INDIVIDUAL VARIABLE ANNUITY CONTRACTS
OFFERED BY
FIRST INVESTORS LIFE INSURANCE COMPANY
("FIRST INVESTORS LIFE")
THROUGH
FIRST INVESTORS LIFE VARIABLE ANNUITY FUND C (SEPARATE ACCOUNT C)
FIRST INVESTORS LIFE VARIABLE ANNUITY FUND D (SEPARATE ACCOUNT D)
95 Wall Street, New York, New York 10005/(212) 858-8200
This Prospectus describes deferred Variable Annuity Contracts (the
"Contracts") that First Investors Life Insurance Company is offering you the
opportunity to accumulate capital, on a tax-deferred basis, for retirement or
other long-term purposes and thereafter to annuitize your accumulated cash value
if you so elect. If you elect to annuitize, the Contracts offer several options
under which you can receive annuity payments for life.
The Contracts invest in the same underlying investment portfolios. Whether
you invest in a Separate Account C or Separate Account D Contract, you allocate
your purchase payments (less certain charges) to one of the eleven
"Subaccounts." Each of these Subaccounts invests in a corresponding "Fund" of
First Investors Life Series Fund. The amount you accumulate depends upon the
performance of the Subaccounts in which you invest. You bear all of the
investment risk, which means that you could lose money.
The Contracts differ in that they have (a) different sales charge
structures (b) different death benefits and (c) different expenses. The
Contracts also have different minimum investments. The Separate Account C
Contract may be purchased with as little as $2,000. The Separate Account D
Contracts require a minimum investment of $25,000.
THE INTERNAL REVENUE SERVICE MAY ASSESS A PENALTY ON EARLY WITHDRAWAL. THE
CONTRACTS PROVIDE YOU WITH A 10-DAY REVOCATION RIGHT.
Please read this Prospectus and keep it for future reference. It contains
important information that you should know before buying a Contract. We filed a
Statement of Additional Information ("SAI"), dated April 30, 1999, with the
Securities and Exchange Commission. We incorporate the SAI by reference into
this Prospectus. See page 26 of this Prospectus for the SAI Table of Contents.
You can get a free SAI by contacting us at the address or telephone number shown
above.
The Securities and Exchange Commission has not approved or disapproved
these securities or passed on the adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
This Prospectus is valid only if attached to the current prospectus for First
Investors Life Series Fund ("Life Series Fund").
The date of this Prospectus is April 30, 1999.
<PAGE>
GLOSSARY OF SPECIAL TERMS
ACCUMULATED VALUE - The value of all the Accumulation Units credited to the
Contract.
ACCUMULATION PERIOD - The period between the date of issue of a Contract
and the Annuity Commencement Date.
ACCUMULATION UNIT - A unit that measures the value of a Contractowner's
interest in a Subaccount of Separate Account C or Separate Account D before the
Annuity Commencement Date.
ADDITIONAL PAYMENT - A purchase payment made to First Investors Life after
issuance of a Contract.
ANNUITANT - The person who is designated to receive annuity payments or who
is actually receiving annuity payments.
ANNUITY COMMENCEMENT DATE - The date on which we begin making annuity
payments.
ANNUITY UNIT - A unit that determines the amount of each annuity payment
after the first annuity payment.
BENEFICIARY - The person who is designated to receive any benefits under a
Contract upon the death of the Annuitant or the Contractowners.
CONTRACT - An individual variable annuity contract offered by this
Prospectus.
CONTRACTOWNER - The person or entity with legal rights of ownership of the
Contract.
FIXED ANNUITY - An annuity with annuity payments that remain fixed as to
dollar amount throughout the payment period.
GENERAL ACCOUNT - All assets of First Investors Life other than those
allocated to Separate Account C, Separate Account D and other segregated
investment accounts of First Investors Life.
JOINT ANNUITANT - The designated second person under a joint and survivor
life annuity.
PURCHASE PAYMENT - A payment made to First Investors Life to purchase a
Contract.
SEPARATE ACCOUNT C - The segregated investment account entitled "First
Investors Life Variable Annuity Fund C," established by First Investors Life
pursuant to applicable law and registered as a unit investment trust under the
Investment Company Act of 1940 ("1940 Act").
SEPARATE ACCOUNT D - The segregated investment account entitled "First
Investors Life Variable Annuity Fund D," established by First Investors Life
pursuant to applicable law and registered as a unit investment trust under the
1940 Act.
SUBACCOUNT - A segregated investment subaccount under Separate Account C or
Separate Account D that corresponds to a fund of the Life Series Fund. The
assets of a Subaccount are invested in shares of the corresponding fund of the
Life Series Fund.
VALUATION DATE - Any date on which the New York Stock Exchange ("NYSE") is
open for regular trading. Each Valuation Date ends as of the close of regular
trading on the NYSE (normally 4:00 P.M., Eastern Time). The NYSE currently
observes the following holidays: New Year's Day, Martin Luther King Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
VALUATION PERIOD - The period beginning at the end of any Valuation Date
and extending to the end of the next Valuation Date.
VARIABLE ANNUITY - An annuity with annuity payments that vary in dollar
amount, in accordance with the net investment experience of the Subaccounts,
throughout the payment period.
WE (AND OUR) - First Investors Life Insurance Company.
YOU (AND YOUR) - The prospective contractowner.
2
<PAGE>
FEE TABLES
The two tables below are provided to help you understand the various
charges and expenses you will directly or indirectly bear in purchasing a
contract. The tables show how the charges and expenses for the Contract funded
through Separate Account C ("Separate Account C Contracts") differ from those of
the Contract funded through Separate Account D ("Separate Account D Contracts").
The following table reflects the charges and expenses of the relevant Separate
Account. The table on the next page reflects the fees and expenses of the series
(each a "Fund" and collectively "Funds") of the Life Series Fund in which the
Separate Accounts invest. The Fee Tables reflect expenses expected to be
incurred in 1999.
SEPARATE ACCOUNT EXPENSES
SEPARATE ACCOUNT C (FRONT-LOADED SEPARATE ACCOUNT D (BACK-LOADED
CONTRACT) CONTRACT)
CONTRACTOWNER TRANSACTION EXPENSES CONTRACTOWNER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Maximum Sales Load Imposed on
Purchases (as a percentage of Purchases (as a percentage of
purchase payment)............7.00% purchase payments).............None
Maximum Contingent Deferred Sales Maximum Contingent Deferred Sales
Charge.........................None Charge.......................7.00%*
Annual Contract Maintenance Charge Annual Contract Maintenance
...............................None Charge.....................$30.00**
SEPARATE ACCOUNT C ANNUAL EXPENSES SEPARATE ACCOUNT D ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE ACCOUNT (AS A PERCENTAGE OF AVERAGE ACCOUNT
VALUE) VALUE)
Mortality and Expense Risk Mortality and Expense Risk
Charges.......................1.00% Charges.......................1.25%
Other Charges................0.00%+ Administrative Charge......... 15%
Total Separate Account Annual =====
Expenses......................1.00% Total Separate Account Annual
Expenses......................1.40%
* The maximum contingent deferred sales charge ("CDSC") is a percentage of the
value of the Accumulation Units surrendered (not to exceed the aggregate amount
of the purchase payments made for the Units). The charge decreases 1% each year
so that there is no charge after seven years. Each year you may withdraw
("surrender") up to 10% of total purchase payments without a CDSC. For purposes
of computing the CDSC, Units are considered to be redeemed in the order in which
they were purchased (i.e., first-in, first-out).
** We deduct the Contract Maintenance Charge of $30 from the Accumulated Value,
except that this charge will not exceed 2% of that value. For more information,
see "Contract Maintenance Charge."
+ We may deduct an administrative charge if the Accumulated Value of a Contract
is less than $1,500 (see "Administrative Charge").
For more complete descriptions of the various charges and expenses shown,
please refer to "THE CONTRACTS IN DETAIL -- Sales Charge, Mortality and Expense
Risk Charges, and Other Charges." In addition, Premium taxes may apply (see
"Other Charges").
3
<PAGE>
FUND ANNUAL EXPENSES
(AS A PERCENTAGE OF FUND AVERAGE NET ASSETS)
These expenses are the same whether you invest in a Separate Account C or
Separate Account D Contract.
<TABLE>
<CAPTION>
FEE WAIVERS
TOTAL FUND AND/OR
MANAGEMENT OTHER OPERATING EXPENSE NET
FEES(1) EXPENSES(2) EXPENSES(3) ASSUMPTIONS EXPENSES(3)
------- ---------- ----------- (1),(2) -----------
-------
<S> <C> <C> <C> <C> <C>
Blue Chip Fund 0.75% 0.07% 0.82% N/A N/A
Cash Management Fund 0.75 0.24 0.99 0.29% 0.70%
Discovery Fund 0.75 0.08 0.83 N/A N/A
Government Fund 0.75 0.12 0.87 0.15 0.72
Growth Fund 0.75 0.07 0.82 N/A N/A
High Yield Fund 0.75 0.08 0.83 N/A N/A
International Securities Fund 0.75 0.40 1.15 N/A N/A
Investment Grade Fund 0.75 0.10 0.85 0.15 0.70
Target Maturity 2007 Fund 0.75 0.09 0.84 0.15 0.69
Target Maturity 2010 Fund 0.75 0.09 0.84 0.15 0.69
Utilities Income Fund 0.75 0.13 0.88 0.15 0.73
</TABLE>
(1) For the fiscal year ended December 31, 1998, the Adviser waived Management
Fees in excess of 0.60% for Cash Management Fund, in excess of 0.60% for
Government Fund, in excess of 0.60% for Investment Grade Fund, in excess
of 0.60% for Target Maturity 2007 Fund, in excess of 0.60% for Target
Maturity 2010 Fund, and in excess of 0.60% for Utilities Income Fund. The
Adviser has contractually agreed with Life Series Fund to waive Management
Fees in excess of 0.60% for Cash Management Fund, in excess of 0.60% for
Government Fund, in excess of 0.60% for Investment Grade Fund, in excess
of 0.60% for Target Maturity 2007 Fund, in excess of 0.60% for Target
Maturity 2010 Fund, and in excess of 0.60% for Utilities Income Fund for a
period of twelve months commencing on May 1, 1999.
(2) For the fiscal year ended December 31, 1998, the Adviser assumed certain
Other Expenses in excess of 0.10% for Cash Management Fund, in excess of
0.10% for Government Fund, in excess of 0.10% for Investment Grade Fund,
in excess of 0.10% for Target Maturity 2007 Fund, and in excess of 0.10%
for Target Maturity 2010 Fund. The Adviser has contractually agreed with
Life Series Fund to assume Other Expenses in excess of 0.10% for Cash
Management Fund for a period of twelve months commencing on May 1, 1999.
(3) Each Fund, other than International Securities Fund, has an expense offset
arrangement that may reduce the Fund's custodian fee based on the amount
of cash maintained by the Fund with its custodian. Any such fee reductions
are not reflected under Total Fund Operating Expenses or Net Expenses.
4
<PAGE>
EXAMPLE (SEPARATE ACCOUNT C CONTRACT)
If you surrender your Contract (or if you annuitize) for the number of years
shown, you would pay the following expenses on a $1,000 investment, assuming 5%
annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Blue Chip Subaccount......................... $87 $123 $162 $269
Cash Management Subaccount................... 86 120 156 257
Discovery Subaccount......................... 87 124 162 270
Government Subaccount........................ 86 120 157 259
Growth Subaccount............................ 87 123 162 269
High Yield Subaccount........................ 87 124 162 270
International Securities Subaccount.......... 90 133 177 301
Investment Grade Subaccount.................. 86 120 156 257
Target Maturity 2007 Subaccount.............. 86 120 155 256
Target Maturity 2010 Subaccount.............. 86 120 155 256
Utilities Income Subaccount.................. 86 121 157 260
</TABLE>
EXAMPLE (SEPARATE ACCOUNT D CONTRACT)
The expenses you incur in purchasing a Separate Account D Contract would depend
upon whether or not you surrender your contract. If you surrender your Contract
at the end of the period shown, you would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Blue Chip Subaccount......................... $123 $209 $299 $555
Cash Management Subaccount................... 121 206 293 543
Discovery Subaccount......................... 123 210 299 556
Government Subaccount........................ 122 206 294 545
Growth Subaccount............................ 123 209 299 555
High Yield Subaccount........................ 123 210 299 556
International Securities Subaccount.......... 126 219 316 589
Investment Grade Subaccount.................. 121 206 293 543
Target Maturity 2007 Subaccount.............. 121 205 292 542
Target Maturity 2010 Subaccount.............. 121 205 292 542
Utilities Income Subaccount.................. 122 207 294 546
</TABLE>
If you do not surrender your contract (or if you annuitize) at the end of the
period shown, you would pay the following expenses on a $1,000 investment,
assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Blue Chip Subaccount......................... $53 $159 $269 $555
Cash Management Subaccount................... 51 156 263 543
Discovery Subaccount......................... 53 160 269 556
Government Subaccount........................ 52 156 264 545
Growth Subaccount............................ 53 159 269 555
High Yield Subaccount........................ 53 160 269 556
International Securities Subaccount.......... 56 169 286 589
Investment Grade Subaccount.................. 51 156 263 543
Target Maturity 2007 Subaccount.............. 51 155 262 542
Target Maturity 2010 Subaccount.............. 51 155 262 542
Utilities Income Subaccount.................. 52 157 264 546
</TABLE>
YOU SHOULD NOT CONSIDER THE EXPENSES IN THE EXAMPLES AS A REPRESENTATION OF
PAST OR FUTURE EXPENSES. ACTUAL EXPENSES IN FUTURE YEARS MAY BE MORE OR LESS
THAN THOSE SHOWN.
5
<PAGE>
CONDENSED FINANCIAL INFORMATION
TABLE 1: SEPARATE ACCOUNT C
This table shows the accumulation unit values and the number of accumulation
units outstanding for each Subaccount of Separate Account C, at the dates shown.
The accumulation unit value for each Subaccount was initially set at $10.00 on
October 16, 1990, except as follows: Investment Subaccount and Government
Subaccount, January 7, 1992; Utilities Income Subaccount, November 16, 1993;
Target Maturity 2007 Subaccount, April 24, 1995; and Target Maturity 2010
Subaccount, April 29, 1996.
<TABLE>
<CAPTION>
NUMBER OF
ACCUMULATION ACCUMULATION
SUBACCOUNT AT UNIT VALUE($) UNITS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Blue Chip Subaccount...................... December 31, 1990 10.74931759 144,049.8
December 31, 1991 13.42731580 561,758.4
December 31, 1992 14.18287684 1,085,254.0
December 31, 1993 15.23373431 1,529,348.1
December 31, 1994 14.86290782 1,959,841.2
December 31, 1995 19.71773603 2,413,509.3
December 31, 1996 23.72148089 3,116,839.9
December 31, 1997 29.75982140 3,812,804.5
December 31, 1998 34.96033275 4,012,212.4
Cash Management Subaccount................ December 31, 1990 10.07542807 571,856.9
December 31, 1991 10.52748985 571,891.0
December 31, 1992 10.73770189 437,185.0
December 31, 1993 10.91847727 253,743.1
December 31, 1994 11.21833852 235,919.5
December 31, 1995 11.71983145 252,407.7
December 31, 1996 12.18484038 246,553.2
December 31, 1997 12.67719681 256,188.6
December 31, 1998 13.18253046 364,729.9
Discovery Subaccount...................... December 31, 1990 10.91349031 8,362.1
December 31, 1991 16.53848277 130,585.7
December 31, 1992 18.93150000 307,107.8
December 31, 1993 22.89932001 563,070.0
December 31, 1994 22.07727850 867,303.8
December 31, 1995 27.37355380 1,203,507.8
December 31, 1996 30.48354883 1,523,777.2
December 31, 1997 35.26286749 1,838,056.5
December 31, 1998 35.97570267 1,911,584.8
Government Subaccount..................... December 31, 1992 10.87670909 437,095.3
December 31, 1993 11.44920392 674,512.1
December 31, 1994 10.85941183 672,797.1
December 31, 1995 12.43183229 705,348.4
December 31, 1996 12.74903390 643,378.3
December 31, 1997 13.70958126 588,697.3
December 31, 1998 14.59671768 601,159.8
6
<PAGE>
NUMBER OF
ACCUMULATION ACCUMULATION
SUBACCOUNT AT UNIT VALUE($) UNITS
- -------------------------------------------------------------------------------------------------------------------
Growth Subaccount......................... December 31, 1990 10.75804081 24,176.8
December 31, 1991 14.34498476 204,821.5
December 31, 1992 15.59155937 567,241.7
December 31, 1993 16.35977780 958,529.1
December 31, 1994 15.73131059 1,347,003.7
December 31, 1995 19.48689883 1,729,637
December 31, 1996 24.01011967 2,241,867.6
December 31, 1997 30.73197657 2,862,521.1
December 31, 1998 38.74794069 3,085,019.4
High Yield Subaccount..................... December 31, 1990 10.00101048 69,585.9
December 31, 1991 13.25243640 220,366.3
December 31, 1992 14.86894995 279,777.4
December 31, 1993 17.38280181 391,036.8
December 31, 1994 16.93482626 513,297.7
December 31, 1995 20.09026188 671,849.9
December 31, 1996 22.38760536 799,626.6
December 31, 1997 24.92887084 950,571.7
December 31, 1998 25.45748200 1,016,074.5
International Securities Subaccount....... December 31, 1990 10.26630533 118,091.2
December 31, 1991 11.73276972 269,273.6
December 31, 1992 11.46589494 463,523.6
December 31, 1993 13.86795475 792,294.1
December 31, 1994 13.55233761 1,383,676.5
December 31, 1995 15.92618862 1,502,998.2
December 31, 1996 18.16949900 1,956,014.4
December 31, 1997 19.62431480 2,329,410.5
December 31, 1998 22.96087882 2,307,046.6
Investment Grade Subaccount............... December 31, 1992 10.77845214 395,839.5
December 31, 1993 11.82065978 784,651.0
December 31, 1994 11.28602521 923,445.3
December 31, 1995 13.37384783 1,076,644.3
December 31, 1996 13.61638687 1,050,200.1
December 31, 1997 14.80366272 988,996.1
December 31, 1998 15.99733761 1,071,756.2
Target Maturity 2007 Subaccount........... December 31, 1995 11.90553994 775,738.1
December 31, 1996 11.53266965 1,252,102.1
December 31, 1997 12.94581989 1,515,226.0
December 31, 1998 14.73597183 1,547,831.2
Target Maturity 2010 Subaccount........... December 31, 1996 10.81913243 170,708.7
December 31, 1997 12.41073564 381,345.1
December 31, 1998 14.05135661 478,329.7
Utilities Income Subaccount............... December 31, 1993 9.92774964 45,091.7
December 31, 1994 9.11659215 473,447.1
December 31, 1995 11.75759954 1,129,455.9
December 31, 1996 12.75464824 1,689,626.3
December 31, 1997 15.79406311 1,878,396.6
December 31, 1998 17.60340941 2,219,597.9
</TABLE>
7
<PAGE>
TABLE 2: SEPARATE ACCOUNT D
This table shows the accumulation unit values and the number of accumulation
units outstanding for each Subaccount of Separate Account D, on the dates shown.
