FIRST INVESTORS LIFE SERIES FUND
Supplement dated July 21, 1997
to Prospectus dated April 30, 1997
1. The second paragraph on the cover page should read as follows:
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"). Purchase payments
for the Contracts are also paid into a unit investment trust, First Investors
Life Variable Annuity Fund D ("Separate Account D"). Separate Account B,
Separate Account C and Separate Account D ("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 and Separate Account D.
2. References in the Prospectus to Separate Accounts B and C should now read
"Separate Accounts B, C and D."
3. The following sentence should be inserted as the fourth sentence under "How
To Buy Shares" on page 32:
Purchase payments for the Contracts are also paid into a unit investment trust,
Separate Account D.
4. The second sentence under "How to Redeem Shares" on page 32 should read as
follows:
Redemptions will be made at the next determined net asset value, less any
applicable contingent deferred sales charge, of the respective Fund upon receipt
of a proper request for redemption or repurchase.
5. Since late May 1997, the Investment Grade Fund has been co-managed by Nancy
Jones and Clark D. Wagner. The biographical information for both Ms. Jones and
Mr. Wagner is in the Prospectus under "Management-Portfolio Managers on page
34.:
6. The following paragraph should be added to "Investment Objectives and
Policies-Types of Securities and Their Risks" on page 28:
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 each may invest up to 5%, and
Government Fund may invest up to 25%, of its net assets in securities issued on
a when-issued or delayed delivery basis at the time the purchase is made. Under
such an arrangement, delivery of, and payment for, a security occurs up to 60
days after the
<PAGE>
agreement to purchase the security is made by a Fund. The purchase price to be
paid by a Fund and the interest rate on the instruments to be purchased are both
selected when a Fund agrees to purchase the securities "when-issued." When a
Fund purchases securities 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 a Fund incurring a loss or missing
an opportunity to make an alternative investment. Each Fund is permitted to sell
when-issued securities prior to issuance of such securities, but will not
purchase such securities with that purpose intended. 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. For a further discussion of
when-issued securities, see "When-Issued Securities" in the SAI.
7. The following paragraph should replace the second paragraph under "Government
Fund" on page 14:
Government 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 (which may not
borrow from the U.S. Treasury and the securities of which are not guaranteed by
the U.S. Government); the Federal Home Loan Bank (which may borrow from the U.S.
Treasury to meet its obligations but 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); and 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 may invest in collateralized mortgage obligations ("CMOs") and
stripped mortgage-backed securities issued or guaranteed by the U.S. Government,
its agencies, authorities or instrumentalities. See "Mortgage-Backed
Securities," below.
FIL797
<PAGE>
FIRST INVESTORS LIFE SERIES FUND
Supplement dated July 21, 1997
to Statement of Additional Information dated April 30, 1997
The first paragraph on the cover page should read as follows:
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"). Purchase
payments for the Contracts are also paid into a unit investment trust, First
Investors Life Variable Annuity Fund D ("Separate Account D"). Separate Account
B, Separate Account C and Separate Account D 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 and Separate Account D.
The first sentence under "When-Issued Securities" on page 6 should read as
follows:
Growth Fund, High Yield Fund, International Securities Fund, Investment Grade
Fund, Target Maturity 2007 Fund, Target Maturity 2010 Fund and Utilities Income
Fund each may invest up to 5%, and Government Fund may invest up to 25%, of its
net assets in securities issued on a when-issued or delayed delivery basis at
the time the purchase is made.
FILSAI
<PAGE>
FIRST INVESTORS LIFE SERIES FUND
Supplement dated July 21, 1997
to Prospectus dated April 30, 1997
The following paragraph should be added to "Investment Objectives and
Policies-Types of Securities and Their Risks" on page 30:
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 each may invest up to 5%, and
Government Fund may invest up to 25%, of its net assets in securities issued on
a when-issued or delayed delivery basis at the time the purchase is made. Under
such an arrangement, delivery of, and payment for, a security occurs up to 60
days after the agreement to purchase the security is made by a Fund. The
purchase price to be paid by a Fund and the interest rate on the instruments to
be purchased are both selected when a Fund agrees to purchase the securities
"when-issued." When a Fund purchases securities 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 a Fund
incurring a loss or missing an opportunity to make an alternative investment.
