND, TARGET
MATURITY 2010 FUND and UTILITIES INCOME FUND may each invest up to 5% of their
net assets in securities issued on a when-issued or delayed delivery basis. A
Fund generally would not pay for such securities or start earning interest on
them until they are issued or received. However, when a Fund 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 Fund on a
when-issued basis may result in such Fund incurring a loss or missing an
opportunity to make an alternative investment. When a Fund 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 Fund's 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 a Fund's commitment, the Fund will be required
to deposit additional cash or qualified securities into the account until equal
to the value of the Fund's commitment. When the securities to be purchased are
issued, a Fund
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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 Fund is committed to purchase. Sale of
securities in the segregated account or sale of the when-issued securities may
cause the realization of a capital gain or loss.
PORTFOLIO TURNOVER. Although each Fund 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 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 Fund's 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 fiscal year ended December 31, 1995 for the BLUE
CHIP FUND, DISCOVERY FUND, GOVERNMENT FUND, GROWTH FUND, HIGH YIELD FUND,
INTERNATIONAL SECURITIES FUND, INVESTMENT GRADE FUND, TARGET MATURITY 2007 FUND
and UTILITIES INCOME FUND was 26%, 78%, 198%, 64%, 57%, 45%, 26%, 28% and 17%,
respectively. The rate of portfolio turnover for the fiscal year ended December
31, 1996 for the BLUE CHIP FUND, DISCOVERY FUND, GOVERNMENT FUND, GROWTH FUND,
HIGH YIELD FUND, INTERNATIONAL SECURITIES FUND, INVESTMENT GRADE FUND, TARGET
MATURITY 2007 FUND And UTILITIES INCOME FUND was 45%, 98%, 199%, 49%. 34%. 67%,
19%, 13% and 45%, respectively. TARGET MATURITY 2010 FUND currently does not
expect its annual rate of portfolio turnover to exceed 100%
HEDGING AND OPTION INCOME STRATEGIES
The Subadviser may engage in certain options and futures strategies to
hedge INTERNATIONAL SECURITIES FUND's 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 Life Series Fund's Board of Trustees to govern the
Fund's 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 Fund's ability to use Hedging Instruments will be limited by tax
considerations. See "Taxes."
INTERNATIONAL SECURITIES FUND 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 Fund's portfolio. INTERNATIONAL
SECURITIES FUND 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
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securities (or currencies) it intends to purchase. INTERNATIONAL SECURITIES FUND
also may purchase put and call options to offset previously written put and call
options of the same series. INTERNATIONAL SECURITIES FUND 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 FUND
will write only covered call options, including options on futures contracts.
INTERNATIONAL SECURITIES FUND 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 FUND also may enter into forward currency contracts.
Participation in the options or futures markets involves investment
risks and transaction costs to which INTERNATIONAL SECURITIES FUND 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 Fund may leave the Fund in a worse
position than if such strategies were not used. The Fund 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 Fund will not use
leverage in its hedging and option income strategies. The Fund will not enter
into a hedging or option income strategy that exposes the Fund to an obligation
to another party unless it owns either (1) an offsetting ("covered") position in
securities, currencies or other options or futures contracts or (2) cash and/or
liquid assets with a value sufficient at all times to cover its potential
obligations. The Fund 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 assets 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 Fund's assets could impede portfolio management or the Fund's
ability to meet redemption requests or other current obligations.
OPTIONS STRATEGIES. INTERNATIONAL SECURITIES FUND may purchase call
options on securities that the Subadviser intends to include in the Fund's
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 Fund's 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 Fund either sells
or exercises the option, any profit eventually realized will be reduced by the
premium. The Fund may purchase put
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options in order to hedge against a decline in the market value of securities
held in its portfolio. The put option enables the Fund to sell the underlying
security at the predetermined exercise price; thus the potential for loss to the
Fund 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 Fund 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 FUND 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 Fund will write covered call options on
securities generally when the Subadviser believes that the premium received by
the Fund, 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 Fund declines, the amount of such decline will be offset wholly or in part
by the amount of the premium received by the Fund. If, however, there is an
increase in the market price of the underlying security and the option is
exercised, the Fund will be obligated to sell the security at less than its
market value. The Fund 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 OTC options written by
the Fund, and therefore subject to the Fund's limitation on investments in
illiquid securities. See "Restricted and Illiquid Securities." In addition, the
Fund 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 FUND 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 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 Fund invests.
INTERNATIONAL SECURITIES FUND 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,
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including their related risks and rewards, is substantially identical to that of
call options. The Fund 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 Fund 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 Fund 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 Fund and the opposite party with no clearing organization guarantee.
Thus, when the Fund 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 Fund as well as the loss of the expected benefit of
the transaction.
FOREIGN CURRENCY OPTIONS AND RELATED RISKS. INTERNATIONAL SECURITIES
FUND may take positions in options on foreign currencies in order to hedge
against the risk of foreign exchange rate fluctuations on foreign securities the
Fund holds in its portfolio or intends to purchase. For example, if the Fund
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 Fund held
securities denominated in a foreign currency, and anticipated a decline in the
value of that currency against the U.S. dollar, the Fund could hedge against
such a decline by purchasing a put option on the currency involved. The Fund's
ability to establish and close out positions in such options is subject to the
maintenance of a liquid secondary market. Although the Fund 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 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
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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,
Life Series Fund's Board of Trustees has adopted non-fundamental investment
guidelines to govern the Fund's 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 Fund 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 Fund, exceeds 5% of the Fund's total assets. This policy does not limit risk
to 5% of the Fund's assets.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING. INTERNATIONAL
SECURITIES FUND may effectively terminate its right or obligation under an
option by entering into a closing transaction. If the Fund wishes to terminate
its obligation to sell securities or currencies under a put or call option it
has written, the Fund may purchase a put or call option of the same series (that
is, an option identical in its terms to the put or 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 Fund 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 Fund 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 Fund 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 Fund intends to purchase or write
only those exchange-traded options for which there appears to be a liquid
secondary market, there 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
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exists. Although the Fund 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 Fund, there is no assurance that the Fund 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 Fund 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
Fund would have to exercise those options that it has purchased in order to
realize any profit. With respect to options written by the Fund, the inability
to enter into a closing transaction may result in material losses to the Fund.