The accumulation unit value for each Subaccount was initially set at $10.00 on
July 28, 1997.
<TABLE>
<CAPTION>
NUMBER OF
ACCUMULATION ACCUMULATION
SUBACCOUNT AT UNIT VALUE($) UNITS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Blue Chip Subaccount........................... December 31, 1997 10.18519950 426,185.6
December 31, 1998 11.91730629 1,531,169.8
Cash Management Subaccount..................... December 31, 1997 10.15474840 28,344.4
December 31, 1998 10.51737952 82,526.4
Discovery Subaccount........................... December 31, 1997 10.23140687 205,814.9
December 31, 1998 10.39655938 701,595.6
Government Subaccount.......................... December 31, 1997 10.28895863 13,321.1
December 31, 1998 10.91102057 103,476.8
Growth Subaccount.............................. December 31, 1997 10.33626489 346,768.7
December 31, 1998 12.98031991 1,316,750.1
High Yield Subaccount.......................... December 31, 1997 10.42338850 60,209.4
December 31, 1998 10.60191952 325,195.4
International Securities Subaccount............ December 31, 1997 9.30734342 196,448.9
December 31, 1998 10.84633615 536,298.4
Investment Grade Subaccount.................... December 31, 1997 10.33902780 22,448.4
December 31, 1998 11.12810542 156,868.9
Target Maturity 2007 Subaccount................ December 31, 1997 10.62155299 62,839.0
December 31, 1998 12.04205143 302,580.8
Target Maturity 2010 Subaccount................ December 31, 1997 10.79920122 43,680.6
December 31, 1998 12.17798882 188,719.4
Utilities Income Subaccount.................... December 31, 1997 11.67391319 33,306.9
December 31, 1998 12.95932846 449,163.0
</TABLE>
8
<PAGE>
OVERVIEW
This overview highlights some basic information about the two Variable
Annuity Contracts offered by First Investors Life Insurance Company ("First
Investors Life", "We", "Us", or "Our") in this Prospectus. They invest in the
same underlying investment portfolios but have different sales charge and
expense structures and different death benefit features. Separate Account C
Contracts are contracts that are sold with a front-end sales charge. They invest
in Separate Account C. Separate Account D Contracts are contracts which are sold
with a contingent deferred sales charge. They invest in Separate Account D. We
will not accept a purchase of a Separate Account D Contract with the proceeds
from a surrender of a Separate Account C Contract. You will find more
information about the Contracts beginning on page 11 of this Prospectus.
HOW THE CONTRACTS WORK
Like all variable annuity contracts, the Contracts have two phases: an
accumulation period and an annuity income period. During the accumulation
period, earnings on your investment accumulate on a tax-deferred basis. The
annuity income period begins when you start to receive annuity income payments.
You can select one of several annuity income payment options. The amount of your
annuity payments will vary with the performance of the investment options you
have selected as well as the type of annuity option you choose.
During the accumulation period, you invest in investment options or
Subaccounts which, like mutual funds, have different investment objectives. You
can gain or lose money if you invest in these Subaccounts. The amount of money
you accumulate in your contract depends on the performance of the Subaccounts in
which you invest. The Contracts currently offer 11 Subaccounts. Each Subaccount
invests at net asset value in shares of a corresponding "Fund" of First
Investors Life Series Fund ("Life Series Fund"), as shown in the following
table.
SUBACCOUNTS FUND
----------- ----
Blue Chip Subaccount Blue Chip Fund
Cash Management Subaccount Cash Management Fund
Discovery Subaccount Discovery Fund
Government Subaccount Government Fund
Growth Subaccount Growth Fund
High Yield Subaccount High Yield Fund
International Securities Subaccount International Securities Fund
Investment Grade Subaccount Investment Grade Fund
Target Maturity 2007 Subaccount Target Maturity 2007 Fund
Target Maturity 2010 Subaccount Target Maturity 2010 Fund
Utilities Income Subaccount Utilities Income Fund
Each Contract provides a guaranteed death benefit that is payable to a
designated beneficiary when the Annuitant dies. The Separate Account C Contract
guarantees that the beneficiary will receive the greater of (i) the total
purchase payments less any withdrawals or (ii) the Accumulated Value of the
Contract on the date of receipt of written notification of death at our Home
Office or other designated office. The Separate Account D guarantees that the
beneficiary will receive the greater of (i) the total purchase payments less any
withdrawals, (ii) the Accumulated Value of the Contract on the date of receipt
of Due Proof of Death at our Home Office or other designated office, or (iii)
the Accumulated Value on the immediately preceding Specified Contract
Anniversary date (these Anniversary dates occur every 7 years after you purchase
your Contract) plus any additional purchase payments and less any withdrawals.
9
<PAGE>
WHO WE ARE
First Investors Life Insurance Company
--------------------------------------
First Investors Life, 95 Wall Street, New York, New York 10005 is a stock
life insurance company incorporated in New York in 1962. We write life
insurance, annuities and accident and health insurance. First Investors
Consolidated Corporation ("FICC"), a holding company, owns all of the voting
common stock of First Investors Management Company, Inc. and all of the
outstanding stock of First Investors Life, First Investors Corporation ("FIC" or
"Underwriter") and Administrative Data Management Corp., the transfer agent for
the Life Series Fund. Mr. Glenn O. Head, Chairman of FICC, controls FICC and,
therefore, controls First Investors Management Company, Inc. and First Investors
Life.
Separate Accounts C & D
-----------------------
First Investors Life Variable Annuity Fund C is also called the "Tax Tamer"
("Separate Account C"). It was established on December 21, 1989 under New York
Insurance Law. First Investors Life Variable Annuity Fund D is also called the
"Tax Tamer II" ("Separate Account D"). It was established on April 8, 1997 under
New York Insurance Law.
Separate Account C and Separate Account D (each an "Account") are
registered unit investment trusts with the Securities and Exchange Commission
("SEC"). Such registration does not involve SEC supervision of the management or
investment practices or policies of either Account.
We segregate the assets of each Account from our other assets. We cannot
charge liabilities arising out of our other businesses against that portion of
each Account's assets that is approximately equal to the amount that is
necessary to support the Contracts. We credit to, or charge against, the
Subaccounts of each Account realized and unrealized income, gains and losses
without regard to our other income, gains and losses. The obligations under the
Contracts are our obligations.
Each Subaccount invests its assets in a corresponding Fund of the Life
Series Fund at net asset value. Each Subaccount reinvests all distributions
received from a Fund in additional shares of that Fund at net asset value. So,
none of the Subaccounts make cash distributions to Contractowners. Each
Subaccount may make deductions for charges and expenses by redeeming the number
of equivalent Fund shares at net asset value. We value shares of the Funds that
we hold in the Subaccounts at their net asset values.
The Life Series Fund
--------------------
First Investors Life Series Fund is a diversified open-end management
investment company (commonly known as a "mutual fund") registered with the SEC
under the 1940 Act. Registration of the Life Series Fund does not involve
supervision by the SEC of the management or investment practices or policies of
the Life Series Fund. The Life Series Fund offers its shares only through the
purchase of our variable annuity contracts or variable life insurance policies.
It does not offer its shares directly to the general public. The Life Series
Fund reserves the right to offer its shares to other separate accounts of ours
or directly to us.
First Investors Management Company, Inc. (the "Adviser") is the investment
adviser of each Fund. The Adviser is a New York Corporation located at 95 Wall
Street, New York, New York 10005. The Adviser and Life Series Fund have retained
Wellington Management Company, 75 State Street, Boston, Massachusetts 02109
("WMC" or "Subadviser"), to serve as the subadviser of the International
Securities Fund and Growth Fund. See the Life Series Fund Prospectus for more
information about the Adviser and Subadviser as well as the fees that each Fund
paid for the fiscal year ended December 31, 1998.
The Life Series Fund sells its shares to more than one separate account
funding variable annuity contracts or variable life insurance policies.
Consequently, the possibility arises that violation of the federal tax laws by
another separate account investing in the Life Series Fund could cause the
Contracts funded through Separate Account C or Separate Account D to lose their
tax-deferred status, unless remedial action were taken.
10
<PAGE>
WHO SHOULD CONSIDER PURCHASING A CONTRACT
The Contract allows you to accumulate money on a tax-deferred basis for
retirement or other long-term goals and thereafter to annuitize the accumulated
value of your Contract if you wish. Generally, the higher your tax bracket, the
more you will benefit from the tax-deferred feature of the Contract. You should
not purchase a Contract if you are looking for a short-term investment or if you
cannot take the risk of receiving less money than you paid for the Contract. You
may want to consult a tax advisor or other professional before you purchase a
Contract.
RISK AND REWARD CONSIDERATIONS
The Contracts offer you the opportunity to benefit on a tax-deferred basis
from the performance of the underlying investment options that you choose.
However, there are several important factors that you should consider before
making a decision to purchase a Contract:
1. You bear all of the investment risk of the underlying investment options
you choose. You should therefore carefully review the prospectus for the
underlying Life Series Fund before choosing your underlying investments. It
explains the Funds' investment objectives, primary investment strategies, and
primary risks.
2. The Contracts are generally not appropriate choices for the investment
of money that you will need in the short term. You should therefore only invest
money that you will not need in the short term.
3. Generally, it is not advisable to switch from one variable insurance
contract to another because each contract will have a sales charge. For this
reason, we do not allow switches from Separate Account C to Separate Account D.
4. If you are considering purchasing a Contract inside of an individual
retirement account or qualified retirement plan, you should know that the same
tax benefits are available whether you invest in mutual funds or variable
annuities and that variable annuities generally have higher cost structures than
those of mutual funds. The variable annuity's death benefit should be an
important factor if you select a variable annuity.
5. Like other financial services organizations, First Investors Life and
its affiliates could experience problems in processing policy-related requests
and rendering other services if the computers or other systems on which they
rely are not properly programmed to operate after January 1, 2000. (See "OTHER
INFORMATION--Year 2000" for more information.)
THE CONTRACTS IN DETAIL
The Contracts are variable annuity contracts which provide you with the
opportunity to accumulate capital on a tax deferred basis by investing in
underlying subaccounts and thereafter annuitizing your accumulated cash value if
you wish. We offer the Contracts in states where we have the authority to issue
the Contracts. We designed the Contracts to offer lifetime annuity payments to
Annuitants according to several annuity options. The amount of annuity payments
will vary with the investment performance of the Subaccounts as well as the type
of annuity you select. The Contracts obligate us to make payments for the
lifetime of the Annuitant in accordance with the annuity rates in the Contract,
regardless of actual mortality experience (see "Annuity Period"). On the death
of the Annuitant before the Annuity Commencement Date, we pay a death benefit to
the Beneficiary whom you designate. For a discussion of the amount and manner of
payment of this benefit, see "Death of Annuitant During the Accumulation
Period."
You may surrender all or a portion of the Accumulated Value during the
Accumulation Period. For a discussion on withdrawals during the Accumulation
Period, see "Full and Partial Surrenders During the Accumulation Period." For
Federal income tax consequences of a withdrawal, see "Tax Information." The
exercise of any Contract right, including the right to make a withdrawal during
the Accumulation Period, is subject to the terms and conditions of any qualified
trust or plan under which the Contracts are purchased. This Prospectus contains
no information concerning such trust or plan.
11
<PAGE>
We reserve the right to amend the Contracts to meet the requirements of the
1940 Act or other applicable Federal or state laws or regulations.
Contractowners with any inquiries concerning their account should write to
us at our Home Office, 95 Wall Street, New York, New York 10005.
PURCHASE PAYMENTS
Your initial purchase payment must be at least (a) $2,000 for a Contract
under Separate Account C and (b) $25,000 for a Contract under Subaccount D. You
may make an Additional Payment under a Contract of at least $200 at any time
after Contract issuance under Separate Account C or Separate Account D. We will
not accept a purchase of a Separate Account D Contract with the proceeds from a
surrender of a Separate Account C Contract.
We credit an initial purchase payment (less any charges) to a
Contractowner's Account on the Valuation Date that we receive it, provided that
we have received a properly completed application. We credit an Additional
Payment to a Contractowner's Account on the Valuation Date that we receive it.
If we receive an incomplete application from you, you must provide us with all
required information not later than five business days following the receipt of
such application. Otherwise, we will return the purchase payment to you at the
end of the five-day period.
Your purchase payments buy Accumulation Units of the Subaccounts and not
shares of the Funds in which the Subaccounts invest. We allocate purchase
payments to the appropriate Subaccount or Subaccounts based on the next computed
value of an Accumulation Unit following receipt at our Home Office or other
designated office. For Separate Account C, we make these allocations after
deductions for sales expenses (SEE "Separate Account C-Sales Charge Deducted
from Purchase Payments"). We value Accumulation Units at the end of each
Valuation Date (I.E., as of the close of regular trading on the NYSE, normally
4:00 P.M., Eastern Time).
ALLOCATION OF NET PURCHASE PAYMENTS TO SUBACCOUNT(S)
When you purchase a Contract, you allocate (a) your net purchase payment
and (b) any additional purchase payments (less any charges) to at least one
Subaccount of an Account.
You may:
. choose up to five Subaccounts,
. allocate no less than 10% of a purchase payment (less any charges) to
any Subaccount (we reserve the right to adjust your allocation to
eliminate fractional percentages), and
. transfer part or all of your cash value in a Subaccount to one or
more other Subaccounts (subject to the two limitations immediately
above) twice during a Contract year in Separate Account C (six times
in certain states) and 12 times during a Contract year in Separate
Account D.
Each Subaccount invests its assets at net asset value in shares of the
corresponding Fund of Life Series Fund. For example, the Blue Chip Subaccount
invests in the Blue Chip Fund, the Government Subaccount invests in the
Government Fund, and so on.
The Funds of the Life Series Fund have different investment objectives,
investment strategies, and investment risks. The Funds also have different
expenses. The Life Series Fund's Prospectus describes each Fund in detail. There
is no assurance that any Fund will realize its investment objective. The cash
value of your Contract may increase or decrease depending on the investment
performance of the Subaccounts that you choose.
SALES CHARGE
We impose a sales charge for both Separate Account C and Separate Account
D. For Separate Account C, the sales charge is an initial sales charge that we
deduct from your purchase payments. For Separate Account D, the sales charge is
12
<PAGE>
a contingent deferred sales charge ("CDSC") that may be deducted from the
proceeds that we pay you on a full or partial surrender.
SEPARATE ACCOUNT C - SALES CHARGE DEDUCTED FROM PURCHASE PAYMENTS. We
intend the sales charge to cover expenses relating to the sale of the Contracts,
including commissions paid to persons distributing the Contracts. Discounts are
available on larger purchases. Moreover, when you make Additional Payments after
the issuance of the Contract you are entitled to a credit for all prior payments
in computing the sales charge percentage. In other words, you pay the sales
charge percentage that reflects (a) the total amount of all purchase payments
previously made plus (b) the amount of the Additional Payment being made.
DEDUCTION TABLE
SALES CHARGE AS % OF AMOUNT TO
PURCHASE NET AMOUNT DEALERS AS % OF
AMOUNT OF PURCHASE PAYMENT(S) PAYMENTS* INVESTED PURCHASE PAYMENTS
Less than $25,000...................... 7.00% 7.53% 5.75%
$25,000 but under $50,000.............. 6.25 6.67 5.17
$50,000 but under $100,000............. 4.75 4.99 3.93
$100,000 but under $250,000............ 3.50 3.63 2.90
$250,000 but under $500,000............ 2.50 2.56 2.19
$500,000 but under $1,000,000.......... 2.00 2.04 1.67
$1,000,000 or over..................... 1.50 1.52 1.24
* Assumes that we have deducted no Premium taxes.
We do not impose a sales charge for Contracts sold to (a) officers and
full-time employees of First Investors Life or its affiliates who have been
employed for at least one year, (b) our agents who have been under contract for
at least one year, or (c) Contractowners of First Investors Life Variable
Annuity Fund A ("Separate Account A") who exchange their Separate Account A
Contracts for Separate Account C Contracts at the next computed values of their
Accumulation Units. We require Contractowners who exchange from Separate Account
A to Separate Account C to execute a change of contract form. This form states
that we deduct a daily charge equal to an annual rate of 1.00% of the daily
Accumulation Unit value of any Subaccount as a charge for mortality and expense
risks. We may modify or terminate this exchange privilege at any time.
SEPARATE ACCOUNT D - SALES CHARGE DEDUCTED FROM SURRENDER PROCEEDS. For
Separate Account D, we sell the Contracts without an initial sales charge.
However, we deduct a contingent deferred sales charge ("CDSC") from the proceeds
that we pay you on a full or partial surrender. The CDSC is a percentage of the
amount that you surrender (not to exceed the aggregate amount of your purchase
payments). The CDSC percentage declines, in accordance with the Table below,
from 7% to 0% over a seven-year period from the date purchase payments are
received to the date of their surrender. If you have made purchase payments at
different times, the CDSC on any one purchase payment will depend upon the
length of time from our receipt of the payment to the time of its surrender.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE TABLE
----------------------------------------------------------------------------------------------------------
Contingent Deferred Sales Charge
as a Percentage of Purchase Payments Length of Time from Purchase Payment in Years
Surrendered
<S> <C>
7% Less than 1
6% 1-2
5% 2-3
4% 3-4
3% 4-5
2% 5-6
1% 6-7
0% More than 7
----------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
You will not be charged a CDSC on partial surrenders during any Contract
Year up to the annual Withdrawal Privilege Amount of 10% of Purchase Payments.