Each Fund is permitted to sell when-issued securities prior to issuance of such
securities, but will not purchase such securities with that purpose intended.
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. For a further
discussion of when-issued securities, see "When-Issued Securities" in the SAI.
The following paragraph should replace the second paragraph under "Government
Fund" on page 15:
Government 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 (which may not
borrow from the U.S. Treasury and the securities of which are not guaranteed by
the U.S. Government); the Federal Home Loan Bank (which may borrow from the U.S.
Treasury to meet its obligations but 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); and 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 may invest in collateralized mortgage obligations ("CMOs") and
stripped mortgage-backed securities issued or guaranteed by the U.S. Government,
its agencies, authorities or instrumentalities. See "Mortgage-Backed
Securities," below.
FILDPRO
<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"). Purchase payments
for the Contracts are also paid into a unit investment trust, First Investors
Life Variable Annuity Fund D ("Separate Account D"). Separate Account B,
Separate Account C and Separate Account D ("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 and Separate Account D.
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, as amended July 21, 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,
as amended July 21, 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.
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
2
<PAGE>
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.
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.
3
<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.
4
<PAGE>
[This Page Intentionally Left Blank]
5
<PAGE>
- --------------------------------------------------------------------------------
PER SHARE DATA
--------------------------------------------------------
<TABLE>
<CAPTION>
Less Distributions
Income from Investment Operations from
--------------------------------- ------------------
Net Realized
Net Asset and
Value Net Unrealized Total from Net
--------- Invest- Gain (Loss) Invest- Invest- Net Total
Beginning ment on ment ment Realized Distri-
of Period Income Investments Operations Income Gains butions
- ------------------------------------------------------------------------------------------------------------------------------------
BLUE CHIP
<S> <C> <C> <C> <C> <C> <C> <C>
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.
(a) Annualized
6
<PAGE>
- --------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
--------------------------------------------------------
<TABLE>
<CAPTION>
Ratio to Average Net
Assets Before
Ratio to Average Expenses Waived or
Net Assets + Assumed
---------------------- ------------------------
Net Asset Net Assets Net Net
Value End of Invest- Invest-
--------- Total Period ment ment Portfolio Average
End of Return ++ (in Expenses Income Expenses Income Turnover Commission
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>
- --------------------------------------------------------------------------------
PER SHARE DATA
--------------------------------------------------------
<TABLE>
<CAPTION>
Less Distributions
Income from Investment Operations from
--------------------------------- ------------------
Net Realized
Net Asset and
Value Net Unrealized Total from Net
--------- Invest- Gain (Loss) Invest- Invest- Net Total
Beginning ment on ment ment Realized Distri-
of Period Income Investments Operations Income Gains butions
- ------------------------------------------------------------------------------------------------------------------------------------
GOVERNMENT
<S> <C> <C> <C> <C> <C> <C> <C>
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.
+++ Average commission rate (per share of security) as required by amended
disclosure requirements effective for fiscal years beginning on or after
September 1, 1995.
(a) Annualized
8
<PAGE>
- --------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
--------------------------------------------------------
<TABLE>
<CAPTION>
Ratio to Average Net
Assets Before
Ratio to Average Expenses Waived or
Net Assets + Assumed
---------------------- ------------------------
Net Asset Net Assets Net Net
Value End of Invest- Invest-
--------- Total Period ment ment Portfolio Average
End of Return ++ (in Expenses Income Expenses Income Turnover Commission
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>
- --------------------------------------------------------------------------------
PER SHARE DATA
--------------------------------------------------------
<TABLE>
<CAPTION>
Less Distributions
Income from Investment Operations from
--------------------------------- ------------------
Net Realized
Net Asset and
Value Net Unrealized Total from Net
--------- Invest- Gain (Loss) Invest- Invest- Net Total
Beginning ment on ment ment Realized Distri-
of Period Income Investments Operations Income Gains butions
- ------------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL SECURITIES
<S> <C> <C> <C> <C> <C> <C> <C>
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.