For example, because the Fund must maintain a covered position with respect to
any call option it writes, the Fund 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 Fund's 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 Fund
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 Fund's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs; however, the Fund 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 FUND 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 Fund 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 Fund 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
Fund's foreign securities holdings. In this case, the sale of futures contracts
on the underlying currency may reduce the risk to the Fund 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 Fund 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 Fund against any rise in the
foreign exchange rate that may add additional costs to acquiring the foreign
security position. The Fund also may purchase call or put options on foreign
currency futures contracts to obtain a fixed foreign exchange rate at limited
risk. The Fund 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 Fund 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.
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INTERNATIONAL SECURITIES FUND 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 Fund's portfolio. To the extent that a portion of
the Fund's 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
Fund 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 Fund 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 FUND may purchase a call option on a stock
index future to hedge against a market advance in equity securities that the
Fund plans to purchase at a future date. The Fund may write covered call options
on stock index futures as a partial hedge against a decline in the prices of
stocks held in the Fund's portfolio. The Fund also may purchase put options on
stock index futures contracts.
INTERNATIONAL SECURITIES FUND 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 Fund 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 Fund 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 Fund 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 FUND may purchase a call option on an interest
rate futures contract to hedge against a market advance in debt securities that
the Fund plans to acquire at a future date. The Fund 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 Fund's 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 Fund's 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 FUND 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.
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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 FUND
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. 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 FUND 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 above, the 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. In the event that the Fund
enters into futures contracts or options thereon other than for bona fide
hedging purposes (as defined by the CFTC), the aggregate initial margin and
premiums required to establish these positions (excluding the in-the-money
amount for options that are in-the-money at the time of purchase) will not
exceed 5% of the Fund's net assets. This does not limit the Fund's assets at
risk to 5%. The value of all futures sold will not exceed the total market value
of the Fund's 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 FUND 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 Fund upon termination of the transaction, assuming all obligations have been
satisfied. Under certain circumstances, such as periods of high volatility, the
Fund 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 Fund's obligation to or from a clearing organization.
The Fund is also obligated to make initial and variation margin payments when it
writes options on futures contracts..
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.
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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 Fund to
close a position and, in the event of adverse price movements the Fund 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.
Successful use by INTERNATIONAL SECURITIES FUND 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 Fund 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 Fund may need to sell assets at a time when such sales are
disadvantageous to the Fund. If the price of the futures contract or related
option moves more than the price of the underlying securities or currencies, the
Fund 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 Fund 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 Fund would continue
to be required to make variation margin payments.
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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 Fund 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 Fund 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 Fund's 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 Fund 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.
FORWARD CURRENCY CONTRACTS. INTERNATIONAL SECURITIES FUND may use
forward currency contracts to protect against uncertainty in the level of future
exchange rates. The Fund will not speculate with forward currency contracts or
foreign currency exchange rates.
INTERNATIONAL SECURITIES FUND may enter into forward currency contracts
with respect to specific transactions. For example, when the Fund enters into a
contract for the purchase or sale of a security denominated in a foreign
currency, or when the Fund anticipates the receipt in a foreign currency of
dividend or interest payments on a security that it holds, the Fund 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 Fund 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 FUND 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 Fund's exposure to foreign currencies that its
Subadviser believes may rise in value relative to the U.S. dollar or to shift
the Fund's 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 currency 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 Fund to purchase additional foreign currency on the
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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 Fund 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 Fund 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 currency contracts involve the risk that
anticipated currency movements will not be accurately predicted, causing the
Fund to sustain losses on these contracts and transactions costs. Unless the
Fund's obligations under a forward contract are covered, the Fund will enter
into a forward contract only if the Fund maintains cash assets in a segregated
account in an amount not less than the value of the Fund's 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 FUND to sell a currency, the Fund 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 Fund will obtain,
on the same maturity date, the same amount of the currency that it is obligated
to deliver. Similarly, the Fund 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 Fund 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 Fund. Forward currency contracts also involve a risk that the other party to
the contract may fail to deliver currency or pay for currency when due, which
could result in substantial losses to the Fund. The cost to the Fund 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 investment restrictions set forth below have been adopted by the
Life Series Fund and, unless identified as non-fundamental policies, may not be
changed without the affirmative vote of a majority of the outstanding voting
securities of Life Series Fund. As provided in the Investment Company Act of
1940, as amended ("1940 Act"), a "vote of a majority of the outstanding voting
securities of the Fund" means the affirmative vote of the lesser of (1) more
than 50% of the outstanding shares of the Fund or (2) 67% or more of the shares
of the Fund present at a meeting, if more than 50% of the outstanding shares are
represented at the meeting in person or by proxy. Except with respect to
borrowing, changes in values of a particular Fund's assets will not cause a
violation of the following investment restrictions so long as percentage
restrictions are observed by that Fund at the time it purchases any security.
(1) Borrow money, except as a temporary or emergency
measure in an amount not to exceed 5% of the value of its total assets.
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(2) Pledge assets, except that a 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 FUND's use of options, futures
contracts or options on futures contracts.