You will be subject to a CDSC on any excess over this Amount at the applicable
CDSC percentage in the Table. And, of course, this Withdrawal Privilege does not
apply to full surrenders. In calculating such a CDSC, we will assume that amount
on which you are paying the CDSC is coming first from surrenders of purchase
payments (i.e., your cost basis in your contract) and thereafter from any
Accumulated Value other than purchase payments (i.e., your gain). If you have
made purchase payments at different times, your purchase payments will be
treated as being surrendered in the order that we have received them (i.e.,
first-in, first-out).
We will also not assess a CDSC:
. in the event of the death of the Annuitant or the Contractowner,
. if you apply the Accumulated Value to an annuity option under the
contract, or
. for surrenders used to pay Premium taxes.
For information concerning the Annuity Options and the Withdrawal
Privilege, see "Annuity Options" and "Full and Partial Surrenders During the
Accumulation Period."
MORTALITY AND EXPENSE RISK CHARGES
We impose mortality and expense risk charges for both Separate Account C
and Separate Account D. The charges are different for each of these Separate
Accounts reflecting the difference in the death benefits offered by the two
Contracts.
The mortality risk that we assume arises from our obligation to continue to
make Fixed or Variable Annuity payments, determined in accordance with the
provisions of the Contracts, to each Annuitant regardless of (a) how long that
person lives and (b) how long all payees as a group live. This assures an
Annuitant that neither the Annuitant's own longevity nor an improvement in life
expectancy generally will have any adverse effect on the variable annuity
payments the Annuitant will receive under the Contract. Moreover, these factors
may reduce the risk that the Annuitant will outlive the funds that the Annuitant
has accumulated for retirement. We also assume mortality risk as a result of our
guarantee of a minimum payment in the event of the death prior to the Annuity
Commencement Date of the Annuitant under Separate Account C and the Annuitant or
the Contractowner named in the original application for the Contract under
Separate Account D.
In addition, we assume the risk that the charges for administrative
expenses may not be adequate to cover such expenses. We will not increase the
amount we charge for administrative expenses. In consideration for our
assumption of these mortality and expense risks, we deduct an amount equal on an
annual basis to the following percentage of the daily Accumulation Unit value of
the Subaccounts:
. For Separate Account C, 1.00%, of which approximately 0.60% is for
assuming the mortality risk and 0.40% is for assuming the expense
risk.
. For Separate Account D, 1.25%, of which approximately 0.85% is for
assuming the mortality risk and 0.40% is for assuming the expense
risk.
We guarantee that we will not increase the mortality and expense risk
charges during the term of any Contract. If the charges are insufficient to
cover the actual cost of the mortality and expense risks, the loss will fall on
us. Conversely, if the deductions prove more than sufficient, the excess will be
a profit to us. We can use any profits resulting to us from over-estimates of
the actual costs of the mortality and expense risks for any business purpose,
including the payment of expenses of distributing the Contracts. These profits
will not remain in Separate Account C or Separate Account D.
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<PAGE>
Other Charges
Administrative Charge
---------------------
For Separate Account C, we may deduct an administrative charge of $7.50
annually from the Accumulated Value of Contracts that have an Accumulated Value
of less than $1,500 because of partial surrenders. These charges are to
compensate us for expenses involved in administering small accounts. If the
actual expenses exceed charges, we will bear the loss. For Separate Account D,
we deduct an amount equal annually to 0.15% of the daily net asset value of the
Subaccounts for the expense of administering the Contract. We guarantee that we
will not increase the administrative charges during the term of any Contract.
Contract Maintenance Charge
---------------------------
For Separate Account D, we deduct a $30.00 Contract Maintenance Charge from
the Accumulated Value, on (a) the last business day of each Contract Year or (b)
the date of surrender of the Contract, if earlier. This charge will not exceed
2% of the Accumulated Value. We make the charge against the Accumulated Value by
proportionately reducing the number of Accumulation Units held in each of your
Subaccounts of Separate Account D. We guarantee that we will not increase this
charge during the term of any Contract.
Premium Tax Charge
------------------
Some states assess Premium taxes at the time you:
. make purchase payments,
. surrender, or
. begin receiving annuity payments.
We currently advance any Premium taxes due at the time you make purchase
payments and then deduct Premium taxes from the Accumulated Value of the
Contract at the time of surrender, on death of the Annuitant or when annuity
payments begin. However, we reserve the right to deduct Premium taxes when
incurred. See "Appendix I" for Premium tax table.
Expenses
--------
Total Separate Account expenses for the fiscal year ended December 31, 1998
amounted to $4,598,846 or 1.00% of average net assets for Separate Account C and
$555,026 or 1.42% of average net assets for Separate Account D. The Funds have
expenses that they pay out of their assets.
THE ACCUMULATION PERIOD
Crediting Accumulation Units
----------------------------
During the Accumulation Period, we credit purchase payments on the
Contracts to the Contractowner's Individual Account in the form of Accumulation
Units. We determine the number of Accumulation Units that we credit to a
Contractowner for the Subaccounts by dividing (a) the purchase payment (less any
charges) by (b) the value of an Accumulation Unit for the Subaccount. We make
this valuation after we receive the purchase payment at our Home Office or other
designated office.
The value of the Contractowner's Individual Account varies with the value
of the assets of the Subaccounts. The investment performance of the Subaccounts,
expenses, and deduction of certain charges affect the value of an Accumulation
Unit. There is no assurance that the value of your Individual Account will equal
or exceed purchase payments. We determine your Individual Account for a
Valuation Period by multiplying (a) the total number of Accumulation Units we
credit to the Subaccount by (b) the value of an Accumulation Unit for the
Subaccount for the Valuation Period.
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<PAGE>
Death of Annuitant During the Accumulation Period
-------------------------------------------------
If the Annuitant dies prior to the Annuity Commencement Date, we pay a
Death Benefit to the Beneficiary you have designated. We make this payment when
we receive (a) a death certificate or similar proof of the death of the
Annuitant ("Due Proof of Death") and (b) a First Investors Life Claimant's
Statement that includes notification of the Beneficiary's election to receive
payment in either a single sum settlement or an Annuity Option. We determine the
value of the Death Benefit as of the next computed value of the Accumulation
Units following our receipt at our Home Office or other designated office of
written notification of death, in the case of Separate Account C, or Due Proof
of Death in the case of Separate Account D.
If you do not elect payment of the Death Benefit under one of the Annuity
Options before the Annuitant's death, the Beneficiary may elect to have the
Death Benefit (a) paid in a single sum or (b) applied to provide an annuity
under one of the Annuity Options or (c) as we otherwise permit. If the
Beneficiary elects a single sum settlement, we pay the amount of the Death
Benefit within seven days of receipt of Due Proof of Death and a Claimant's
Statement.
If the Beneficiary wants an Annuity Option, the Beneficiary has up to 60
days commencing with the date of our receipt of Due Proof of Death to select an
Annuity Option. If the Beneficiary does not make a selection by the end of the
60-day period, we pay a single sum settlement to the Beneficiary. If the
Beneficiary selects any Annuity Option, the Annuity Commencement Date is the
date specified in the election. That date may be no later than 60 days after
receipt by us of Due Proof of Death.
The amount of the Death Benefit payable on the death of the Annuitant is as
follows:
. For Separate Account C, the greater of (a) the total purchase
payments less withdrawals or (b) the Accumulated Value on the date of
receipt of written notification of death at our Home Office, or other
designated office.
. For Separate Account D, the greatest of (a) the total purchase
payments less any withdrawals; (b) the Accumulated Value on the date
of receipt of Due Proof of Death at our Home Office or other
designated office; or (c) the Accumulated Value on the immediately
preceding Specified Contract Anniversary, increased by any additional
purchase payments and decreased by any partial surrenders since that
anniversary. The Specified Contract Anniversary is every seventh
contract anniversary (i.e., 7th, 14th, 21st, etc.).
The following example demonstrates how the amount of Death Benefit payable
would be determined for a Separate Account D Contract assuming (1) the Purchase
Payment is $50,000; (2) no additional Purchase Payments or Partial Surrenders
have been made; (3) the Annuitant's death occurs in Policy year 9 when the
Accumulated Value is $70,000; and (4) the Accumulated Value on the 7th Contract
Anniversary (the immediately preceding Specified Contract Anniversary) is
$80,000.
The amount of Death Benefit payable would therefore be $80,000, which is
the greater of (a) (b) or (c) as shown below.
(a) (b) (c)
Total Purchase Payments Accumulated Value of Accumulated Value on
less any withdrawals Contract on the date of 7th Contract
receipt Anniversary
of Due Proof of Death
$50,000 $70,000 $80,000
Death of Contractowner During the Accumulation Period
-----------------------------------------------------
If the Contractowner dies before we have distributed the entire interest in
the Contract, we must distribute the value of the Contract to the Beneficiary as
provided below. Otherwise, the Contract will not qualify as an annuity under
16
<PAGE>
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code"). Under
Separate Account C, the entire interest of the Contractowner who dies is the
Accumulated Value of the Contract. Under Separate Account D, if the
Contractowner who dies is the one named in the original application for the
Contract, the entire interest of that Contractowner in the Contract is the same
as if the Contractowner had been the Annuitant; if the Contractowner who dies is
not the one named in the original application for the Contract, the entire
interest of that Contractowner is the Accumulated Value of the Contract.
If the death of the Contractowner occurs prior to the Annuity Commencement
Date, we will distribute the entire interest in the Contract to the Beneficiary
(a) within five years, or (b) beginning within one year of death, under an
Annuity Option that provides that we will make annuity payments over a period
not longer than the life or life expectancy of the Beneficiary. If the Contract
is payable to (or for the benefit of) the Contractowner's surviving spouse, we
need not make any distribution. The surviving spouse may continue the Contract
as the new Contractowner. If the Contractowner is also the Annuitant, the spouse
has the right to become the Annuitant under the Contract. Likewise, if the
Annuitant dies and the Contractowner is not a natural person, the Annuitant's
surviving spouse has the right to become the Contractowner and the Annuitant.
Full and Partial Surrenders During the Accumulation Period
----------------------------------------------------------
You may by written request make a full or partial surrender of your
Contract, at any time before the earlier of the Annuity Commencement Date or the
death of the Annuitant or Contractowner. You will be entitled to receive:
. For Separate Account C, the net Accumulated Value of the Contract or,
in the case of a partial surrender, the portion surrendered.
. For Separate Account D, the Accumulated Value of the Contract or, in
the case of a partial surrender, the portion surrendered less (a) any
applicable CDSC, (b) the Contract Maintenance Charge and (c) any
applicable Premium taxes not previously deducted.
A surrender request is effective on the date it is received in writing at
our Home Office or other designated office. Your Accumulated Value will be
determined based on the next computed value of Accumulation Units following our
receipt of your written request. We may defer payment of the amount of the
surrender for a period of not more than seven days. We may also postpone such
payment during any period when:
. trading on the NYSE is restricted as the SEC determines or the NYSE
is closed for other than weekends and holidays;
. the SEC has by order permitted such suspension; or
. any emergency, as defined by SEC rules, exists when the sale of
portfolio securities or calculation of securities is not reasonably
practicable.
In the case of a partial surrender, unless you direct us otherwise, the
amount you request will be deducted from your Subaccounts on a pro rata basis in
the proportions to which their values bear to the Accumulated Value of your
Contract. For Separate Account D, the amount remaining must be at least equal to
our minimum balance requirement (currently $5,000). For Separate Account C,
there is no minimum balance requirement. However, we may deduct an
administrative charge of $7.50 annually if the surrender causes the value of
your Contract to fall below $1,500. As noted previously, on a non-cumulative
basis, you may make partial surrenders of a Separate Account D Contract during
any Contract Year up to the annual Withdrawal Privilege Amount of 10% of
Purchase Payments without incurring a CDSC. Amounts surrendered under the
Withdrawal Privilege are treated as being from Accumulated Values other than
Purchase Payments.
For more information on fees, charges, and tax consequences on surrenders,
see "THE CONTRACTS IN DETAIL -- Sales Charge, Mortality and Expense Risk
Charges, and Other Charges"; "Tax Information"; and "Other Charges."
17
<PAGE>
Annuity Commencement Date Exchange Privilege (for Separate Account C only)
- --------------------------------------------------------------------------
If you fully surrender this Contract during the one-year period preceding
its Annuity Commencement Date, you can use the proceeds to purchase Class A
shares of First Investors mutual funds without incurring a sales charge.
THE ANNUITY PERIOD
Commencement Date
-----------------
Annuity payments begin on the Annuity Commencement Date you select when you
buy a Contract. You may elect in writing to advance or defer the Annuity
Commencement Date, not later than 30 days before the Annuity Commencement Date.
You may defer the Annuity Commencement Date until the first day of the calendar
month after -
. for Separate Account C, the Annuitant's 85th birthday or, if state
law permits, 90th birthday.
. for Separate Account D, the Annuitant's 90th birthday.
If you elect no other date, annuity payments will commence on the Contract
anniversary date after -
. for Separate Account C, the Annuitant's 85th birthday, or, if state
law permits, 90th birthday.
. for Separate Account D, the Annuitant's 90th birthday.
If the net Accumulated Value on the Annuity Commencement Date is less than
$2,000, we may pay such value in one sum in lieu of annuity payments. If the net
Accumulated Value is $2,000 or more, but the variable annuity payments are less
than $20, we may change the frequency of annuity payments to intervals that will
result in payments of at least $20.
Assumed Investment Rate
-----------------------
We build a 3.5% assumed investment rate into the Contract's Annuity Tables,
which are used to determine the amount of the monthly annuity payments. A higher
rate would mean a higher initial payment but more slowly rising and more rapidly
falling subsequent Variable Annuity payments. A lower rate would have the
opposite effect. If the actual net investment rate of the Subaccounts is at the
annual rate of 3.5%, the Variable Annuity payments will be level. A Fixed
Annuity features annuity payments that remain fixed as to dollar amount
throughout the payment period and an assumed interest rate of 3.5% per year
built into the Annuity Tables in the Contract.
Annuity Options
---------------
You may elect to receive payments under any one of the Annuity Options in
the Contract. You may make this election at any time at least 30 days before the
Annuity Commencement Date on written notice to us at our Home Office or other
designated office. If no election is in effect on the Annuity Commencement Date,
we will make annuity payments on a variable basis only under Annuity Option 3
below, Life Annuity with 120 Monthly Payments Guaranteed. This is the Basic
Annuity.
The material factors that determine the level of your annuity benefits are:
. the value of your Individual Account, as described in this
Prospectus, before the Annuity Commencement Date;
. the Annuity Option you select;
. the frequency and duration of annuity payments;
. the sex and adjusted age of the Annuitant and any Joint Annuitant at
the Annuity Commencement Date; and
18
<PAGE>
. in the case of a variable annuity, the investment performance of the
Subaccounts you select.
We apply the Accumulated Value on the Annuity Commencement Date, reduced by
any applicable Premium taxes not previously deducted, to provide (a) the Basic
Annuity or (b) if you have elected an Annuity Option, one of the Annuity Options
we describe below.
The Contracts provide for the six Annuity Options described below:
Option 1 - LIFE ANNUITY. An annuity payable monthly during the lifetime of
the Annuitant, ceasing with the last payment due before the death of the
Annuitant. If you elect this Option, annuity payments terminate automatically
and immediately on the death of the Annuitant without regard to the number or
total amount of payments received.
Option 2a - JOINT AND SURVIVOR LIFE ANNUITY. An annuity payable monthly
during the joint lifetime of the Annuitant and the Joint Annuitant and
continuing thereafter during the lifetime of the survivor, ceasing with the last
payment due before the death of the survivor.
Option 2b - JOINT AND TWO-THIRDS TO SURVIVOR LIFE ANNUITY. An annuity
payable monthly during the joint lifetime of the Annuitant and the Joint
Annuitant and continuing thereafter during the lifetime of the survivor at an
amount equal to two-thirds of the joint annuity payment, ceasing with the last
payment due before the death of the survivor.
Option 2c - JOINT AND ONE-HALF TO SURVIVOR LIFE ANNUITY. An annuity payable
monthly during the joint lifetime of the Annuitant and the Joint Annuitant and
continuing thereafter during the lifetime of the survivor at an amount equal to
one-half of the joint annuity payment, ceasing with the last payment due before
the death of the survivor.
Under Annuity Options 2a, 2b and 2c, annuity payments terminate
automatically and immediately on the deaths of both the Annuitant and the Joint
Annuitant without regard to the number or total amount of payments received.
Option 3 - LIFE ANNUITY WITH 60, 120 OR 240 MONTHLY PAYMENTS GUARANTEED. An
annuity payable monthly during the lifetime of the Annuitant, with the guarantee
that if, at his or her death, payments have been made for less than 60, 120 or
240 monthly periods, as elected, we will continue to pay to the Beneficiary any
guaranteed payments during the remainder of the selected period and, if the
Beneficiary dies after the Annuitant, we will pay the Beneficiary's estate the
present value of the remainder of the guaranteed payments. The present value of
the remaining payments is the discounted (or reduced) amount which would produce
the total of the remaining payments assuming that the discounted amount grew at
the effective annual interest rate assumed in the Annuity Tables of the
Contract. Pursuant to the 1940 Act, the Beneficiary may also, at any time he or
she is receiving guaranteed payments, elect to have us pay him or her the
present value of the remaining guaranteed payments in a lump sum.
Option 4 - UNIT REFUND LIFE ANNUITY. An annuity payable monthly during the
lifetime of the Annuitant, terminating with the last payment due before the
death of the Annuitant. We make an additional annuity payment to the Beneficiary
equal to the following. We take the Annuity Unit value of the Subaccount or
Subaccounts as of the date that we receive notice of death in writing at our
Home Office or other designated office. We multiply that value by the excess, if
any, of (a) over (b). For this purpose, (a) is (i) the net Accumulated Value we
allocate to each Subaccount and apply under the option at the Annuity
Commencement Date, divided by (ii) the corresponding Annuity Unit Value as of
the Annuity Commencement Date, and (b) is the product of (i) the number of
Annuity Units applicable under the Subaccount represented by each annuity
payment and (ii) the number of annuity payments made. (For an illustration of
this calculation, see Appendix II, Example A, in the Statement of Additional
Information.)