+++ Average commission rate (per share of security) as required by amended
disclosure requirements effective for fiscal years beginning on or after
September 1, 1995.
(a) Annualized
10
<PAGE>
- --------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
--------------------------------------------------------
<TABLE>
<CAPTION>
Ratio to Average Net
Assets Before
Ratio to Average Expenses Waived or
Net Assets + Assumed
---------------------- ------------------------
Net Asset Net Assets Net Net
Value End of Invest- Invest-
--------- Total Period ment ment Portfolio Average
End of Return ++ (in Expenses Income Expenses Income Turnover Commission
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
16
<PAGE>
securities of companies that are financially troubled, in default or undergoing
bankruptcy or reorganization ("Deep Discount Securities"); and any securities
convertible into any of the foregoing. See "High Yield Securities--Risk Factors"
and "Deep Discount Securities."
The 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 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
18
<PAGE>
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 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
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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 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
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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
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or economic conditions, the Fund may establish a temporary defensive position to
preserve capital 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
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volatility in the market prices and yields of High Yield Securities and thus in
a Fund's net asset value. A strong economic downturn or a substantial period of
rising interest rates could severely affect the market for High Yield
Securities. In these circumstances, highly leveraged companies might have
greater difficulty in making principal and interest payments, meeting projected
business goals, and obtaining additional financing. Thus, there could be a
higher incidence of default. This would affect the value of such securities and
thus a 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
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monitors 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. Purchase payments for the Contracts
are also paid into a unit investment trust, Separate Account D. 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, less any
applicable contingent deferred sales charge, 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
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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 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
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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.
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.
Since late May 1997, the Investment Grade Fund has been co-managed by Ms.
Nancy Jones and Mr. Clark D. Wagner. From its inception to May 1997, Ms. Jones
has primarily responsibility for the day-to-day management of the Investment
Grade Fund. 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 co manager of the Investment Grade Fund of
First Investors Series Fund since May 1997 and has managed the fixed income
corporate securities portion of Total Return Fund of First Investors Series Fund
since 1992.
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. Mr. Wagner has also been
co-manager of the Investment Grade Fund since May 1997. 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. and is co-manager of the
Investment Grade Fund of First Investors Series Fund. Mr. Wagner has been Chief
Investment Officer of FIMCO 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 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
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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 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, C and D for information as to the tax status of those
accounts and the holders of the Contracts or Policies.
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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, C and D -- and of a Fund, because section 817(h) and
those regulations treat the assets of a Fund as assets of Separate Accounts B, C
and D -- that may be invested in securities of a single issuer. Specifically,
the regulations provide that, except as permitted by the "safe harbor" described
below, as of the end of each calendar quarter (or within 30 days thereafter) no
more than 55% of a 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, C and D.
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.
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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.
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 ........................................ 12
How to Buy Shares ......................................................... 32
How to Redeem Shares ...................................................... 32
Management ................................................................ 32
Determination of Net Asset Value .......................................... 34
Dividends and Other Distributions ......................................... 35
Taxes ..................................................................... 35
General Information ....................................................... 36
Appendix A ................................................................ 37
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
Harriman & Co.
Subadviser 40 Water Street
Wellington Management Boston, MA 02109
Company, LLP
75 State Street Auditors
Boston, MA 02109 Tait, Weller & Baker
Two Penn Center Plaza
Transfer Agent Philadelphia, PA 19102-1707
Administrative Data
Management Corp. Legal Counsel
581 Main Street Kirkpatrick & Lockhart LLP
Woodbridge, NJ 07095-1198 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
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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
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April 30, 1997,
as amended
July 21, 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