(3) Make loans, except by purchase of debt obligations and
through repurchase agreements. However, Life Series Fund's Board of Trustees
may, on the request of broker-dealers or other unaffiliated institutional
investors which they deem qualified, authorize a 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 is greater
than an amount equal to 10% of the Fund's total assets.
(4) Purchase, with respect to only 75% of a 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; 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 a Fund may obtain such
credits as may be necessary for the clearance of purchases and sales of
securities); provided, however, that INTERNATIONAL SECURITIES FUND 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 FUND, 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, a Fund may invest in
securities secured by real estate or interests in real estate, and INTERNATIONAL
SECURITIES FUND 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.
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(11) Purchase the securities of an issuer if such purchase, at
the time thereof, would cause more than 5% of the value of a 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. A Fund will not invest in any securities of any issuer if, to the
knowledge of the Fund, any officer, director or trustee of Life Series 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. A Fund will not purchase any security if, as a result, more than 15%
(10% for CASH MANAGEMENT FUND) 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 Funds' 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.
3. Fundamental investment restriction (4)(a) above shall apply to
100% of CASH MANAGEMENT FUND'S assets.
TRUSTEES AND OFFICERS
The following table lists the Trustees and executive officers of Series
Fund, their age, 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.
GLENN O. HEAD*+ (71), President and Trustee. Chairman of the Board and Director,
Administrative Data Management Corp. ("ADM"), FIMCO, Executive Investors
Management Company, Inc. ("EIMCO"), First Investors Corporation ("FIC"),
Executive Investors Corporation ("EIC") and First Investors Consolidated
Corporation ("FICC").
ROGER L. GRAYSON* (40), Trustee, FIC and FICC; President and Director, First
Investors Resources, Inc.; Commodities Portfolio Manager.
KATHRYN S. HEAD*+ (41), Trustee, 581 Main Street, Woodbridge, NJ 07095.
President, FICC, EIMCO, ADM and FIMCO; Vice President, Chief Financial Officer
and Trustee, FIC and EIC; President and Trustee, First Financial Savings Bank,
S.L.A.
REX R. REED (75), Trustee, 259 Governors Drive, Kiawah Island, SC 29455.
Retired; formerly Senior Vice President, American Telephone & Telegraph Company.
HERBERT RUBINSTEIN (75), Trustee, 145 Elm Drive, Roslyn, NY 11576. Retired;
formerly President, Belvac International Industries, Ltd. and President, Central
Dental Supply.
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NANCY SCHAENEN (65), Trustee, 56 Midwood Terrace, Madison, NJ 07940. Trustee,
Drew University and DePauw University.
JAMES M. SRYGLEY (64), Trustee, 33 Hampton Road, Chatham, NJ 07982. Principal,
Hampton Properties, Inc. (property investment company).
JOHN T. SULLIVAN* (65), Trustee and Chairman of the Board; Director, FIMCO, FIC,
FICC and ADM; Of Counsel, Hawkins, Delafield & Wood, Attorneys.
ROBERT F. WENTWORTH (67), 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 (39), Treasurer, 581 Main Street, Woodbridge, NJ 07095.
Treasurer, FIC, FIMCO, EIMCO and EIC; Comptroller and Treasurer, FICC.
CONCETTA DURSO (62), Vice President and Secretary. Vice President, FIMCO, EIMCO
and ADM; Assistant Vice President and Assistant Secretary, FIC and EIC.
* 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 14 other registered investment companies in the First Investors Family of
Funds. Mr. Head is also an officer and/or Director of First Investors Asset
Management Company, Inc., First Investors Credit Funding Corporation, First
Investors Leverage 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, School Financial Management Services, Inc. and Specialty Insurance
Group, Inc. Ms. Head is also an officer and/or Director of First Investors Life
Insurance Company, First Investors Credit Corporation, School Financial
Management Services, Inc., First Investors Credit Funding Corporation, N.A.K.
Realty Corporation, Real Property Development Corporation, First Investors
Leverage Corporation, Route 33 Realty Corporation and Specialty Insurance Group,
Inc.
The following table lists compensation paid to the Trustees by Life
Series Fund for the fiscal year ended December 31, 1996.
20
<PAGE>
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT ESTIMATED TOTAL COMPENSATION
AGGREGATE BENEFITS ACCRUED ANNUAL FROM FIRST INVESTORS
COMPENSATION AS PART OF FUND BENEFITS UPON FAMILY OF FUNDS PAID TO
TRUSTEE** FROM FUND* EXPENSES RETIREMENT TO TRUSTEES*
<S> <C> <C> <C> <C>
James J. Coy*** $2,400 $-0- $-0- $37,200
Roger L. Grayson -0- -0- -0- -0-
Glenn O. Head -0- -0- -0- -0-
Kathryn S. Head -0- -0- -0- -0-
Rex R. Reed 2,400 -0- -0- 37,200
Herbert Rubinstein 2,400 -0- -0- 37,200
James M. Srygley 2,200 -0- -0- 34,100
John T. Sullivan -0- -0- -0- -0-
Robert F. Wentworth 2,400 -0- -0- 37,200
</TABLE>
* Compensation to officers and interested Trustees of the Life Series Fund
is paid by the Adviser. In addition, compensation to non-interested
Trustees of the Life Series Fund is currently voluntarily paid by the
Adviser.
** Nancy Schaenen was not a Trustee in 1996.
*** On March 27, 1997 Mr. Coy resigned as a Trustee of the Life Series Fund.
Mr. Coy did not resign due to a disagreement with the Life Series Fund's
management on any matter relating to the Life Series Fund's operations,
policies or practices. Mr. Coy currently serves as an emeritus Trustee.
MANAGEMENT
ADVISER. Investment advisory services to the Funds 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 Life Series 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 Fund.