Annuity Election
----------------
You may elect to have the net Accumulated Value applied at the Annuity
Commencement Date to provide a Fixed Annuity, a Variable Annuity, or any
combination thereof. After the Annuity Commencement Date, we allow no transfers
or redemptions where we are making payments based upon life contingencies. You
19
<PAGE>
must make these elections in writing to us at our Home Office or other
designated office at least 30 days before the Annuity Commencement Date. In the
absence of an election, we make annuity payments on a variable basis only under
Annuity Option 3 above. Option 3 is the Basic Annuity, a Life Annuity with 120
Monthly Payments Guaranteed.
Death of Contractowner During Annuity Period
--------------------------------------------
If the death of the Contractowner occurs on or after the Annuity
Commencement Date, we will distribute the entire interest in the Contract at
least as rapidly as under the Annuity Option in effect on the date of death.
Death of Annuitant
------------------
On receipt of Due Proof of Death of the Annuitant after annuity payments
have begun under an Annuity Option, we make any remaining payments under the
Option to the Beneficiary as provided by the Option.
Unless otherwise provided in the Beneficiary designation, if no Beneficiary
survives the Annuitant, the proceeds will be paid in one sum to the
Contractowner, if living; otherwise, to the Contractowner's estate.
TEN-DAY REVOCATION RIGHT
You may elect to cancel your Contract (a) within ten days from the date
your Contract is delivered to you or (b) longer as applicable state law
requires. We will cancel the Contract after we receive from you (a) the Contract
and (b) a written request for cancellation, at our Home Office or other
designated office. We will pay you an amount equal to the following:
. for Separate Account C, the sum of (a) the Accumulated Value of the
Contract on the date of surrender and (b) the amount of any sales
charges deducted from the initial purchase payment; and
. for Separate Account D, the sum of (a) the difference between the
purchase payments made under the Contract and the amount allocated to
Separate Account D under the Contract and (b) the Accumulated Value
of the Contract on the date of surrender.
Whether you are canceling a Separate Account C or D Contract, the amount we
refund to you may be more or less than your initial purchase payment depending
on the investment results of the Subaccount or Subaccounts to which you
allocated purchase payments. However, in states that require a full refund of
premiums, if you elect to exercise to cancel the Contract under the ten-day
revocation right, on cancellation, you receive a full refund of the Purchase
Payment.
TAX INFORMATION
GENERAL
We base this discussion on our understanding of the federal income tax law
and interpretations in effect on the date of this Prospectus. The discussion
assumes that the contractowner is a natural person who is a U.S. citizen and
U.S. resident. The tax effect on corporate taxpayers, non-U.S. citizens, and
non-U.S. residents may be different. That law and interpretations could change,
possibly retroactively. The discussion is general in nature. We do not intend it
as tax advice, for which you should consult a qualified tax adviser.
We discuss only federal income taxes and not state or other taxes.
Taxation of the Contracts will depend, in part, on whether the Contract is
purchased outside of a qualified retirement plan or an individual retirement
account ("Non-Qualified Contracts") or as part of an individual retirement
account or qualified plan ("Qualified Contracts").
20
<PAGE>
NON-QUALIFIED CONTRACTS
Purchase Payments
-----------------
Your purchase payments under a Non-Qualified Contract are not deductible
from your gross income for tax purposes.
Increases in Accumulated Value Before Distribution from Contract
----------------------------------------------------------------
Generally, there is no tax on increases in your Contract's Accumulated
Value until there is a distribution from a Non-Qualified Contract. A
distribution could include a surrender or an annuity payment. However, the
Contractowner is subject to tax on such increases, even before a distribution,
in the following two situations:
. The Contractowner is not a natural person, subject to exceptions.
. The investments of the Separate Accounts do not meet certain
diversification or "investor controls" tests, discussed below.
Annuity Payments
----------------
Once annuity payments begin, a portion of each payment is taxable as
ordinary income. The remaining portion is a nontaxable recovery of your
investment in the contract. Generally, your investment in the Contract equals
the purchase payments you made, less any amounts you previously withdrew that
were not taxable.
For fixed annuity payments, the tax-free portion of each payment is
determined by:
. dividing your investment in the Contract by the total amount you
expect to receive out of the Contract and
. multiplying the result by the amount of the payment.
For Variable Annuity payments, the tax-free portion of each payment is (a)
your investment in the Contract divided by (b) the number of expected payments.
The remaining portion of each payment, and all of the payments you receive
after you recover your investment in the Contract, are fully taxable. If
payments under a life annuity stop because the Annuitant dies, there is an
income tax deduction for any unrecovered investment in the contract.
Distributions Other than Annuity Payments
-----------------------------------------
Before annuity payments begin, the Code taxes distributions from
Non-Qualified Contracts as follows:
. a total or partial surrender is taxed in the year of receipt to the
extent that the Contract's Accumulated Value exceeds the investment
in the Contract;
. a loan under, or an assignment or pledge of, a Contract is taxed in
the same manner as a partial or total surrender;
. a penalty equal to 10% of the taxable distribution applies to
distributions before the taxpayer's age 59-1/2, subject to certain
exceptions; and
. the Code treats all Contracts that we issue to you in the same
calendar year as a single Contract. Consequently, you should consult
your tax advisor before buying more than one Contract in any calendar
year.
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Diversification and Control Tests
---------------------------------
The Subaccounts of Separate Account C and Separate Account D must meet the
Code's investment diversification test. Each Subaccount meets the test if:
. the investments of the Fund in which the Subaccount invests are
diversified according to certain limits;
. the Fund in which the Subaccount invests is a regulated investment
company under the Code;
. all shares of the Fund are owned only by (a) Separate Account C,
Separate Account D, or similar accounts of First Investors Life or
other insurance companies, (b) a life insurance company general
account, or (c) the Adviser, in starting or managing the Fund (in the
case of (b) and (c) of this paragraph, there must be no intention to
sell shares to the general public); (d) the trustee of a qualified
pension or retirement plan; and
. access to the Fund is available only through the purchase of
Contracts, or other Variable Annuity or life insurance products of
First Investors Life or other insurance companies.
If Separate Account C or Separate Account D failed the diversification
test, you would be taxed on increases in the value of any Contract you own that
is supported by the Separate Account that failed the test. The tax would apply
from the first quarter of the failure, until we corrected the failure in
conformity with a Treasury Department procedure.
The Contracts must also meet an "investor control" test, which the Treasury
Department has said it may address in guidelines through regulations or rulings.
This test could specify that your control over allocation of values among
different investments may cause you to be treated as the owner of Separate
Account C or Separate Account D assets, as applicable, for tax purposes. We
reserve the right to amend the Contracts in any way necessary to avoid this
result. As of the date of this prospectus, the Treasury Department has issued no
guidelines on the subject. However, the Department has informally indicated that
guidelines could limit the number of underlying funds or the frequency of
transfers among those funds. The guidelines may apply only prospectively,
although retroactive effect is possible if the guidelines do not embody a new
position. Failure of the "control test" would result in current taxation to you
of increases in your Contract value.
QUALIFIED PLAN CONTRACTS
Taxation of a Contract depends, in part, on the provisions of the
applicable plan where the Contract is issued to:
. a qualified individual retirement account;
. a qualified corporate employee pension and profit-sharing plan; or
. a retirement or deferred compensation plan that does not meet the
requirements applicable to a qualified plan.
Some of tax rules applicable to such Contracts are similar to tax rules
applicable to Non-Qualified Contracts, including: (a) deferral of the taxation
until you receive a distribution, (b) taxation of a part of each distribution or
annuity payment, and (c) the 10% penalty on early distributions.
WITHHOLDING
The Code generally requires us to withhold income tax from any Contract
distribution, including a total or partial surrender or an annuity payment. The
amount of withholding depends, in part, on whether the payment is "periodic" or
"non-periodic."
For periodic payments (E.G., annuity payments), we withhold from the
taxable portion of each payment based on a payroll withholding schedule that
assumes a married recipient claiming three withholding exemptions. If you want
us to withhold on a different basis, you must file an appropriate withholding
22
<PAGE>
certificate with us. For non-periodic payments (E.G., distributions such as
partial surrenders), we generally withhold 10% of the taxable portion of each
payment.
You may elect not to have the withholding rules apply. For periodic
payments, that election is effective for the calendar year for which you file it
with us, and for each subsequent year until you amend or modify it. For
non-periodic payments, an election is effective when you file it with us, but
only for the payment to which it is applicable. We have to notify your
recipients of your right to elect not to have taxes withheld.
The Code generally requires us to report all payments to the Internal
Revenue Service.
OUR TAX STATUS
The Code taxes us as a life insurance company. The Code taxes Separate
Account C and Separate Account D as part of our overall operation. Currently, we
do not charge Separate Account C and Separate Account D for an allocable portion
of our federal income taxes. However, we do reserve the right to impose such a
charge if it becomes necessary in the future.
PERFORMANCE INFORMATION
From time to time, Separate Account C and Separate Account D may advertise
several types of performance information for the Subaccounts. Each Subaccount
(other than the Cash Management Subaccount) may advertise "average annual total
return" and "total return." The Cash Management Subaccount may advertise "yield"
and "effective yield." The High Yield Subaccount, Investment Grade Subaccount
and Government Subaccount may also advertise "yield." These figures are based on
historical results. They are not intended to indicate future performance. For
Separate Account C, the yield and effective yield figures include the payment of
the Mortality and Expense Risk Charge of 1.00%, but do not include the maximum
sales charge of 7.00%.
The "total return" of a Subaccount is the total change in value of an
investment in the Subaccount over a period of time, expressed as a percentage.
"Average annual total return" is the rate of return that would produce that
change in value over the specified period, if compounded annually. For Separate
Account C, average annual total return and total return figures include the
deduction of all expenses and fees, including the payment of the Mortality and
Expense Risk Charge of 1.00% and the maximum sales charge of 7.00%. We may also
advertise these figures without any sales charges, but assuming the payment of
all recurring Separate Account charges, including the Mortality and Expense Risk
Charge of 1.00% (non-standardized performance information).
For Separate Account D, average annual total return figures may reflect the
effect of the CDSC (pursuant to a standardized formula prescribed by the SEC),
or may not reflect the effect of the CDSC (non-standardized performance
information). For Separate Account D, we may also advertise total return figures
on the same basis as average annual total return figures (with or without
showing the effect of the CDSC). Quotations of return not reflecting the CDSC
will be greater than those reflecting the CDSC.
The "yield" of a Subaccount refers to the income that an investment in the
Subaccount generates over a one-month or 30-day period (seven-day period for the
Cash Management Account), excluding realized and unrealized capital gains and
losses in the corresponding Fund's investments. We then "annualize" this income
and show it as a percentage of the value of the Subaccount's Accumulation Units.
We calculate the "effective yield" of the Cash Management Subaccount similarly,
but, when we annualize it, we assume the reinvestment in that Subaccount of any
income earned by that Subaccount. The Cash Management Subaccount's effective
yield will be slightly higher than its yield due to the compounding effect of
this assumed reinvestment.
Neither the total return nor the yield figures reflect deductions for
Premium taxes, since most states do not impose those taxes.
For further information on performance calculations, see "Performance
Information" in the Statement of Additional Information.
23
<PAGE>
OTHER INFORMATION
VOTING RIGHTS
Because the Life Series Fund is not required to have annual shareholder
meetings, Contractowners generally will not have an occasion to vote on matters
that pertain to the Life Series Fund. In certain circumstances, the Fund may be
required to hold a shareholders meeting or may choose to hold one voluntarily.
For example, a Fund may not change fundamental investment objectives or
investment policies without the approval of a majority vote of that Fund's
shareholders in accordance with the 1940 Act. Thus, if the Fund sought to change
fundamental investment objectives or investment policies, contractowners would
have an opportunity to provide voting instructions for shares of a Fund held by
a Subaccount in which their Contract invests.
We would vote the shares of any Fund held in a corresponding Subaccount or
directly, at any Fund shareholders meeting as follows:
. shares attributable to Contractowners for which we received
instructions, would be voted in accordance with the instructions;
. shares attributable to Contractowners for which we did not receive
instructions, would be voted in the same proportion that we voted
shares held in the Subaccount for which we received instructions; and
. shares not attributable to Contractowners, would be voted in the same
proportion that we voted shares held in the Subaccount attributable
to Contractowners for which we received instructions.
We will vote Fund shares that we hold directly in the same proportion that
we vote shares held in any corresponding Subaccounts that are attributable to
Contractowners and for which we receive instructions. However, we will vote our
own shares as we deem appropriate where there are no shares held in any
Subaccount. We will present all the shares of any Fund that we held through a
Subaccount or directly at any Fund shareholders meeting for purposes of
determining a quorum.
We will determine the number of Fund shares held in a corresponding
Subaccount that is attributable to each Contractowner as follows:
. before the Annuity Commencement Date, we divide the Subaccount's
Accumulated Value by the net asset value of one Fund share, and
. after the Annuity Commencement Date, we divide the reserve held in
the Subaccount for the variable annuity payment under the Contracts
by the net asset value of one Fund share. As this reserve fluctuates,
the number of votes fluctuates.
We will determine the number of votes that a Contractowner has the right to
cast as of the record date that the Life Series Fund establishes.
We will solicit instructions by written communication before the date of
the meeting at which votes will be cast. We will send meeting and other
materials relating to the Fund to each Contractowner having a voting interest in
a Subaccount.
The voting rights that we describe in this Prospectus are created under
applicable laws. If the laws eliminate the necessity to submit such matters for
approval by persons having voting rights in separate accounts of insurance
companies or restrict such voting rights, we reserve the right to proceed in
accordance with any such changed laws or regulations. Specifically, we reserve
the right to vote shares of any Fund in our own right, to the extent the law
permits.
RESERVATION OF RIGHTS
We also reserve the right to make certain changes if we believe they would
(a) best serve the interests of the Contractowners and Annuitants or (b) be
appropriate in carrying out the purposes of the Contracts. We will make a change
24
<PAGE>
only as the law permits. We will (a) obtain, when required, the necessary
Contractowner or regulatory approval for any change and (b) provide, when
required, notification to Contractowners before making a change.
For example, we may:
. operate either Account in any form permitted under the 1940 Act or in
any other form permitted by law,
. add, delete, combine, or modify Subaccounts of either Account,
. add, delete, or substitute for the Fund shares held in any
Subaccount, the shares of any investment company or series thereof,
or any investment permitted by law, or
. amend the Contracts if required to comply with the Internal Revenue
Code or any other applicable federal or state law.
DISTRIBUTION OF CONTRACTS
Separate Account C and Separate Account D, along with First Investors Life,
have each entered into an Underwriting Agreement with their affiliate, FIC, 95
Wall Street, New York, New York 10005 to sell the Contracts. First Investors
Life has reserved the right in the Underwriting Agreement to sell the Contracts
directly. Insurance agents licensed to sell variable annuities sell the
Contracts. These agents are registered representatives of the Underwriter or
broker-dealers who have sales agreements with the Underwriter.
FINANCIAL STATEMENTS
The Statement of Additional Information, dated April 30, 1999, includes:
. the financial statements for First Investors Life and the
accompanying Report of Independent Certified Public Accountants; and
. the financial statements for Separate Account C and for Separate
Account D and the accompanying Report of Independent Certified Public
Accountants for each.
You can get the Statement of Additional Information at no charge on request
to First Investors Life at the address or telephone number on the cover page of
this Prospectus.
YEAR 2000
On and after January 1, 2000, computer date-related errors could adversely
affect Separate Account C and Separate Account D, as they could other separate
accounts. These errors could occur in the computer and other information
processing systems used by First Investors Life, the underlying Funds, the
Adviser, the Subadviser, Transfer Agent and other service providers. Typically
these systems use a two-digit number to represent the year for any date.
Consequently, computer systems could incorrectly misidentify "00" as 1900,
rather than 2000, and make related mistakes when performing operations. First
Investors Life, the Funds, the Adviser, the Subadviser and Transfer Agent are
taking steps that they believe are reasonably designed to address the Year 2000
problem for computer and other systems used by them. They are obtaining
assurances from other service providers that the service providers are taking
comparable steps. However, there can be no assurance that these steps will avoid
any adverse impact on Separate Account C or Separate Account D, nor can either
Account estimate the extent of any impact.
25
<PAGE>
TABLE OF CONTENTS
OF THE STATEMENTS OF ADDITIONAL
INFORMATION
Item Page
---- ----
General Description.............................................2
Services........................................................2
Annuity Payments................................................3
Other Information...............................................4
Performance Information.........................................5
Relevance of Financial Statements...............................9
Appendices.....................................................10
Financial Statements...........................................15
APPENDIX I
STATE AND LOCAL TAXES*
Alabama.....................-- Mississippi...................--
Alaska......................-- Missouri......................--
Arizona.....................-- Nebraska......................--
Arkansas....................-- New Jersey....................--
California..................2.35% New Mexico....................--
Colorado....................-- New York .....................--
Connecticut.................-- North Carolina ...............--
Delaware....................-- Ohio..........................--
District of Columbia........2.25% Oklahoma......................--
Florida.....................1.00% Oregon........................--
Georgia.....................-- Pennsylvania..................--
Illinois....................-- Rhode Island..................--
Indiana.....................-- South Carolina................--
Iowa........................2.00% Tennessee.....................--
Kentucky....................2.00% Texas.........................--
Louisiana...................-- Utah..........................--
Maryland....................-- Virginia......................--
Massachusetts...............-- Washington....................--
Michigan....................-- West Virginia.................1.00%
Minnesota...................-- Wisconsin.....................--
Wyoming.......................1.00%
Note: State legislation could change the rates above. State insurance
regulation could change the applicability of the rates above.
* Includes local annuity Premium taxation.