Pursuant to the Advisory Agreement, FIMCO shall supervise and manage
each Fund's investments, determine each Fund's portfolio transactions and
supervise all aspects of each Fund's operations, subject to review by the
Trustees. The Advisory Agreement also provides that FIMCO shall provide Life
Series Fund and each Fund with certain executive, administrative and clerical
personnel, office facilities and supplies, conduct the business and details of
the operation of Life Series Fund and each Fund and assume certain expenses
thereof, other than obligations or liabilities of the Funds. 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 Fund, 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 Fund, 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 Fund, 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.
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Under the Advisory Agreement, each Fund 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 Adviser has an Investment Committee composed of George V. Ganter,
Margaret Haggerty, Glenn O. Head, Nancy W. Jones, Patricia D. Poitra, Michael
O'Keefe, Richard Guinnessey and Clark D. Wagner. The Committee usually meets
weekly to discuss the composition of the portfolio of each Fund and to review
additions to and deletions from the portfolios.
Each Fund bears all expenses of its operations other than those
incurred by the Adviser under the terms of its advisory agreement. Fund 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.
For the fiscal year ended December 31, 1994, BLUE CHIP FUND's advisory
fees were $286,413, CASH MANAGEMENT FUND's advisory fees were $12,024, net of a
waiver of $17,258, DISCOVERY FUND's advisory fees were $194,546, GOVERNMENT
FUND's advisory fees were $27,509, net of a waiver of $31,440, GROWTH FUND's
advisory fees were $218, 813, HIGH YIELD FUND's advisory fees were $236,209,
INTERNATIONAL SECURITIES FUND's advisory fees were $202,739, INVESTMENT GRADE
FUND's advisory fees were $38,655, net of a waiver of $44,177 and UTILITIES
INCOME FUND's advisory fees were $4,772, net of a waiver of $16,163.
For the fiscal year ended December 31, 1995, BLUE CHIP FUND's advisory
fees were $399,774, CASH MANAGEMENT FUND's advisory fees were $14,398, net of a
waiver of $16,454, DISCOVERY FUND's advisory fees were $301,852, GOVERNMENT
FUND's advisory fees were $31,084, net of a waiver of $35,526, GROWTH FUND's
advisory fees were $311,003, HIGH YIELD FUND's advisory fees were $279,016,
INTERNATIONAL SECURITIES FUND's advisory fees were $262,203, INVESTMENT GRADE
FUND's advisory fees were $48,182, net of a waiver of $55,066, TARGET MATURITY
2007 FUND's advisory fees were $25,339, all of which were waived, and UTILITIES
INCOME FUND's advisory fees were $31,583, net of a waiver of $36,095.
For the fiscal year ended December 31, 1996, BLUE CHIP FUND's advisory
fees were $611,681, CASH MANAGEMENT FUND's advisory fees were $23,439, net of a
waiver of $5,860, DISCOVERY FUND's advisory fees were $450,910, GOVERNMENT
FUND's advisory fees were $54,997, net of a waiver of $13,749, GROWTH FUND's
advisory fees were $475,966, HIGH YIELD FUND's advisory fees were $338,303,
INTERNATIONAL SECURITIES FUND's advisory fees were $364,115, INVESTMENT GRADE
FUND's advisory fees were $96,305, net of a waiver of $24,076, TARGET MATURITY
2007 FUND's advisory fees were $73,502, net of a waiver of
22
<PAGE>
$18,376; TARGET MATURITY 2010 FUND's advisory fees were $5,014, net of a waiver
of $1,254 and UTILITIES INCOME FUND's advisory fees were $119,506, net of a
waiver of $29,876. For the fiscal year ended December 31, 1996, the Adviser
voluntarily reimbursed expenses for CASH MANAGEMENT FUND, GOVERNMENT FUND,
INVESTMENT GRADE FUND, TARGET MATURITY 2007 FUND, TARGET MATURITY 2010 FUND and
UTILITIES INCOME FUND in the amounts of $13,789, $16,241, $17,099, $7,472,
$1,736 and $13,043, respectively.
SUBADVISER. Wellington Management Company, LLP has been retained by the
Adviser and Life Series Fund as the investment subadviser to INTERNATIONAL
SECURITIES FUND and GROWTH FUND under a subadvisory agreement dated June 13,
1994 ("Subadvisory Agreement"). The Subadvisory Agreement was approved by the
Board of Trustees of Life Series 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 FUND and GROWTH FUND.
The Subadvisory Agreement provides that it will continue, with respect
to a Fund, 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 Fund 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 Fund,
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 Fund, 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 a Fund 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.
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 Fund
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 Fund. The Subadviser voluntarily has agreed to
waive its fees on the first $50 million of the daily net assets of GROWTH FUND
to an annual rate of 0.325%. The Adviser will retain the portion of those fees
waived by the Subadviser.
For the fiscal year ended December 31, 1994, the Subadviser received
$108,127 for its services with respect to the INTERNATIONAL SECURITIES FUND and
$116,700 for its services with respect to the GROWTH FUND. For the fiscal year
ended December 31, 1995, the Subadviser received $139,842 for its service with
respect to INTERNATIONAL SECURITIES FUND and $141,153 for its services with
respect to GROWTH FUND. For the fiscal year ended December 31, 1996, the
Subadviser received $192,042 for its services with respect to the INTERNATIONAL
SECURITIES FUND and $199,147 for its services with respect to the GROWTH FUND.
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<PAGE>
DETERMINATION OF NET ASSET VALUE
Except as provided herein, a security listed or traded on an exchange
or the Nasdaq Stock Market is valued at its last sale price on the exchange or
market where the security is primarily 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 ("OTC") market (including securities
listed on exchanges whose primary market is believed to be OTC) are valued at
the mean between the closing bid and asked prices. The U.S. Government
securities in which the Funds invest are traded primarily in the OTC markets. In
the absence of market quotations, a Fund 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 Fund may use an outside pricing service. Interactive Data
Corporation provides pricing services for corporate debt securities and foreign
equity securities. 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.