26
<PAGE>
[FIRST INVESTORS LOGO]
TAX TAMER I
AND
TAX TAMER II
This booklet contains two prospectuses. The first prospectus is for Individual
Variable Annuity Fund C (Separate Account C) and Fund D (Separate Account D)
Contracts, which we call Tax Tamer I and Tax Tamer II, respectively. The second
prospectus is for the Life Series Fund, which provides the underlying investment
options for the Individual Variable Annuity Contracts offered through Separate
Accounts C and D.
THE DATE OF THIS PROSPECTUS IS APRIL 30, 1999.
<PAGE>
CONTENTS*
VARIABLE ANNUITY FUND C AND FUND D PROSPECTUS
GLOSSARY OF SPECIAL TERMS.......................................2
FEE TABLES......................................................3
CONDENSED FINANCIAL INFORMATION.................................6
OVERVIEW........................................................9
How the Contracts Work.......................................9
Who We Are..................................................10
Who Should Consider Purchasing a Contract...................11
Risk and Reward Considerations..............................11
THE CONTRACTS IN DETAIL........................................11
Purchase Payments...........................................12
Allocation of Net Purchase Payments to Subaccount(s)........12
Sales Charge................................................12
Mortality and Expense Risk Charges..........................14
Other Charges...............................................14
The Accumulation Period.....................................15
The Annuity Period..........................................17
Ten-Day Revocation Right....................................20
TAX INFORMATION................................................20
General.....................................................20
Non-Qualified Contracts.....................................20
Qualified Plan Contracts....................................22
Withholding.................................................22
Our Tax Status..............................................22
PERFORMANCE INFORMATION........................................22
OTHER INFORMATION..............................................23
Voting Rights...............................................23
Reservation of Rights.......................................24
Distribution of Contracts...................................24
Financial Statements........................................25
Year 2000...................................................25
TABLE OF CONTENTS OF THE STATEMENTS OF ADDITIONAL INFORMATION..26
APPENDIX I.....................................................26
- -----------------------------
*A Table of Contents for the Life Series Fund prospectus can be found at page ii
of that prospectus.
<PAGE>
[FIRST INVESTORS LOGO]
95 Wall Street
New York, New York 10005
(212) 858-8200
<PAGE>
[FIRST INVESTORS LOGO]
LIFE SERIES FUND
BLUE CHIP
CASH MANAGEMENT
DISCOVERY
GOVERNMENT
GROWTH
HIGH YIELD
INTERNATIONAL SECURITIES
INVESTMENT GRADE
TARGET MATURITY 2007
TARGET MATURITY 2010
UTILITIES INCOME
The Securities and Exchange Commission has not approved or disapproved
these securities or 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, 1999
<PAGE>
CONTENTS
INTRODUCTION
FUND DESCRIPTIONS
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
FUND MANAGEMENT
BUYING AND SELLING SHARES
How and when do the Funds price their shares?
How do I buy and sell shares?
ACCOUNT POLICIES
What about dividends and capital gain distributions?
What about taxes?
FINANCIAL HIGHLIGHTS
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
2
<PAGE>
INTRODUCTION
This prospectus describes the First Investors Funds that are used solely as the
underlying investment options for variable annuity contracts or variable life
insurance policies offered by First Investors Life Insurance Company ("FIL").
This means that you cannot purchase shares of the Funds directly, but only
through such a contract or policy as offered by FIL. Each individual Fund
description in this prospectus has an "Overview" which provides a brief
explanation of the Fund's objectives, its primary strategies and primary risks,
how it has performed, and its fees and expenses. Each Fund description also
contains a "Fund in Detail" section with more information on the strategies and
risks of the Fund.
3
<PAGE>
BLUE CHIP FUND
OVERVIEW
OBJECTIVE: The Fund seeks high total investment return consistent with
the preservation of capital.
PRIMARY
INVESTMENT
STRATEGIES: The Fund primarily invests in the common stocks of large,
well-established companies that are included in the Standard
and Poor's 500 Composite Stock Price Index ("S&P 500 Index").
These are defined by the Fund as "Blue Chip" stocks. The Fund
selects stocks that it believes will have earnings growth in
excess of the average company in the S&P 500 Index. While the
Fund attempts to diversify its investments so that its
weightings in different industries are similar to those of the
S&P 500 Index, it is not an index fund and therefore will not
necessarily mirror the S&P 500 Index. The Fund generally stays
fully invested in stocks under all market conditions.
PRIMARY
RISKS: While Blue Chip stocks are regarded as among the most
conservative stocks, like all stocks they fluctuate in price
in response to movements in the overall securities markets,
general economic conditions, and changes in interest rates or
investor sentiment. Fluctuations in the prices of Blue Chip
stocks at times can be substantial. Accordingly, the value of
an investment in the Fund will go up and down, which means
that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
How has the Blue Chip Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Fund's shares from year to
year over the life of the Fund. The bar chart does not reflect fees and expenses
that may be deducted by the variable annuity contract or variable life insurance
policy through which you invest. If they were included, the returns would be
less than those shown.
4
<PAGE>
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 20.03% (for the
quarter ended September 30, 1998), and the lowest quarterly return was -13.16%
(for the quarter ended September 30, 1990). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for the Blue Chip
Fund's shares compare to those of the S&P 500 Index. The S&P 500 Index is an
unmanaged index generally representative of the market for the stocks of
large-sized U.S. companies. The S&P 500 Index does not take into account fees
and expenses that an investor would incur in holding the securities in the S&P
500 Index. If it did so, the returns would be lower than those shown.
Inception
1 Year* 5 Years* (3/8/90)
Blue Chip Fund 10.37% 17.54% 14.47%
S&P 500 Index 28.34 24.55 18.87
* The annual returns are based upon calendar years.
THE FUND IN DETAIL
What are the Blue Chip Fund's objective, principal investment strategies,
and risks?
OBJECTIVE: The Fund seeks high total investment return consistent with the
preservation of capital.
5
<PAGE>
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in common stocks of large, well-established companies that are included
in the S&P 500 Index. These are defined by the Fund as "Blue Chip" stocks. The
S&P 500 Index consists of both U.S. and foreign corporations.
The Fund uses fundamental research to select stocks of companies with strong
balance sheets, relatively consistent records of achievement, and potential
earnings growth that is greater than that of the average company included in the
S&P 500 Index. The Fund attempts to stay broadly diversified and sector neutral
relative to the S&P 500 Index, but it may emphasize certain industry sectors
based on economic and market conditions. The Fund intends to remain relatively
fully invested in stocks under all market conditions rather than attempt to time
the market by maintaining large cash or fixed income securities positions when
market declines are anticipated. The Fund usually will sell a stock when the
reason for holding it is no longer valid, it shows deteriorating fundamentals,
or it falls short of the Fund's expectations. Information on the Fund's recent
strategies and holdings can be found in the most recent annual report (see back
cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of investing in the Blue Chip Fund:
MARKET RISK: Because the Fund primarily invests in common stocks, it is subject
to market risk. Stock prices in general may decline over short or even extended
periods not only because of company-specific developments but also due to an
economic downturn, a change in interest rates or a change in investor sentiment,
regardless of the success or failure of an individual company's operations.
Stock markets tend to run in cycles with periods when prices generally go up,
known as "bull" markets, and periods when stock prices generally go down,
referred to as "bear" markets. While Blue Chip stocks have historically been the
least risky and most liquid stocks, like all stocks they fluctuate in value.
Fluctuations of Blue Chip stocks can be sudden and substantial. Accordingly, the
value of an investment in the Fund will go up and down, which means that you
could lose money.
OTHER RISKS: While the Fund generally attempts to remain sector neutral relative
to the S&P 500 Index, it is not an index fund. The Fund may hold securities
other than those in the S&P 500 Index, may hold fewer securities than the index,
and may have sector or industry allocations different from the index, each of
which could cause the Fund to underperform the index.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
6
<PAGE>
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses by
investing up to 100% of its assets in short-term money market instruments. If
the Fund does so, it may not achieve its investment objective.
7
<PAGE>
CASH MANAGEMENT FUND
OVERVIEW
OBJECTIVE: The Fund seeks to earn a high rate of current income
consistent with the preservation of capital and maintenance of
liquidity.
PRIMARY
INVESTMENT
STRATEGIES: The Fund invests in high-quality money market instruments that
the Fund determines present minimal credit risk. These
instruments include prime commercial paper, variable and
floating rate corporate notes, and short term U.S. agency
obligations. The Fund's portfolio is managed to meet
regulatory requirements that permit the Fund to maintain a
stable net asset value ("NAV") of $1.00 per share. These
regulatory requirements include stringent credit quality
standards on investments, limits on the maturity of individual
investments and the dollar weighted average maturity of the
entire portfolio, and diversification requirements.
PRIMARY
RISKS: While money market funds are designed to be relatively low
risk investments, they are not entirely free of risk. Like all
money market funds, these are the risks of investing in the
Fund:
. The Fund's NAV could decline (below $1.00 per share) if
there is a default by an issuer of one of the Fund's
investments, a credit downgrade of one of the Fund's
investments, or an unexpected change in interest rates.
. The Fund's yield will change daily based upon changes in
interest rates and other market conditions.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND
SEEKS TO PRESERVE THE VALUE OF AN INVESTMENT AT $1.00 PER
SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.
How has the Cash Management Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Fund's shares from year to
year over the last ten years. The bar chart does not reflect fees and expenses
that may be deducted by the variable annuity contract or variable life insurance
policy through which you invest. If they were included, the returns would be
less than those shown.
8
<PAGE>
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 2.00% (for the
quarter ended June 30, 1990), and the lowest quarterly return was 0.65% (for the
quarter ended June 30, 1993. THE FUND'S PAST PERFORMANCE DOES NOT NECESSARILY
INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows the average annual total returns for the Cash
Management Fund's shares.
1 Year* 5 Years* 10 Years*
Cash Management Fund 5.02% 4.88% 5.08%
* The annual returns are based upon calendar years.
THE FUND IN DETAIL
What are the Cash Management Fund's objective, principal investment
strategies, and risks?
OBJECTIVE: The Fund seeks to earn a high rate of current income consistent
with the preservation of capital and maintenance of liquidity.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests primarily in high-quality
money market instruments that are determined by the Fund's Adviser to present
minimal credit risk. Some common types of money market instruments are Treasury
bills and notes, which are securities issued by the U.S. government; commercial
9
<PAGE>
paper, which are promissory notes issued by large companies or financial firms;
banker's acceptances, which are credit instruments guaranteed by a bank;
negotiable certificates of deposit, which are issued by banks in large
denominations; and floating rate notes. The interest rate of a floating rate
instrument is generally based on a known lending rate, such as a bank's prime
rate, and is reset whenever the underlying rate is adjusted.
The Fund's portfolio is managed to meet regulatory requirements that permit the
Fund to maintain a stable NAV of $1.00 per share. These include requirements
relating to the credit quality, maturity, and diversification of the Fund's
investments. For example, to be an eligible investment for the Fund, a security
must have a remaining maturity of 397 calendar days or less. The security must
be rated in one of the two highest credit ratings categories for short-term
securities by at least two nationally recognized rating services organizations
(or by one, if only one rating service has rated the security), or if unrated,
be determined by the Fund's Adviser to be of quality equivalent to those in the
two highest credit ratings categories. The Fund must also maintain a
dollar-weighted average portfolio maturity of 90 days or less.
In buying and selling securities, the Fund will consider ratings assigned by
ratings services as well as its own credit analysis. The Fund considers, among
other things, the issuer's earnings and cash flow generating capabilities, the
security's yield and relative value, and the outlook for interest rates and the
economy. In the case of instruments with demand features or credit enhancements,
the Fund considers the financial strength of the party providing the demand
feature or credit enhancement, including any ratings assigned to such party.
Information on the Fund's recent holdings can be found in the most recent annual
report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of investing in the Cash Management Fund:
INTEREST RATE RISK: Like the values of other debt instruments, the market values
of money market instruments are affected by changes in interest rates. When
interest rates rise, the market values of money market instruments decline; when
interest rates decline, the market values of money market instruments increase.
The price volatility of money market instruments also depends on their
maturities and durations. Generally, the shorter the maturity and duration of a
money market instrument, the lesser its sensitivity to interest rates.
Interest rate risk also includes the risk that in a declining interest rate
environment the Fund will have to invest the proceeds of maturing investments in
lower-yielding investments. The yields received by the Fund on some of its
investments will also decline as interest rates decline. For example, the Fund
invests in floating rate bonds and notes. When interest rates decline, the
yields paid on these securities may decline.
CREDIT RISK: A money market instrument's credit quality depends upon the
issuer's ability to pay interest on the security and, ultimately, to repay the
principal. The lower the rating by one of the independent bond-rating agencies
(for example, Moody's Investors Service, Inc. or Standard & Poor's Ratings
Group), the greater the chance (in the rating agency's opinion) the security's
issuer will default, or fail to meet its repayment obligations. Direct U.S.
Treasury obligations (securities backed by the U.S. government) carry the
highest credit ratings. All things being equal, money market instruments with
greater credit risk offer higher yields.
10
<PAGE>
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
11
<PAGE>
DISCOVERY FUND
OVERVIEW
OBJECTIVE: The Fund seeks long-term growth of capital, without regard to
dividend or interest income.
PRIMARY
INVESTMENT
STRATEGIES: The Fund primarily invests in common stocks of companies with
small market capitalizations ("small-cap stocks") which have the
potential for substantial long-term growth. The Fund looks for
companies that are in the early stages of their development, have
a new product or service, are in a position to benefit from some
change in the economy, have new management, or are experiencing
some other "special situation" which makes their stocks
undervalued. Because these companies tend to be smaller, their
growth potential is often greater.
PRIMARY
RISKS: While the potential long-term rewards of investing in small-cap
stocks are substantial, there are also substantial risks.
Small-cap stocks carry more risk because they are often in the
early stages of development, dependent on a small number of
products or services, lack substantial financial resources, and
have less predictable earnings. Small-cap stocks also tend to be
less liquid, and experience sharper price fluctuations than
stocks of companies with large capitalizations. These
fluctuations can be substantial. Accordingly, the value of an
investment in the Fund will go up and down, which means that you
could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
How has the Discovery Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Discovery Fund's shares
from year to year over the last ten years. The bar chart does not reflect fees
and expenses that may be deducted by the variable annuity contract or variable
life insurance policy through which you invest. If they were included, the
returns would be less than those shown.
12
<PAGE>
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 26.55% (for the
quarter ended December 31,1998), and lowest quarterly return was -22.34% (for
the quarter ended September 30,1998). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for Discovery
Fund's shares compare to those of the Russell 2000 Index. The Russell 2000 Index
is an unmanaged index generally representative of the U.S. market for small-cap
stocks. The Russell 2000 Index does not take into account fees and expenses that
an investor would incur in holding the securities in the Russell 2000 Index. If
it did so, the returns would be lower than those shown.
1 Year* 5 Years* 10 Years*
Discovery Fund (4.17)% 8.98% 14.44%
Russell 2000 Index (2.24) 12.31 11.65
*The annual returns are based upon calendar years.
THE FUND IN DETAIL
What are the Discovery Fund's objective, principal investment strategies, and
risks?
OBJECTIVE: The Fund seeks long-term growth of capital, without regard to
dividend or interest income.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in common stocks of companies with small market capitalizations, which
13
<PAGE>
have the potential for substantial long-term growth. The Fund defines small-cap
stocks as those with market capitalizations of less than 90% of the weighted
market capitalization of the Standard & Poor's 600 Smallcap Index ("S&P 600
Index") (currently $1.8 billion). The weighted market capitalization of the S&P
600 Index will change with market conditions. The Fund looks for companies that
are in the early stages of their development, have a new product or service, are
in a position to benefit from some change in the economy, have new management,
or are experiencing some other "special situation" which makes their stocks
undervalued. Because these companies tend to be smaller, their growth potential
is often greater.
In selecting stocks, the Fund relies on fundamental research. It considers,
among other things, earnings growth potential, revenue growth potential, cash
flow and tangible book value. The Fund attempts to stay broadly diversified but
it may emphasize certain industry sectors based on economic and market
conditions. The Fund usually will sell a stock when it shows deteriorating
fundamentals or falls short of the portfolio manager's expectations. Information
on the Fund's recent strategies and holdings can be found in the most recent
annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of investing in the Discovery Fund:
MARKET RISK. Because this Fund invests in stocks, an investment in the Fund is
subject to stock market risk. Stock prices in general may decline over short or
even extended periods not only because of company-specific developments but also
due to an economic downturn, a change in interest rates, or a change in investor
sentiment, regardless of the success or failure of an individual company's
operations. Stock markets tend to run in cycles with periods when prices
generally go up, known as "bull" markets and periods when stock prices generally
go down, referred to as "bear" markets. The market risk associated with
small-cap stocks is greater than that associated with larger-cap stocks because
small-cap stocks tend to experience sharper price fluctuations than larger-cap
stocks, particularly during bear markets.
Small-cap companies are generally dependent on a small number of products or
services, their earnings are less predictable, and their share prices more
volatile. These companies are also more likely to have limited markets or
financial resources, and may depend on a small, inexperienced management group.
LIQUIDITY: Stocks of small-cap companies often are not as broadly traded as
those of larger-cap companies and are often subject to wider price fluctuations.
As a result, at times it may be difficult for the Fund to sell these securities
at a reasonable price.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
14
<PAGE>
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then temporarily may use
alternative strategies that are mainly designed to limit the Fund's losses by
investing up to 100% of its assets in short-term money market instruments. If
the Fund does so, it may not achieve its investment objective.
15
<PAGE>
GOVERNMENT FUND
OVERVIEW
OBJECTIVE: The Fund seeks to achieve a significant level of current income
which is consistent with security and liquidity of principal.
PRIMARY
INVESTMENT
STRATEGIES: The Fund primarily invests in obligations issued or guaranteed as
to payment of principal and interest by the U.S. Government, its
agencies or instrumentalities. The majority of the Fund's
investments consist of mortgage-backed securities issued or
guaranteed by the Government National Mortgage Association,
Federal National Mortgage Association, and Federal Home Loan
Mortgage Corporation. Mortgage-backed securities represent
interests in "pools" of mortgage loans. Because the
mortgage-backed securities purchased by the Fund are generally
guaranteed as to the timely payment of principal and interest to
investors in the pools, the Fund's primary strategies revolve
around managing interest rate risk, prepayment risk, and
extension risk. The Fund attempts to manage these risks by
adjusting the duration of its portfolio and the average coupon
rate of its mortgage-backed securities holdings.
PRIMARY
RISKS: While mortgage-backed securities are guaranteed in varying
degrees as to payment of principal and interest, this guarantee
does not apply in any way to the market prices of these
securities or the Fund's share price, both of which will
fluctuate. There are three main risks of investing in the Fund:
interest rate risk, prepayment risk, and extension risk. When
interest rates rise, the mortgage-backed securities held by the
Fund tend to decline in price, and when interest rates fall, they
tend to increase in price. This is interest rate risk. When
interest rates fall, homeowners also tend to refinance their
mortgages. When this occurs, the Fund loses the benefit of higher
yielding mortgages and must reinvest in lower interest rate
mortgages. This is prepayment risk. Extension risk is the flip
side of prepayment risk. Rising interest rates can cause the
Fund's average maturity to lengthen unexpectedly due to a drop in
mortgage prepayments. This will increase both the Fund's
sensitivity to rising interest rates and its potential for price
declines. The Fund may, at times, engage in short-term trading,
which could produce higher brokerage costs and taxable
distributions and may result in a lower total return for the
Fund. Accordingly, the value of an investment in the Fund as well
as the dividends you receive will go up and down, which means
that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
16
<PAGE>
How has the Government Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Government Fund's shares
from year to year over the life of the Fund. The bar chart does not reflect fees
and expenses that may be deducted by the variable annuity contract or variable
life insurance policy through which you invest. If they were included, the
returns would be less than those shown.
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 6.05% (for the
quarter ended September 30,1992), and the lowest quarterly return was -3.21%
(for the quarter ended March 31,1994). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for Government
Fund's shares compare to those of the Salomon Brothers Mortgage Index ("Mortgage
Index") and the Salomon Brothers Government Index ("Government Index"). The
Mortgage Index is a market capitalization-weighted index that consists of all
agency pass-throughs and Federal Housing Administration ("FHA") and Government
National Mortgage Association project notes. The Government Index is a market
capitalization-weighted index that consists of debt issued by the U.S. Treasury
and U.S. Government sponsored agencies. The indices do not take into account
fees and expenses that an investor would incur in holding the securities in the
indices. If they did so, the returns would be lower than those shown.
17
<PAGE>
Inception
1 Year* 5 Years* (1/7/92)
Government Fund (0.01)% 4.53% 5.54%
Mortgage Index 6.98 7.27 7.39**
Government Index 9.84 7.24 7.98**
*The annual returns are based upon calendar years.
**The average annual total return shown is for the period 12/31/91 to 12/31/98.
THE FUND IN DETAIL
What are the Government Fund's objective, principal investment strategies,and
risks?
OBJECTIVE: The Fund seeks to achieve a significant level of current income which
is consistent with security and liquidity of principal.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in obligations issued or guaranteed as to payment of principal and
interest by the U.S. Government, its agencies or instrumentalities. The majority
of the Fund's investments consist of mortgage-backed securities. Mortgage-backed
securities represent interests in pools of mortgages. The principal and interest
from the underlying mortgages are passed through to investors in the pools. Some
pools are supported by the full faith and credit of the U.S. government, such as
Government National Mortgage Association pass-through mortgage certificates
(called "Ginnie Maes"). Some pools are supported by the right of the issuer to
borrow from the U.S. Treasury under certain circumstances, such as Federal
National Mortgage Association bonds (called "Fannie Maes"). Other pools are
supported only by the credit of the entity that issued them, such as Federal
Home Loan Mortgage Corporation obligations (called "Freddie Macs"). The Fund
also invests in U.S. Treasury securities and securities issued by U.S. agencies,
such as the Tennessee Valley Authority.
The Fund's primary investment strategies revolve around managing interest rate
risk, prepayment risk, and extension risk. Interest rate risk is managed by
adjusting the duration of the securities owned by the Fund. Duration is a
measurement of a bond's sensitivity to changes in interest rates that takes into
consideration not only the maturity of the bond but also the time value of money
that will be received from the bond over its life. The Fund will generally
adjust duration by buying or selling U.S. Treasury securities. For example, if
the Fund believes that interest rates are likely to rise, it will generally
attempt to reduce its duration by purchasing U.S. Treasury securities with
shorter maturities or selling U.S. Treasury securities with longer maturities.
Prepayment risk and extension risk are managed by adjusting the composition of
the Fund's holdings. For example, if interest rates appear likely to decline,
the Fund may attempt to reduce prepayment risk by buying new mortgage-backed
securities with lower coupons. Conversely, if interest rates appear likely to
increase, the Fund may reduce extension risk by purchasing mortgage-backed
securities with higher coupons.
The Fund uses a "top-down" approach in making investment decisions based on
interest rate, economic and market conditions. In selecting investments, the
Fund considers coupon and yield, relative value and weighted average maturity of
18
<PAGE>
the pool. The Fund will usually sell an investment when there are changes in the
interest rate environment that are adverse to the investment or if it fails to
meet the expectations of the portfolio manager. Information on the Fund's recent
strategies and holdings can be found in the most recent annual report (see back
cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of investing in the Government Fund:
INTEREST RATE RISK: All of the securities held by the Fund are subject to
interest rate risk. In general, the market prices of bonds rise when interest
rates fall, and fall when interest rates rise. Short-term interest rates and
long-term interest rates do not necessarily move in the same direction or in the
same amounts. Bonds with longer maturities tend to be more sensitive to interest
rate changes than those with shorter maturities.
PREPAYMENT RISK: Because the Fund invests primarily in mortgage-backed
securities, it is subject to prepayment risk. When interest rates decline,
homeowners tend to refinance their mortgages. When this occurs, investors in
pools suffer a higher rate of prepayment. As a result, investors in pools not
only lose the benefit of the higher yielding underlying mortgages that are being
prepaid but they must reinvest the proceeds at lower interest rates. This could
cause a decrease in the Fund's income and share price.
EXTENSION RISK: Extension risk is the flip side of prepayment risk. Rising
interest rates can cause the Fund's average maturity to lengthen unexpectedly
due to a drop in mortgage prepayments. This will increase both the Fund's
sensitivity to rising interest rates and its potential for price declines.
CREDIT RISK: This is the risk that an issuer of bonds will be unable to pay
interest or principal when due. There is some credit risk associated with the
Funds investments; however, it is perceived to be minimal. Most of the
securities owned by the Fund are backed by the full faith and credit of the U.S.
Government, the ability to borrow from the U.S. Treasury, or the perceived moral
obligation of the U.S. Government.
FREQUENT TRADING: The Fund may, at times, engage in short-term trading, which
could produce higher brokerage costs and taxable distributions and may result in
a lower total return for the Fund.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
19
<PAGE>
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
20
<PAGE>
GROWTH FUND
OVERVIEW
OBJECTIVE: The Fund seeks long-term capital appreciation.
PRIMARY
INVESTMENT
STRATEGIES: Under normal circumstances, the Fund will remain fully
invested in equity securities, with most of its holdings in
U.S. common stocks. The Fund seeks to invest in seasoned
companies with proven track records and above-average earnings
growth. The Fund invests predominantly in larger companies,
but will also attempt to enhance its return by investing in
mid-sized and smaller companies that the Fund's investment
subadviser believes have attractive growth potential.
PRIMARY
RISKS: Like all stocks, growth stocks fluctuate in price in response
to movements in the overall securities markets, general
economic conditions, changes in interest rates,
company-specific developments and other factors. Mid-cap
stocks tend to experience sharper price fluctuations than
stocks of large-cap companies. To the extent that the Fund
decides to invest in small-cap companies, the risk of price
fluctuations is even greater. Fluctuations in the prices of
the stocks held by the Fund at times can be substantial.
Accordingly, the value of an investment in the Fund will go up
and down, which means that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
How has the Growth Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Growth Fund's shares for
each of the last ten calendar years. The bar chart does not reflect fees and
expenses that may be deducted by the variable annuity contract or variable life
insurance policy through which you invest. If they were included, the returns
would be less than those shown.
21
<PAGE>
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 23.98% (for the
quarter ended December 31, 1998), and the lowest quarterly return was -15.45%
(for the quarter ended September 30, 1990). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for the Fund's
shares compare to those of the S&P 500 Index. The S&P 500 Index is an unmanaged
index generally representative of the market for the stocks of large-sized U.S.
companies. The S&P 500 Index does not take into account fees and expenses that
an investor would incur in holding the securities in the S&P 500 Index. If it
did so, the returns would be lower than those shown.
1 Year* 5 Years* 10 Years*
Growth Fund 18.44% 18.29% 15.88%
S&P 500 Index 28.34 24.55 18.95
*The annual returns are based upon calendar years.
THE FUND IN DETAIL
What are the Growth Fund's objectives, principal investment strategies,
and risks?
OBJECTIVE: The Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES: Under normal circumstances, the Fund will
remain fully invested in equity securities, with most of its holdings in U.S.
22
<PAGE>
common stocks. The Fund will also invest in foreign companies whose stocks are
denominated in U.S. dollars and listed and traded on a U.S. securities exchange,
either directly or through Depository Receipts. The Fund favors stocks of
seasoned companies with proven records and above-average earnings growth, and
stocks of companies with outstanding growth records and potential. The Fund
invests predominantly in larger companies, but will also attempt to enhance its
return by investing in mid-sized and smaller companies that the investment
subadviser believes have attractive growth potential. The Fund will typically
invest in most major sectors of the economy and therefore the Fund's investments
will be widely diversified by company and industry. The Fund may invest up to
25% of its assets in certain industry sectors based on economic and market
conditions.
The Fund uses fundamental research and analysis to identify prospective
investments. The Fund looks to identify industry leaders and those companies
which are leaders in industry niches. Research is focused on companies with a
proven record of sales and earnings growth, profitability, and cash flow
generation. Security selection is based on any one or more of the following
characteristics: (1) accelerating earnings growth and the possibility of
positive earnings surprises; (2) strong possibility of price to earnings
multiple expansion (or increases in other similar valuation measures); (3)
hidden or unappreciated value; or (4) improving company and/or industry outlook.
Every company in the portfolio is monitored to ensure its fundamental
attractiveness. A stock may be sold if (1) its downside risk equals or exceeds
its upside potential; (2) it suffers from a decreasing trend of earnings growth
or suffers an earnings disappointment; (3) it experiences excessive valuations;
or (4) there is a deteriorating company and/or industry outlook.
Information on the Fund's recent strategies and holdings can be found in the
most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of investing in the Growth Fund:
MARKET RISK: Because the Fund invests in stocks, an investment in the Fund is
subject to stock market risk. Stock prices in general may decline over short or
even extended periods not only because of company-specific developments but also
due to an economic downturn, a change in interest rates, or a change in investor
sentiment, regardless of the success or failure of an individual company's
operations. Stock markets tend to run in cycles with periods when prices
generally go up, known as "bull" markets and periods when stock prices generally
go down, referred to as "bear" markets.
The market risk associated with mid-cap and small-cap stocks is generally
greater than that associated with large-cap stocks because mid-cap and small-cap
stocks tend to experience sharper price fluctuations than large-cap stocks,
particularly during bear markets. Their earnings tend to be less predictable
than those of larger, more established companies. The prices of these stocks can
also be influenced by the anticipation of future products and services which, if
delayed, could cause the prices to drop. Fluctuation in prices of stocks can be
sudden and substantial. Accordingly, the value of your investment in the Fund
will go up and down, which means that you could lose money.
23
<PAGE>
LIQUIDITY RISK: The risk that certain securities may be difficult or impossible
to sell at the same time and the price that the seller would like. Stocks of
small-cap companies often are not as broadly traded as those of larger-cap
companies and are often subject to wider price fluctuations. As a result, at
times it may be difficult for the Fund to sell these securities at a reasonable
price.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund's investment subadviser may judge that
market, economic or political conditions make pursuing the Fund's investment
strategies inconsistent with the best interests of its shareholders. The Fund
then may temporarily use alternative strategies that are mainly designed to
limit the Fund's losses by investing up to 100% of its assets in short-term
money market instruments. If the Fund does so, it may not achieve its investment
objective.
24
<PAGE>
HIGH YIELD FUND
OVERVIEW
OBJECTIVES: The Fund primarily seeks high current income and secondarily
seeks capital appreciation.
PRIMARY
INVESTMENT
STRATEGIES: The Fund primarily invests in a diversified portfolio of
high-yield, below-investment grade corporate bonds (commonly
known as "junk bonds"). These bonds provide a higher level of
income than investment grade bonds because they have a higher
risk of default. The Fund seeks to reduce the risk of a
default by selecting bonds through careful credit research and
analysis. The Fund seeks to reduce the impact of a potential
default by diversifying its investments among bonds of many
different companies and industries. While the Fund invests
primarily in domestic companies, it also invests in securities
of issuers domiciled in foreign countries. These securities
will generally be dollar-denominated and traded in the U.S.
The Fund seeks to achieve capital appreciation by investing in
high-yield bonds with stable to improving credit conditions.
PRIMARY
RISKS: There are four primary risks of investing in the Fund. First,
the value of the Fund's shares could decline as a result of a
deterioration of the financial condition of an issuer of bonds
owned by the Fund or as a result of a default by the issuer.
This is known as credit risk. High-yield bonds carry higher
credit risks than investment grade bonds because the companies
that issue them are not as strong financially as companies
with investment grade credit ratings. High-yield bonds issued
by foreign companies are subject to additional risks including
political instability, government regulation, and differences
in financial reporting standards. Second, the value of the
Fund's shares could decline if the entire high-yield bond
market were to decline, even if none of the Fund's bond
holdings were at risk of a default. The high-yield market can
experience sharp declines at times as the result of a
deterioration in the overall economy, declines in the stock
market, a change of investor tolerance for risk, or other
factors. Third, high-yield bonds tend to be less liquid than
other bonds, which means that they are more difficult to sell.
Fourth, while high-yield bonds are generally less interest
rate sensitive than higher-quality bonds, their values
generally will decline when interest rates rise. Fluctuations
in the prices of high-yield bonds can be substantial.
Accordingly, the value of an investment in the Fund will go up
and down, which means that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
25
<PAGE>
How has the High Yield Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the High Yield Fund's shares
for each of the last ten calendar years. The bar chart does not reflect fees and
expenses that may be deducted by the variable annuity contract or variable life
insurance policy through which you invest. If they were included, the returns
would be less than those shown.
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 11.16% (for the
quarter ended March 31, 1991), and the lowest quarterly return was -8.11% (for
the quarter ended September 30, 1990). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for the High
Yield Fund's shares compare to those of the Credit Suisse First Boston High
Yield Index ("High Yield Index"). The High Yield Index is designed to measure
the performance of the high yield bond market. The High Yield Index does not
take into account fees and expenses that an investor would incur in holding the
securities in the Index. If it did so, the returns would be lower than those
shown.
1 Year* 5 Years* 10 Years*
High Yield Fund (4.10)% 7.45% 8.90%
High Yield Index 0.58 8.16 10.74
*The annual returns are based upon calendar years.
26
<PAGE>
THE FUND IN DETAIL
What are the High Yield Fund's objectives, principal investment strategies, and
risks?
OBJECTIVES: The Fund primarily seeks high current income and secondarily seeks
capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in a diversified portfolio of high-yield, below-investment grade
corporate bonds commonly known as "junk bonds" (those rated below Baa by Moody's
Investors Service, Inc. or below BBB by Standard & Poor's Ratings Group).
High-yield bonds generally provide higher income than investment grade bonds to
compensate investors for their higher risk of default (i.e., failure to make
required interest or principal payments). High-yield bond issuers include small
or relatively new companies lacking the history or capital to merit investment
grade status, former Blue Chip companies downgraded because of financial
problems, companies using debt rather than equity to fund capital investment or
spending programs, companies electing to borrow heavily to finance or avoid a
takeover or buyout, and firms with heavy debt loads. The Fund's portfolio may
include zero coupon bonds and pay in kind bonds. While the Fund invests
primarily in domestic companies, it also invests in securities of issuers
domiciled in foreign countries. These securities will generally be
dollar-denominated and traded in the U.S. The Fund seeks to reduce the risk of a
default by selecting bonds through careful credit research and analysis. The
Fund seeks to reduce the impact of a potential default by diversifying its
investments among bonds of many different companies and industries.
To achieve its secondary objective of capital appreciation, the Fund attempts to
invest in bonds that have stable to improving credit quality that could
appreciate in value because of a credit rating upgrade or an improvement in the
outlook for a particular company, industry or the economy as a whole.
Although the Fund will consider ratings assigned by ratings agencies in
selecting high-yield bonds, it relies principally on its own research and
investment analysis. The Fund considers a variety of factors, including the
issuer's managerial strength, anticipated cash flow, debt maturity schedules,
borrowing requirements, interest or dividend coverage, asset coverage and
earnings prospects. The Fund will usually sell a bond when it shows
deteriorating fundamentals or falls short of the portfolio manager's
expectations. Information on the Fund's recent strategies and holdings can be
found in the most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of the investment, the greater the risk. Here
are the principal risks of investing in the High Yield Fund:
CREDIT RISK: This is the risk that an issuer of bonds will be unable to pay
interest or principal when due. The prices of bonds are affected by the credit
quality of the issuer. High-yield bonds are subject to greater credit risk than
higher quality bonds because the companies that issue them are not as
financially strong as companies with investment grade ratings. Changes in the
financial condition of an issuer, changes in general economic conditions, and
changes in specific economic conditions that affect a particular type of issuer
27
<PAGE>
can impact the credit quality of an issuer. Such changes may weaken an issuer's
ability to make payments of principal or interest, or cause an issuer of bonds
to fail to make timely payments of interest or principal. Lower quality bonds
generally tend to be more sensitive to these changes than higher quality bonds.
While credit ratings may be available to assist in evaluating an issuer's credit
quality, they may not accurately predict an issuer's ability to make timely
payments of principal and interest.