"When-issued securities" are reflected in the assets of a Fund 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 CASH MANAGEMENT FUND values its portfolio securities in accordance
with the amortized cost method of valuation under Rule 2a-7 under the 1940 Act.
To use amortized cost to value its portfolio securities, a Fund must adhere to
certain conditions under that Rule relating to the Fund's investments, some of
which are discussed in the Prospectus. Amortized cost is an approximation of
market value of an instrument, whereby the difference between its acquisition
cost and value at maturity is amortized on a straight-line basis over the
remaining life of the instrument. The effect of changes in the market value of a
security as a result of fluctuating interest rates is not taken into account and
thus the amortized cost method of valuation may result in the value of a
security being higher or lower than its actual market value. In the event that a
large number of redemptions take place at a time when interest rates have
increased, a Fund might have to sell portfolio securities prior to maturity and
at a price that might not be desirable.
The Board of Trustees of Life Series Fund has established procedures
for the purpose of maintaining a constant net asset value of $1.00 per share,
which include a review of the extent of any deviation of net asset value per
share, based on available market quotations, from the $1.00 amortized cost per
share. Should that deviation exceed 1/2 of 1%, the Board of Trustees will
promptly consider whether any action should be initiated to eliminate or reduce
material dilution or other unfair results to shareholders. Such action may
include selling portfolio securities prior to maturity, reducing or withholding
dividends and utilizing a net asset value per share as determined by using
available market quotations. The Fund maintains a dollar
24
<PAGE>
weighted average portfolio maturity of 90 days or less and does not purchase any
instrument with a remaining maturity greater than 13 months, limits portfolio
investments, including repurchase agreements, to those U.S. dollar-denominated
instruments that are of high quality and that the Trustees determine present
minimal credit risks as advised by the Adviser, and complies with certain
reporting and recordkeeping procedures. There is no assurance that a constant
net asset value per share will be maintained. In the event amortized cost ceases
to represent fair value per share, the Board will take appropriate action.
ALLOCATION OF PORTFOLIO BROKERAGE
Purchases and sales of portfolio securities by TARGET MATURITY 2007
FUND, TARGET MATURITY 2010 FUND, INVESTMENT GRADE FUND, GOVERNMENT FUND and HIGH
YIELD FUND 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 a Fund 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.
A Fund may deal in securities which are not listed on a national
securities exchange or the Nasdaq Stock Market but are traded in the OTC market.
A Fund also may purchase listed securities through the "third market." When
transactions are executed in the OTC market, a Fund seeks to deal with the
primary market makers, but when advantageous it utilizes the services of
brokers.
In effecting portfolio transactions, the Adviser or the 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 Fund or the Adviser or
the Subadviser by such member or broker. In addition, upon the instruction of
the Board of Trustees of Life Series Fund, the Adviser or the Subadviser may use
dealer concessions available in fixed-price underwritings to pay for research
services. 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 the 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 the Subadviser in
connection with a Fund. No portfolio orders are placed with an affiliated
broker, nor does any affiliated broker participate in these commissions.
The Adviser or the Subadviser may combine transaction orders placed on
behalf of any of the Funds, any other fund in the First Investors Group of
Funds, and any Fund 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 accordance with written procedures approved by the Board of
Trustees.
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<PAGE>
Brokerage commissions for the fiscal year ended December 31, 1994 are
as follows: BLUE CHIP FUND, INTERNATIONAL SECURITIES FUND, DISCOVERY FUND and
UTILITIES INCOME FUND paid $96,570, $69,494, $34,423 and $14,811, respectively,
in brokerage commissions. GROWTH FUND 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 FUND 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 Fund of Life Series Fund did not pay
brokerage commissions.
Brokerage commissions for the fiscal year ended December 31, 1995 are
as follows: BLUE CHIP FUND paid $57,716 in brokerage commissions. Of that
amount, $32,661 was paid in brokerage commissions to brokers who furnished
research services on portfolio transactions in the amount of $18,258,789.
INTERNATIONAL SECURITIES FUND paid $103,347 in brokerage commissions, none of
which was paid to brokers who furnished research services. DISCOVERY FUND paid
$58,774 in brokerage commissions. Of that amount, $30,757 was in brokerage
commissions to brokers who furnished research services on portfolio transactions
in the amount of $12,229,787. GROWTH FUND paid $70,984 in brokerage commissions.
Of that amount, $51,652 was paid in brokerage commissions to brokers who
furnished research services on portfolio transactions in the amount of
$31,898,514. UTILITIES INCOME FUND paid $23,084 in brokerage commissions. Of
that amount, $11,949 was paid in brokerage commissions to brokers who furnished
research services on portfolio transactions in the amount of $4,773,646. For the
same period, all other Funds of Life Series Fund did not pay brokerage
commissions.
Brokerage commissions for the fiscal year ended December 31, 1996 are
as follows: BLUE CHIP FUND paid $107,473 in brokerage commissions. Of that
amount, $46,425 was paid in brokerage commissions to brokers who furnished
research services on portfolio transactions in the amount of $26,460,832.
INTERNATIONAL SECURITIES FUND paid $192,286 in brokerage commissions. Of that
amount, $4,302 was paid in brokerage commissions to brokers who furnished
research services on portfolio transactions in the amount of $2,972,468.
DISCOVERY FUND paid $98,732 in brokerage commissions. Of that amount, $50,064
was paid in brokerage commissions to brokers who furnished research services on
portfolio transactions in the amount of $19,630,693. GROWTH FUND paid $70,083 in
brokerage commissions. Of that amount, $10,277 was paid in brokerage commissions
to brokers who furnished research services on portfolio transactions in the
amount of $8,999,871. HIGH YIELD FUND paid $418 in brokerage commissions, all of
which was in brokerage commissions to brokers who furnished research services on
portfolio transactions in the amount of $125,354. UTILITIES INCOME FUND paid
$55,051 in brokerage commissions. Of that amount, $13,900 was paid in brokerage
commissions to brokers who furnished research services on portfolio transactions
in the amount of $5,966,660. For the same period, all other Funds of Life Series
Fund did not pay brokerage commissions.
EMERGENCY PRICING PROCEDURES.
In the event that the Funds must halt operations during any day that
they would normally be required to price under Rule 22c-1 under the Investment
Company of 1940 due to an emergency ("Emergency Closed Day"), the Funds will
apply the following procedures:
1. The Funds will make every reasonable effort to segregate orders
received on the Emergency Closed Day and give them the price that they would
have received but for the closing. The Emergency Closed Day price will be
calculated as soon as practicable after operations have resumed and will be
applied equally to sales, redemptions and repurchases that were in fact received
in the mail or otherwise on the Emergency Closed Day.
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<PAGE>
2. For purposes of paragraph 1, an order will be deemed to have been
received by the Funds on an Emergency Closed Day, even if neither the Funds nor
the Transfer Agent is able to perform the mechanical processing of pricing on
that day, under the following circumstances:
(a) In the case of a mail order, the order will be
considered received by a Fund when the postal service has delivered it to FIC's
Woodbridge offices prior to the close of regular trading on the NYSE, or such
other time as may be prescribed in the Funds' Prospectus; and
(b) In the case of a wire order, including a
Fund/SERV order, the order will be considered received when it is received in
good form by a FIC branch office or an authorized dealer prior to the close of
regular trading on the NYSE, or such other time as may be prescribed in the
Funds' Prospectus.
3. If the Funds are unable to segregate orders received on the
Emergency Closed Day from those received on the next day the Funds are open for
business, the Funds may give all orders the next price calculated after
operations resume.
4. Notwithstanding the foregoing, on business days in which the NYSE is
not open for regular trading, the Funds may determine not to price their
portfolio securities if such prices would lead to a distortion of the net asset
value for the Funds and their shareholders.
TAXES
Each Fund is treated as a separate corporation for Federal income tax
purposes. In order to continue to qualify for treatment as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as amended
("Code"), a Fund 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
FUND, DISCOVERY FUND and HIGH YIELD FUND ("Foreign Funds"), net gains from
certain foreign currency transactions) ("Distribution Requirement") and must
meet several additional requirements. For each Fund these requirements include
the following: (1) the Fund 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 the Foreign
Funds, foreign currencies, or other income (including for INTERNATIONAL
SECURITIES FUND, gains from options, futures or forward currency contracts)
derived with respect to its business of investing in securities or, for the
Foreign Funds, those currencies ("Income Requirement"); (2) the Fund 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 or futures (other than those on foreign currencies), or,
for the Foreign Funds, foreign currencies (or options, futures or forward
contracts thereon) that are not directly related to its principal business of
investing in securities (or, for INTERNATIONAL SECURITIES FUND, options and
futures with respect thereto) ("Short-Short Limitation"); (3) at the close of
each quarter of the Fund's 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 of other RICs and other securities, with
27
<PAGE>
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 the Foreign Funds may be subject to
income, withholding or other taxes imposed by foreign countries that would
reduce the yield on their 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.
Each of INTERNATIONAL SECURITIES FUND and DISCOVERY FUND 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, if a Fund holds stock of a PFIC, it 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 a Fund distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be included in
a Fund's investment company taxable income and, accordingly, will not be taxable
to it to the extent that income is distributed to its shareholders.
If the Foreign Funds invest in a PFIC and elect to treat the PFIC as a
"qualified electing fund," then in lieu of the foregoing tax and interest
obligation, a Fund 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 probably would have to be distributed to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax even if those earnings and
gain were not received by a Fund. In most instances it will be very difficult,
if not impossible, to make this election because of certain requirements
thereof.
Pursuant to proposed regulations, open-end RICs, such as Life Series
Fund, 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).
For INTERNATIONAL SECURITIES FUND and DISCOVERY FUND, gains from the
disposition of foreign currencies (except certain gains that may be excluded by
future regulations) will qualify as permissible income under the Income
Requirement. However, income from such a Fund's disposition of foreign
currencies that are not directly to its principal business of investing in
securities will be subject to the Short-Short Limitation if they are held for
less three months.
HIGH YIELD FUND, GOVERNMENT FUND, INVESTMENT GRADE FUND, TARGET
MATURITY 2007 FUND, TARGET MATURITY 2010 FUND and UTILITIES INCOME FUND may
acquire zero coupon securities issued with original issue discount. As a holder
of those securities, each Fund must include in its income the portion of the
original issue discount that accrues on the securities during the taxable year,
even if it receives no corresponding
28
<PAGE>
payment on them during the year. Similarly, each Fund must include in its gross
income securities it receives as "interest" on pay-in-kind securities. Because
each Fund annually must distribute substantially all of its investment company
taxable income, including any original issue discount and other non-cash income,
to satisfy the Distribution Requirement and avoid imposition of the Excise Tax,
each Fund 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 each Fund's cash assets or from the proceeds of
sales of portfolio securities, if necessary. Each Fund may realize capital gains
or losses from those sales, which would increase or decrease its investment
company taxable income and/or net capital gain. 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 Fund's
ability to sell other securities, or options, futures or certain forward
contracts or foreign currency positions held for less than three months that it
might wish to sell in the ordinary course of its portfolio management.