MARKET RISK: The entire junk bond market can experience sharp price swings due
to a variety of factors, including changes in economic forecasts, stock market
volatility, large sustained sales of junk bonds by major investors, high-profile
defaults, or changes in the market's psychology. This degree of volatility in
the high-yield market is usually associated more with stocks than bonds. The
prices of high-yield bonds held by the Fund could therefore decline, regardless
of the financial condition of the issuers of such bonds. Markets tend to run in
cycles with periods when prices generally go up, known as "bull" markets, and
periods when prices generally go down, referred to as "bear" markets.
LIQUIDITY: High-yield bonds tend to be less liquid than higher quality bonds,
meaning that it may be difficult to sell high-yield bonds at a reasonable price,
particularly if there is a deterioration in the economy or in the financial
prospects of their issuers. As a result, the prices of high-yield bonds may be
subject to wide price fluctuations due to liquidity concerns.
INTEREST RATE RISK: The market value of a bond is affected by changes in
interest rates. When interest rates rise, the market value of a bond declines;
when interest rates decline, the market value of a bond increases. The price
volatility of a bond also depends on its maturity and duration. Generally, the
longer the maturity and duration of a bond, the greater its sensitivity to
interest rates. To compensate investors for this higher risk, bonds with longer
maturities and durations generally offer higher yields than bonds with shorter
maturities and durations.
FOREIGN ISSUERS: Foreign investments involve additional risks, including
political instability, government regulation, differences in financial reporting
standards, and less stringent regulation of foreign securities markets.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
28
<PAGE>
INTERNATIONAL SECURITIES FUND
OVERVIEW
OBJECTIVES: The Fund primarily seeks long-term capital growth and
secondarily a reasonable level of current income.
PRIMARY
INVESTMENT
STRATEGIES: The Fund invests in a diversified portfolio of common stocks
(and other equity securities) of companies which are located
throughout the world, including the United States. The Fund
primarily invests in large or medium capitalization stocks
which are traded in larger or more established markets
throughout the world. The Fund also invests opportunistically
in small capitalization stocks and stocks of smaller,
less-developed or emerging markets. The Fund generally does not
attempt to hedge its foreign securities investments against
currency rate fluctuations. To a limited extent, the Fund uses
stock index futures contracts and options thereon as temporary
substitutes for purchases of foreign stocks and to adjust
country weightings.
PRIMARY
RISKS: All stocks fluctuate in price in response to movements in the
overall securities markets, general economic conditions, and
changes in interest rates or investor sentiment. The risks of
investing in a stock fund that invests in foreign stocks are
accentuated because investments in foreign stocks, particularly
emerging markets, can decline in value because of declines in
the values of local currencies, irrespective of how well the
companies that issue such stocks are doing; there is less
supervision and regulation of foreign securities markets;
foreign securities markets are generally less liquid than U.S.
markets; there may be less financial information available on
certain foreign companies; and there may be political
instability in some countries in which the Fund may invest.
Fluctuations in the prices of foreign stocks can be especially
sudden and substantial. Stocks with smaller market
capitalizations tend to experience sharper price fluctuations.
Using stock index futures and options thereon as temporary
substitutes for foreign stocks carries the same risks as direct
ownership of all of the stocks in the index. Accordingly, the
value of an investment in the Fund will go up and down, which
means that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
How has the International Securities Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
29
<PAGE>
The bar chart shows changes in the performance of the International Securities
Fund's shares from year to year over the life of the Fund. The bar chart does
not reflect fees and expenses that may be deducted by the variable annuity
contract or variable life insurance policy through which you invest. If they
were included, the returns would be less than those shown.
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 18.22% (for the
quarter ended December 31, 1998), and the lowest quarterly return was -14.92%
(for the quarter ended September 30, 1998). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for the
International Securities Fund's shares compare to those of the Morgan Stanley
All Country World Free Index ("All Country Index"). The All Country Index is
designed to measure the performance of stock markets in the United States,
Europe, Canada, Australia, New Zealand and the developed and emerging markets of
Eastern Europe, Latin America, Asia and the Far East. The index consists of
approximately 60% of the aggregate market value of the covered stock exchanges
and is calculated to exclude companies and share classes which cannot be freely
purchased by foreigners. The All Country Index does not take into account fees
and expenses that an investor would incur in holding the securities in the
index. If it did so, the returns would be lower than those shown.
Inception
1 Year* 5 Years* (4/16/90)
International Securities
Fund 9.92% 10.12% 10.23%
All Country Index 21.96 7.13 12.62**
*The annual returns are based upon calendar years.
**The average annual total return shown is for the period 4/30/90 to 12/31/98.
30
<PAGE>
THE FUND IN DETAIL
What are the International Securities Fund's objectives, principal investment
strategies, and risks?
OBJECTIVES: The Fund primarily seeks long-term capital growth and secondarily a
reasonable level of current income.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests in a diversified portfolio of
common stocks of companies which are located throughout the world, including the
United States ("U.S.") Under normal market conditions, the Fund attempts to
maintain broad country diversification. The Fund has a fundamental policy (which
may only be changed by shareholder vote) to invest no more than 35% of its total
assets in securities of U.S. companies, obligations of the U.S. government, its
agencies and instrumentalities, and cash or cash equivalents denominated in U.S.
dollars. The foreign stocks that the Fund purchases are typically denominated in
foreign currencies. The Fund generally does not hedge against fluctuations in
the value of foreign currencies.
The Fund invests primarily in stocks of companies which are considered large to
medium in size (as measured by market capitalization). The Fund may also invest
in smaller companies when management views them as attractive alternatives to
the stocks of larger or more established companies. The Fund will make direct
investments in foreign issuers by purchasing securities traded in a foreign
market, as well as indirect investments through purchases of Depositary
Receipts, such as American Depository Receipts and Global Depository Receipts.
The Fund invests primarily in stocks which trade in larger or more established
markets, but also may invest (to a lesser degree) in smaller, less-developed or
emerging markets where management believes there is significant opportunity for
growth of capital. The status of markets as less-developed or emerging may
change over time as a result of developments in national or regional economies
and capital markets. Within emerging markets, the Fund seeks to participate in
the more established markets which management believes provide sufficient
liquidity.
The Fund also uses stock index futures contracts and options thereon as
temporary substitutes for purchases of foreign stocks. This practice can afford
a hedge against not participating in an advance in a country at a time when the
Fund is not fully invested in the country. Stock index futures contracts and
options thereon are also used to maintain desired country exposures. The Fund
will not invest more than 5% of its assets in stock index futures or options
thereon.
The Fund uses fundamental research and analysis to identify prospective
investments. Security selection is based on any one or more of the following
characteristics: (1) accelerating earnings growth or the possibility of positive
earnings surprises; (2) strong possibility of price-to-earnings multiple
expansion (or increases in other similar valuation measures); (3) hidden or
unappreciated value; or (4) improving local market and/or industry outlook.
31
<PAGE>
Once the best purchase candidates for the Fund are identified, the portfolio
construction process begins. In this phase, many factors are considered in
creating a total portfolio of securities for the Fund, including: (1) regional
and country weightings; (2) currency exposure; (3) industry and sector
allocation; and (4) exposure to a number of other factors, such as interest
rates or company size.
Every company in the portfolio is monitored to ensure its fundamental
attractiveness. A stock may be sold if: (1) its downside risk equals or exceeds
its upside potential; (2) it suffers from a decreasing trend of earnings growth
or suffers an earnings disappointment; (3) it experiences excessive valuations;
or (4) there is a deteriorating local market and/or industry outlook.
Information on the Fund's recent strategies and holdings can be found in the
most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of investing in the International Securities Fund:
MARKET RISK: Because the Fund primarily invests in common stocks, it is subject
to market risk. Stock prices in general may decline over short or even extended
periods not only because of company-specific developments but also due to an
economic downturn, a change in interest rates, or a change in investor
sentiment, regardless of the success or failure of an individual company's
operations. Stock markets tend to run in cycles, with periods when prices
generally go up, known as "bull" markets, and periods when stock prices
generally go down, referred to as "bear" markets.
While the Fund's strategy of being globally diversified may help to reduce the
volatility or variability of the Fund's returns relative to another global fund
which invests in fewer stocks or whose investments are focused in fewer
countries or industry sectors, this strategy may not prevent a loss if stock
markets worldwide were to decline at the same time. Fluctuations of stock prices
can be sudden and substantial. Accordingly, the value of an investment in the
Fund will go up and down, which means that you could lose money.
FOREIGN SECURITIES RISK: Investments in foreign markets involve special risks
and considerations. Some of these factors are also present when investing in the
United States but are heightened issues when investing in non-U.S. markets and
especially emerging markets. For example, such risks and considerations may
include political and economic instability, nationalization, confiscatory
taxation, differing accounting and financial reporting standards, the inability
to obtain reliable financial information regarding a company's balance sheet and
operations. Risks such as these are common to all investments but are
exacerbated when investing in international markets. In addition, international
investors may experience higher commission rates on foreign portfolio
transactions, potential adverse changes in tax and exchange control regulations,
and the potential for restrictions on the flow of international capital. Many
foreign countries impose withholding taxes on income from investments in such
countries, which a portfolio may not recover. Also, fluctuations in the exchange
rates between the US dollar and foreign currencies may have a negative impact on
investments denominated in foreign currencies, for example, by eroding or
reversing gains or widening losses from those investments. These risks are
common to all mutual funds investing in international securities. Using stock
32
<PAGE>
index futures and options thereon as temporary substitutes for foreign stocks
carries the same risks as direct ownership of all of the stocks in the index.
LIQUIDITY RISK: Liquidity risk is the risk that certain securities may be
difficult or impossible to sell at the time and the price that the seller would
like. In such a situation, the seller may have to lower the price, sell other
securities instead, or forego an investment opportunity, any of which could have
a negative effect on fund management or performance.
SMALL-CAP RISK: The market risk associated with small-to mid-cap stocks is
greater than that associated with larger-cap stocks because small-to mid-cap
stocks tend to experience sharper price fluctuations than larger-cap stocks,
particularly during bear markets. Small-to mid-cap companies are generally
dependent on a smaller number of products or services, their earnings are less
predictable, and their share prices more volatile. These companies are also more
likely to have limited markets or financial resources, or to depend on a small,
inexperienced management group.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
be particularly acute in the case of the Fund's holdings in foreign securities
since foreign issuers and foreign markets may be more likely to experience Year
2000 problems. These problems could have a negative effect on the Fund's
investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund's investment subadviser may judge that
market, economic or political conditions make pursuing the Fund's investment
strategies inconsistent with the best interests of its shareholders. The Fund
then may temporarily use alternative strategies that are mainly designed to
limit the Fund's losses by investing up to 100% of its assets in short-term
money market instruments. If the Fund does so, it may not achieve its investment
objective.
33
<PAGE>
INVESTMENT GRADE FUND
OVERVIEW
OBJECTIVE: The Fund seeks to generate a maximum level of income
consistent with investment in investment grade debt
securities.
PRIMARY
INVESTMENT
STRATEGIES: The Fund primarily invests in corporate bonds of U.S.
companies that are rated in one of the four highest ratings
categories by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Ratings Group ("S&P"). Such bonds are
generally called "investment grade bonds." Investment grade
bonds offer higher yields than Treasury securities of
comparable maturities to compensate investors for the risk of
default. The Fund selects bonds primarily on the basis of its
own research and investment analysis. The Fund also takes
economic and interest rate outlooks into consideration when
selecting investments.
PRIMARY
RISKS: There are two main risks of investing in the Fund: credit risk
and interest rate risk. The Fund's share price will decline if
one or more of its bond holdings is downgraded in rating, or
one or more issuers suffers a default, or there is a concern
about credit downgrades or defaults in general as a result of
a deterioration in the economy as a whole. Also the Fund's
share price will decline as interest rates rise. Like all
bonds, investment grade bonds tend to rise in price when
interest rates decline, and decline in price when interest
rates rise. Accordingly, the value of an investment in the
Fund will go up and down, which means that you could lose
money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
How has the Investment Grade Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Investment Grade Fund's
shares from year to year over the life of the Fund. The bar chart does not
reflect fees and expenses that may be deducted by the variable annuity contract
or variable life insurance policy through which you invest. If they were
included, the returns would be less than those shown.
34
<PAGE>
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 6.50% (for the
quarter ended June 30, 1995), and the lowest quarterly return was -3.57% (for
the quarter ended March 31, 1994). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for the
Investment Grade Fund's shares compare to those of the Lehman Brothers Corporate
Bond Index ("Corporate Bond Index"). The Corporate Bond Index includes all
publicly issued, fixed rate, nonconvertible investment grade dollar-denominated,
corporate debt which have at least one year to maturity and an outstanding par
value of at least $100 million. The Corporate Bond Index does not take into
account fees and expenses that an investor would incur in holding the securities
in the Corporate Bond Index. If it did so, the returns would be lower than those
shown.
Inception
1 Year* 5 Years* (1/7/92)
Investment Grade Fund 1.50% 5.78% 6.92%
Corporate Bond Index 8.57 7.74 8.51**
*The annual returns are based upon calendar years.
**The average annual total return shown is for the period 12/31/91 to 12/31/98.
35
<PAGE>
THE FUND IN DETAIL
What are the Investment Grade Fund's objective, principal investment
strategies, and risks?
OBJECTIVE: The Fund seeks to generate a maximum level of income consistent with
investment in investment grade debt securities.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in corporate bonds of companies that are rated investment grade by
Moody's or S&P ("investment grade bonds"). These are bonds that are rated among
the four highest ratings categories by Moody's or S&P. Investment grade bonds
generally offer higher yields than Treasury securities of comparable maturities
to compensate investors for the risk of default.
Although the Fund may diversify among the four investment grade ratings, it may
emphasize bonds with higher ratings at times when the economy appears to be
weakening and bonds with lower ratings when the economy appears to be improving.
The Fund adjusts the average weighted maturity of the bonds in its portfolio
based on its interest rate outlook. If it believes that interest rates are
likely to fall, it will attempt to buy bonds with longer maturities or sell
bonds with shorter maturities. By contrast, if it believes interest rates are
likely to rise, it will attempt to buy bonds with shorter maturities or sell
bonds with longer maturities. The Fund also attempts to stay broadly
diversified, but it may emphasize certain industries within a sector based on
the outlook for interest rates, economic forecasts, and market conditions. The
Fund may buy or sell Treasury securities instead of investment grade corporate
bonds to adjust the Fund's average weighted maturity.
Although the Fund will consider ratings assigned by ratings services in
selecting investments, it relies principally on its own research and investment
analysis. The Fund considers, among other things, the issuer's earnings and cash
flow generating capabilities, asset quality, debt levels, and management
strength. The Fund will not necessarily sell an investment if its rating is
reduced. The Fund usually will sell a bond when it shows deteriorating
fundamentals or falls short of the portfolio manager's expectations. Information
on the Fund's recent strategies and holdings can be found in the most recent
annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of investing in the Investment Grade Fund:
CREDIT RISK: This is the risk that an issuer of bonds will be unable to pay
interest or principal when due. The prices of bonds are affected by the credit
quality of the issuer. Changes in the financial condition of an issuer, changes
in general economic conditions, and changes in specific economic conditions that
affect a particular type of issuer can impact the credit quality of an issuer.
Such changes may weaken an issuer's ability to make payments of principal or
interest, or cause an issuer of bonds to fail to make timely payments of
interest or principal. Lower quality bonds generally tend to be more sensitive
to these changes than higher quality bonds, but BBB-rated bonds may have
speculative characteristics as well. While credit ratings may be available to
assist in evaluating an issuer's credit quality, they may not accurately predict
an issuer's ability to make timely payment of principal and interest.
36
<PAGE>
INTEREST RATE RISK: The market value of a bond is affected by changes in
interest rates. When interest rates rise, the market value of a bond declines,
when interest rates decline, the market value of a bond increases. The price
volatility of a bond also depends on its maturity and duration. Generally, the
longer the maturity and duration of a bond, the greater its sensitivity to
interest rates. To compensate investors for this higher risk, bonds with longer
maturities and durations generally offer higher yields than bonds with shorter
maturities and durations.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
37
<PAGE>
TARGET MATURITY 2007 FUND
OVERVIEW
OBJECTIVE: The Fund seeks a predictable compounded investment return for
investments held until the Fund's maturity, consistent with
preservation of capital.
PRIMARY
INVESTMENT
STRATEGIES: The Fund primarily invests in non-callable zero coupon bonds
issued or guaranteed by the U.S. government, its agencies or
instrumentalities, that mature on or around the maturity date
of the Fund. The Fund will mature and terminate at the end of
the year 2007. The Fund generally follows a buy and hold
strategy, but may sell an investment when the Fund identifies
an opportunity to increase its yield or it needs cash to meet
redemptions.
PRIMARY
RISKS: If an investment in the Fund is sold prior to the Fund's
maturity, there is substantial interest rate risk. Like other
bonds, zero coupon bonds are sensitive to changes in interest
rates. When interest rates rise, they tend to decline in
price, and when interest rates fall, they tend to increase in
price. Zero coupon bonds are more interest rate sensitive than
other bonds because zero coupon bonds pay no interest to their
holders until their maturities. This means that the market
prices of zero coupon bonds will fluctuate far more than those
of bonds that pay interest periodically. Accordingly, the
value of an investment in the Fund will go up and down, which
means that you could lose money if you liquidate your
investment in the Fund prior to the Fund's maturity.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
How has the Target Maturity 2007 Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Fund's shares from year to
year over the life of the Fund. The bar chart does not reflect fees and expenses
that may be deducted by the variable annuity contract or variable life insurance
policy through which you invest. If they were included, the returns would be
less than those shown.
38
<PAGE>
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 9.99% (for the
quarter ended September 30, 1998), and the lowest quarterly return was -7.84%
(for the quarter ended March 31, 1996). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for the Target
Maturity 2007 Fund's shares compare to those of the Salomon Brothers Government
Index ("SB Government Index"). The SB Government Index is a market
capitalization-weighted index that consists of debt issued by the U.S. Treasury
and U.S. Government sponsored agencies. The SB Government Index does not take
into account fees and expenses that an investor would incur in holding the
securities in the SB Government Index. If it did so, the returns would be lower
than those shown.
Inception
1 Year* (4/26/95)
Target Maturity 2007 Fund 6.93% 10.70%
SB Government Index 9.84 9.22**
* The annual returns are based upon calendar years.