INTERNATIONAL SECURITIES FUND'S use of hedging strategies, such as
selling (writing) and purchasing options and futures contracts and entering into
forward currency contracts, involves complex rules that will determine for
income tax purposes the character and timing of recognition of the gains and
losses the Fund realizes in connection therewith. Gains from the disposition of
foreign currencies (except certain gains that may be excluded by future
regulations), and, in the case of the Foreign Funds, gains from options, futures
and forward currency contracts derived by INTERNATIONAL SECURITIES FUND with
respect to its business of investing in securities or foreign currencies, will
qualify as permissible income under the Income Requirement. However, income from
that Fund's disposition of options and futures (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 disposition of foreign currencies (in
the case of a Foreign Fund), and options, futures and forward contracts on
foreign currencies (in the case of INTERNATIONAL SECURITIES FUND that are not
directly related to its principal business of investing in securities, also will
be subject to the Short-Short Limitation if they are held for less than three
months.
If INTERNATIONAL SECURITIES FUND 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 Fund 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 Fund 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 Fund's hedging
transactions. To the extent this treatment is not available, the Fund may be
forced to defer the closing out of certain options, futures, forward contracts
and/or foreign currency positions beyond the time when it otherwise would be
advantageous to do so, in order for the Fund to continue to qualify as a RIC.
GENERAL INFORMATION
AUDITS AND REPORTS. The accounts of the Fund are audited twice a year
by Tait, Weller & Baker, independent certified public accountants. Shareholders
receive semi-annual and annual reports of the Fund, including audited financial
statements, and a list of securities owned.
29
<PAGE>
SHAREHOLDER LIABILITY. Life Series 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 Life Series Fund. The Declaration of Trust however, contains, an
express disclaimer of shareholder liability for acts or obligations of Life
Series Fund and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by Life Series Fund
or the Trustees. The Declaration of Trust provides for indemnification out of
the property of Life Series Fund of any shareholder held personally liable for
the obligations of Life Series Fund. The Declaration of Trust also provides that
Life Series Fund shall, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of Life Series 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 Life Series 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. Life Series Fund may have an
obligation to indemnify Trustees and officers with respect to litigation.
TRADING BY PORTFOLIO MANAGERS AND OTHER ACCESS PERSONS. Pursuant to
Section 17(j) of the 1940 Act and Rule 17j-1 thereunder, the Life Series Fund
and the Adviser have adopted Codes of Ethics restricting personal securities
trading by portfolio managers and other access persons of the Funds. Among other
things, such persons, except the Trustees: (a) must have all non-exempt trades
pre-cleared; (b) are restricted from short-term trading; (c) must have duplicate
statements and transactions confirmations reviewed by a compliance officer; and
(d) are prohibited from purchasing securities of initial public offerings.
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.
30
<PAGE>
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.
APPENDIX B
DESCRIPTION OF MUNICIPAL NOTE RATINGS
STANDARD & POOR'S
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.
31
<PAGE>
Financial Statements
as of December 31, 1996
Registrant incorporates by reference the financial statements and report of
independent auditors contained in the Annual Report to shareholders for the
fiscal year ended December 31, 1996 electronically filed with the Commission on
March 7, 1997 (Accession Number: 0000928816-97-000071.
<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)/3/ Declaration of Trust
(2)/3/ By-laws
(3) Not Applicable
(4) Shareholders' rights are contained in (a) Articles III,
VIII, X, XI and XII of Registrant's Declaration of Trust
dated June 12, 1985, previously filed as Exhibit 99.B1
to Registrant's Registration Statement and (b) Articles
III and V of Registrant's By-laws, previously filed as
Exhibit 99.B2 to Registrant's Registration Statement
(5)a./1/ Investment Advisory Agreement between Registrant and
First Investors Management Company, Inc., including
form of Schedule A for Zero Coupon 2007 Series
b./1/ Subadvisory Agreement relating to International
Securities Series and Growth Series
(6) Not Applicable
(7) Not Applicable
(8)a./4/ Custodian Agreement between Registrant and Irving Trust
Company
b./4/ Custodian Agreement between Registrant and Brown
Brothers Harriman & Co. relating to International
Securities Fund
c./4/ Custodian Agreement between Registrant and Brown
Brothers Harriman & Co. relating to Total Return Fund
d./4/ Supplement to Custodian Agreement between Registrant and
The Bank of New York
(9)/4/ Administration Agreement between Registrant, First
Investors Management Company, Inc., First Investors
Corporation and Administrative Data Management Corp.
(10)/2/ Opinion of Counsel
(11)a. Consent of independent accountants
b./3/ Powers of Attorney
(12) Not Applicable
(13)/5/ Undertakings
(14) Not Applicable
(15) Not Applicable
(16) Not Applicable
(17) Financial Data Schedule (filed as Exhibit 27 for
electronic filing purposes)
(18) Not Applicable
- ----------
/1/ 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.
/2/ Incorporated by reference from Registrant's Rule 24f-2 Notice for its
fiscal year ending December 31, 1996 filed with the Commission on
February 27, 1997.
/3/ Incorporated by reference from Post-Effective Amendment No. 17 to
Registrant's Registration Statement (File No. 2-98409) filed with the
Commission on October 2, 1995.
/4/ Incorporated by reference from Post-Effective Amendment No. 18 to
Registrant's Registration Statement (File No. 2-98409) filed with the
Commission on February 14, 1996.
/5/ Incorporated by reference from Post-Effective Amendment No. 20 to
Registrant's Registration Statement (File No. 2-98409) filed with the
Commission on October 21, 1996.
Item 25. Persons Controlled by or under common control with Registrant
There are no persons controlled by or under common control with the
Registrant.
<PAGE>
Item 26. Number of Holders of Securities
Number of
Record Holders as of
Title of Class October 11, 1996
--------------------- --------------------
Shares of
Beneficial Interest,
no par value
Investment Grade Fund 2
Government Fund 2
Cash Management Fund 2
Discovery Fund 2
Growth Fund 2
High Yield Fund 2
Blue Chip Fund 2
International Securities Fund 2
Utilities Income Fund 2
Target Maturity 2007 Fund 1
Target Maturity 2010 Fund 1
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 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.
<PAGE>
(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."
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(a). 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.
<PAGE>
Affiliations of the officers and directors of the Investment Adviser are set
forth in Part B, Statement of Additional Information, under "Trustees and
Officers."
(b) Business and Other Connections of Subadviser.
Wellington Management Company, LLP ("Wellington Management") is an
investment adviser registered under the Investment Advisers Act of 1940, as
amended (the "Advisers Act"). The list required by this Item 28 of officers and
partners of Wellington Management, together with any information as to any
business profession, vocation or employment of a substantial nature engaged in
by such officers and partners during the past two years, is incorporated herein
by reference to Schedules A and D of Form ADV filed by Wellington Management
pursuant to the Advisers Act (SEC File No. 801-159089).
Item 29. Principal Underwriters
Not applicable
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, 581 Main Street, 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.
<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
meet 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
16th day of April, 1997.
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 16, 1997
- ------------------------- Officer and Trustee
Glenn O. Head
/s/Joseph I. Benedek Principal Financial April 16, 1997
- ------------------------- and Accounting Officer
Joseph I. Benedek
* Trustee April 16, 1997
- -------------------------
Kathryn S. Head
* Trustee April 16, 1997
- -------------------------
Roger L. Grayson
* Trustee April 16, 1997
- -------------------------
Herbert Rubinstein
* Trustee April 16, 1997
- -------------------------
Nancy Schaenen
* Trustee April 16, 1997
- -------------------------
James M. Srygley
* Trustee April 16, 1997
- -------------------------
John T. Sullivan
* Trustee April 16, 1997
- -------------------------
Rex R. Reed
* Trustee April 16, 1997
- -------------------------
Robert F. Wentworth
*By: /s/Larry R. Lavoie
------------------
Larry R. Lavoie
Attorney-in-fact
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
99.B11.1 Consent of Independent Accountants
99.B11.2 Power of Attorney
27.01 FDS - High Yield Fund
27.02 FDS - Discovery Fund
27.03 FDS - Blue Chip Fund
27.04 FDS - Growth Fund
27.05 FDS - Cash Management Fund
27.06 FDS - International Securities Fund
27.07 FDS - Government Fund
27.08 FDS - Investment Grade Fund
27.09 FDS - Utilities Income Fund
27.10 FDS - Target Maturity 2007 Fund
27.11 FDS - Target Maturity 2010 Fund
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. 21 to the
Registration Statement on Form N-1A (File No. 2-98409) of our report dated
January 31, 1997 relating to the December 31, 1996 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 16, 1997
First Investors Life Series Fund
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned officer and/or
trustee of First Investors Life Series Fund hereby appoints Larry R. Lavoie or
Glenn O. Head, and each of them, his true and lawful attorney to execute in his
name, place and stead and on his behalf a Registration Statement on Form N-1A
for the registration pursuant to the Securities Act of 1933 and the Investment
Company Act of 1940 of shares of beneficial interest of said Massachusetts
business trust, and any and all amendments to said Registration Statement
(including post-effective amendments), and all instruments necessary or
incidental in connection therewith and to file the same with the Securities and
Exchange Commission. Said attorney shall have full power and authority to do and
perform in the name and on behalf of the undersigned every act whatsoever
requisite or desirable to be done in the premises, as fully and to all intents
and purposes as the undersigned might or could do, the undersigned hereby
ratifying and approving all such acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
3rd day of April, 1997.
/s/ Nancy Schaenen
Nancy Schaenen
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000770906
<NAME> FIRST INVESTORS LIFE SERIES FUND, INC.
<SERIES>
<NUMBER> 1
<NAME> HIGH YIELD SERIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 42490
<INVESTMENTS-AT-VALUE> 48502
<RECEIVABLES> 852
<ASSETS-OTHER> 176
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 49530
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 56
<TOTAL-LIABILITIES> 56
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 44086
<SHARES-COMMON-STOCK> 4146
<SHARES-COMMON-PRIOR> 3621
<ACCUMULATED-NII-CURRENT> 4253
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1680)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2814
<NET-ASSETS> 49474
<DIVIDEND-INCOME> 307
<INTEREST-INCOME> 4268
<OTHER-INCOME> 60
<EXPENSES-NET> (379)
<NET-INVESTMENT-INCOME> 4256
<REALIZED-GAINS-CURRENT> (443)
<APPREC-INCREASE-CURRENT> 1579
<NET-CHANGE-FROM-OPS> 5392
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3666)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 509
<NUMBER-OF-SHARES-REDEEMED> 318
<SHARES-REINVESTED> 334
<NET-CHANGE-IN-ASSETS> 13353
<ACCUMULATED-NII-PRIOR> 3664
<ACCUMULATED-GAINS-PRIOR> 1236
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (338)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (385)
<AVERAGE-NET-ASSETS> 45107
<PER-SHARE-NAV-BEGIN> 11.57
<PER-SHARE-NII> 1.020
<PER-SHARE-GAIN-APPREC> .350
<PER-SHARE-DIVIDEND> (1.005)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.93
<EXPENSE-RATIO> .85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000770906
<NAME> FIRST INVESTORS LIFE SERIES FUND, INC.
<SERIES>
<NUMBER> 2
<NAME> DISCOVERY SERIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
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</TABLE>