** The average annual total return shown is for the period 4/30/95 to 12/31/98.
THE FUND IN DETAIL
What are the Target Maturity 2007 Fund's objective, principal investment
strategies, and risks?
OBJECTIVE: The Fund seeks a predictable compounded investment return for
investments held until the Fund's maturity, consistent with
preservation of capital.
39
<PAGE>
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in zero coupon securities. The vast majority of the Fund's investments
consists of non-callable, zero coupon bonds issued or guaranteed by the U.S.
government, its agencies or instrumentalities that mature on or around the
maturity date of the Fund (December 31, 2007). Zero coupon securities are debt
obligations that do not entitle holders to any periodic payments of interest
prior to maturity and therefore are issued and traded at discounts from their
face values. Zero coupon securities may be created by separating the interest
and principal components of securities issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities, or issued by private
corporate issuers. The discounts from face values at which zero coupon
securities are purchased varies depending on the time remaining until maturity,
prevailing interest rates, and the liquidity of the security. Because the
discounts from face values are known at the time of investment, investors
intending to hold zero coupon securities until maturity know the value of their
investment return at the time of investment, assuming full payment is made by
the issuer upon maturity.
The Fund seeks zero coupon bonds that will mature on or about the Fund's
maturity date. As the Fund's zero coupon bonds mature, the proceeds will be
invested in short-term U.S. government securities. The Fund generally follows a
buy and hold strategy consistent with attempting to provide a predictable
compounded investment return for investors who hold their Fund shares until the
Fund's maturity.
Although the Fund generally follows a buy and hold strategy, the Fund may sell
an investment when the Fund identifies an opportunity to increase its yield or
it needs cash to meet redemptions. Information on the Fund's recent strategies
and holdings can be found in the most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of investing in the Target Maturity 2007 Fund:
INTEREST RATE RISK: The market value of a bond is affected by changes in
interest rates. When interest rates rise, the market value of a bond declines;
when interest rates decline, the market value of a bond increases. The price
volatility of a bond also depends on its maturity and duration. Generally, the
longer the maturity and duration of a bond, the greater its sensitivity to
interest rates.
The market prices of zero coupon securities are generally more volatile than the
market prices of securities paying interest periodically and, accordingly, will
fluctuate far more in response to changes in interest rates than those of
non-zero coupon securities having similar maturities and yields. As a result,
the net asset value of shares of the Fund may fluctuate over a greater range
than shares of other funds that invest in securities that have similar
maturities and yields but that make current distributions of interest.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
40
<PAGE>
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
41
<PAGE>
TARGET MATURITY 2010 FUND
OVERVIEW
OBJECTIVE: The Fund seeks a predictable compounded investment return for
investors who hold their Fund shares until the Fund's
maturity, consistent with preservation of capital.
PRIMARY
INVESTMENT
STRATEGIES: The Fund primarily invests in non-callable zero coupon bonds
that mature on or around the maturity date of the Fund and are
issued or guaranteed by the U.S. government, its agencies and
instrumentalities. The Fund will mature and terminate at the
end of the year 2010. The Fund generally follows a buy and
hold strategy, but may sell an investment when the Fund
identifies an opportunity to increase its yield or to meet
redemptions.
PRIMARY
RISKS: If an investment in the Fund is sold prior to the Fund's
maturity, there is substantial interest rate risk. Like other
bonds, zero coupon bonds are sensitive to changes in interest
rates. When interest rates rise, they tend to decline in
price, and when interest rates fall, they tend to increase in
price. Zero coupon bonds are more interest rate sensitive than
other bonds because zero coupon bonds pay no interest to their
holders until their maturities. This means that the market
prices of zero coupon bonds will fluctuate far more than those
of bonds that pay interest periodically. Accordingly, the
value of an investment in the Fund will go up and down, which
means that you could lose money if you liquidate your
investment in the Fund prior to the Fund's maturity.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
How has the Target Maturity 2010 Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Fund's shares from year to
year over the life of the Fund. The bar chart does not reflect fees and expenses
that may be deducted by the variable annuity contract or variable life insurance
policy through which you invest. If they were included, the returns would be
less than those shown.
42
<PAGE>
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 10.25% (for the
quarter ended September 30, 1998), and the lowest quarterly return was -7.84%
(for the quarter ended March 31, 1996). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for the Target
Maturity 2010 Fund's shares compare to those of the Salomon Brothers Government
Index ("SB Government Index"). The SB Government Index is a market
capitalization-weighted index that consists of debt issued by the U.S. Treasury
and U.S. Government sponsored agencies. The SB Government Index does not take
into account fees and expenses that an investor would incur in holding the
securities in the SB Government Index. If it did so, the returns would be lower
than those shown.
Inception
1 Year* (4/30/96)
Target Maturity 2010 Fund 6.32% 12.68%
SB Government Index 9.84 9.56**
* The annual returns are based upon calendar years.
** The average annual total return shown is for the period 4/30/96 to 12/31/98.
43
<PAGE>
THE FUND IN DETAIL
What are the Target Maturity 2010 Fund's objective, principal investment
strategies, and risks?
OBJECTIVE: The Fund seeks a predictable compounded investment return for
investors who hold their Fund shares until the Fund's maturity,
consistent with preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in zero coupon securities. The vast majority of the Fund's investments
consists of non-callable, zero coupon bonds that mature on or around the
maturity date of the Fund and are direct obligations of the U.S. Treasury. Zero
coupon securities are debt obligations that do not entitle holders to any
periodic payments of interest prior to maturity and therefore are issued and
traded at discounts from their face values. Zero coupon securities may be
created by separating the interest and principal components of securities issued
or guaranteed by the U.S. government or one of its agencies or
instrumentalities, or issued by private corporate issuers. The discounts from
face values at which zero coupon securities are purchased varies depending on
the time remaining until maturity, prevailing interest rates, and the liquidity
of the security. Because the discounts from face values are known at the time of
investment, investors intending to hold zero coupon securities until maturity
know the value of their investment return at the time of investment, assuming
full payment is made by the issuer upon maturity.
The Fund seeks zero coupon bonds that will mature on or about the Fund's
maturity date. As the Fund's zero coupon bonds mature, the proceeds will be
invested in short term U.S. government securities. The Fund generally follows a
buy and hold strategy consistent with attempting to provide a predictable
compounded investment return for investors who hold their Fund shares until the
Fund's maturity.
Although the Fund generally follows a buy and hold strategy, the Fund may sell
an investment when the Fund identifies an opportunity to increase its yield or
it needs cash to meet redemptions. Information on the Fund's recent strategies
and holdings can be found in the most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of investing in the Target Maturity 2010 Fund:
INTEREST RATE RISK: The market value of a bond is affected by changes in
interest rates. When interest rates rise, the market value of a bond declines;
when interest rates decline, the market value of a bond increases. The price
volatility of a bond also depends on its maturity and duration. Generally, the
longer the maturity and duration of a bond, the greater its sensitivity to
interest rates.
The market prices of zero coupon securities are generally more volatile than the
market prices of securities paying interest periodically and, accordingly, will
fluctuate far more in response to changes in interest rates than those of
non-zero coupon securities having similar maturities and yields. As a result,
44
<PAGE>
the net asset value of shares of the Fund may fluctuate over a greater range
than shares of other funds that invest in securities that have similar
maturities and yields but that make current distributions of interest.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
45
<PAGE>
UTILITIES INCOME FUND
OVERVIEW
OBJECTIVES: The Fund primarily seeks high current income and secondarily
long-term capital appreciation.
PRIMARY
INVESTMENT
STRATEGIES: The Fund concentrates its investments in stocks of public
utilities companies ("utilities stocks"). The Fund attempts to
diversify across all sectors of the utilities industry (i.e.,
electric, gas, telecommunications and water), but from time to
time it will emphasize one or more sectors based on the
outlook for the various sectors. While the Fund emphasizes
investments in U.S. companies, it may invest in stocks of
foreign utilities companies.
PRIMARY
RISKS: While utilities stocks tend to be regarded as less volatile
than other stocks, like all stocks they fluctuate in value in
response to movements in the overall securities markets,
general economic conditions, and changes in interest rates or
investor sentiment. Because the Fund concentrates its
investments in public utilities stocks, the value of its
shares will be particularly affected by events that impact on
the utilities industry, such as changes in public utilities
regulation, changes in weather, and changes in interest rates.
Stocks of foreign utilities companies carry additional risks
including political instability, government regulation and
differences in financial reporting standards. An investment in
the Fund could decline in value even if the market as a whole
does well. Accordingly, the value of an investment in the Fund
will go up and down, which means that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
How has the Utilities Income Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Utilities Income Fund's
shares from year to year over the life of the Fund. The bar chart does not
reflect fees and expenses that may be deducted by the variable annuity contract
or variable life insurance policy through which you invest. If they were
included, the returns would be less than those shown.
46
<PAGE>
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 11.73% (for the
quarter ended December 31, 1997), and the lowest quarterly return was -6.74%
(for the quarter ended March 31, 1994). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for the Utilities
Income Fund's shares compare to those of the Standard & Poor's 500 Composite
Stock Price Index ("S&P 500 Index") and the Standard and Poor's Utilities Index
("S&P Utilities Index"). The S&P 500 Index is an unmanaged index generally
representative of the market for the stocks of large-sized U.S. companies. The
S&P Utilities Index is a capitalization-weighted index of 37 stocks designed to
measure the performance of the utilities sector of the S&P 500 Index. The
indices do not take into account fees and expenses that an investor would incur
in holding the securities in the indices. If they did so, the returns would be
lower than those shown.
Inception
1 Year* 5 Years* (11/15/93)
Utilities Income
Fund 4.66% 11.63% 11.20%
S&P 500 Index 28.34 24.55 20.45
S&P Utilities Index** 14.36 13.50 11.37
*The annual returns are based upon calendar years.
**This Index is used to show how the Fund's performance compares with the
returns of an index of stocks in market sectors in which the Fund may invest.
47
<PAGE>
THE FUND IN DETAIL
What are the Utilities Income Fund's objectives, principal investment
strategies, and risks?
OBJECTIVES: The Fund primarily seeks high current income and secondarily
long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in stocks (including not only common stocks, but also preferred stocks
and securities convertible into common or preferred stocks) of companies in the
utilities industry. These are securities of companies which are primarily
engaged in owning or operating facilities used to provide electricity, gas,
water or telecommunications (including telephone, telegraph and satellite, but
not public broadcasting or cable television). While the Fund emphasizes
investments in U.S. companies, it may invest in stocks of foreign utilities
companies. The Fund's investments in foreign utilities companies are generally
limited to stocks that are dollar-denominated and traded in the U.S.
While the Fund attempts to diversify across all utilities sectors, it may
emphasize a particular sector based on that sector's yield, price to earnings
ratio, economic trends, and the regulatory environment. The Fund uses a
"top-down" approach to selecting investments. This means that it first decides
on how much of its assets to allocate to each sector of the utilities market and
then identifies potential investments for each sector through fundamental
research and analysis.
In selecting securities, the Fund will consider a stock's dividend potential,
its price to earnings ratio, the company's management, the company's ratio of
international to domestic earnings, the company's future strategies, and
external factors such as demographics and mergers and acquisitions prospects.
The Fund typically sells a security when its issuer shows deteriorating
fundamentals, it falls short of the manager's expectations or there is a change
in economic trends. Information on the Fund's recent strategies and holdings can
be found in the most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of the investment, the greater the risk. Here
are the principal risks of investing in the Utilities Income Fund:
MARKET RISK: Because this Fund invests in stocks, it is subject to stock market
risk. Stock prices in general may decline over short or even extended periods
not only because of company-specific developments, but also due to an economic
downturn, a change in interest rates, or a change in investor sentiment,
regardless of the success or failure of an individual company's operations.
Stock markets tend to run in cycles with periods when prices generally go up,
known as "bull" markets, and periods when stock prices generally go down,
referred to as "bear" markets. While utilities stocks have long been thought of
as being less volatile than other stocks, like all stocks they fluctuate in
value. As the utilities industry has begun to deregulate and earnings have
become less predictable, utilities stocks have begun to have price fluctuations
which are more like other stocks. Stocks of foreign utilities companies carry
additional risks including political instability, government regulation and
differences in financial reporting standards.
48
<PAGE>
INDUSTRY CONCENTRATION RISK: Because the Fund concentrates its investments in
public utilities companies, the value of its shares will be especially affected
by events that are peculiar to or have a greater impact on the utilities
industry. Utilities companies, especially electric and gas and other
energy-related utilities companies, have historically been subject to the risk
of increases in fuel and other operating costs, changes in weather patterns,
changes in interest rates, changes in applicable laws and regulations, and costs
and operating constraints associated with compliance with environmental
regulations. Utilities stocks therefore may decline in value even if the overall
market is doing well.
SECTOR CONCENTRATION RISK: Because the Fund may concentrate its portfolio in one
sector of the utilities industry, its share value could decline if one sector of
the utilities industry does poorly even if the industry does well as a whole.
DEREGULATION/COMPETITION: Regulatory changes in the United States have
increasingly allowed utilities companies to provide services and products
outside their traditional geographical areas and lines of business, creating
competitors and new areas of competition. As a result, certain utilities
companies earn more than their traditional, regulated rates of return, while
others are forced to defend their core business from competition and are less
profitable. Some utilities companies may not be able to recover the costs of
facilities built or acquired prior to the date of deregulation. This is known as
the "stranded assets" problem.
INTEREST RATE RISK: Utilities stocks tend to be more interest rate sensitive
than other stocks. As interest rates increase, utilities stocks tend to decline
in value.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
OTHER RISKS: Changes in weather patterns or regional weather circumstances may
affect the ability of the utilities industry, a sector of the industry, or
certain utilities companies to meet supply and demand.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses by
investing up to 100% of its assets in short-term money market instruments. If
the Fund does so, it may not achieve its investment objective.
49
<PAGE>
FUND MANAGEMENT
First Investors Management Company, Inc. ("FIMCO") is the investment adviser to
each of the Funds in the Life Series Fund. Its address is 95 Wall Street, New
York, NY 10005. It currently is investment adviser to 51 mutual funds or series
of funds with total net assets of approximately $5 billion. Except as noted
below, FIMCO supervises all aspects of each Fund's operations and determines
each Fund's portfolio transactions. For the fiscal year ended December 31, 1998,
FIMCO received advisory fees as follows: 0.75% of average daily net assets for
Blue Chip Fund; 0.60% of average daily net assets, net of waiver, for Cash
Management Fund; 0.75% of average daily net assets for Discovery Fund; 0.60% of
average daily net assets, net of waiver, for Government Fund; 0.75% of average
daily net assets for Growth Fund; 0.75% of average daily net assets for High
Yield Fund; 0.75% of average daily net assets for International Securities Fund;
0.60% of average daily net assets, net of waiver, for Investment Grade Fund;
0.60% of average daily net assets, net of waiver, for Target Maturity 2007 Fund;
0.60% of average daily net assets, net of waiver, for Target Maturity 2010 Fund;
and 0.60% of average daily net assets, net of waiver, for Utilities Income Fund.
The gross advisory fees (fees before any applicable waivers) are set forth in
the Separate Account prospectus which is attached to this prospectus.
Dennis T. Fitzpatrick serves as Portfolio Manager of the Blue Chip Fund. Mr.
Fitzpatrick also serves as Portfolio Manager to certain other First Investors
Funds. Mr. Fitzpatrick has been a member of FIMCO's investment management team
since 1995. During 1995, Mr. Fitzpatrick was a Regional Surety Manager at United
States Fidelity & Guaranty Co. From 1988 to 1995, he was Northeast Surety
Manager at American International Group.
Clark D. Wagner serves as Portfolio Manager of Government Fund, Target Maturity
2007 Fund, and Target Maturity 2010 Fund, and Co-Portfolio Manager of Investment
Grade Fund. Mr. Wagner also serves as Portfolio Manager of certain other First
Investors Funds. Mr. Wagner has been Chief Investment Officer of FIMCO since
1992.
Patricia D. Poitra, Director of Equities, and David A. Hanover serve as
Co-Portfolio Managers of the Discovery Fund. Ms. Poitra and Mr. Hanover also
serve as Portfolio Managers of certain other First Investors Funds. Ms. Poitra
joined FIMCO in 1985 as a Senior Equity Analyst. From 1997 to August 1998, Mr.
Hanover was a Portfolio Manager and Analyst at Heritage Investors Management
Corporation. From 1994 to 1996, Mr. Hanover was Co-Portfolio Manager and Analyst
at Psagot Mutual Funds and in 1993 he was an International Equity Investments
Summer Associate at Howard Hughes Medical Institute.
George V. Ganter serves as Portfolio Manager of the High Yield Fund. Mr. Ganter
also serves as Portfolio Manager of certain other First Investors Funds. Mr.
Ganter joined FIMCO in 1985 as a Senior Investment Analyst.
Nancy W. Jones serves as Co-Portfolio Manager of the Investment Grade Fund. Ms.
Jones also serves as Portfolio Manager of certain other First Investors Funds.
Ms. Jones joined FIMCO in 1983 as Director of Research in the High Yield
Department.
Matthew S. Wright serves as Portfolio Manager of the Utilities Income Fund. Mr.
Wright also serves as Portfolio Manager of certain other First Investors Funds.
Mr. Wright joined FIMCO in February 1996 as an Equity Analyst. From May 1995 to
50
<PAGE>
January 1996, Mr. Wright was an Analyst at Fuji Bank. From June 1994 to April
1995, he was Market Editor of BLOOMBERG MAGAZINE and from September 1991 to June
1994, he was Editor/Reporter for BLOOMBERG BUSINESS NEWS.
FIMCO and Life Series Fund have retained Wellington Management Company, LLP
("WMC") as investment subadviser to the Growth Fund and the International
Securities Fund. Subject to continuing oversight and supervision by FIMCO and
the Board of Directors, WMC has discretionary trading authority over all of the
assets of the Growth Fund and the International Securities Fund. WMC is located
at 75 State Street, Boston, MA 02109. 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, 1998, WMC held investment management authority
with respect to $211 billion of assets. Of that amount, WMC acted as investment
adviser or subadviser to approximately 146 investment companies or series of
such companies, with net assets of approximately $147 billion as of December 31,
1998. The Growth Fund is managed by WMC's Growth Investment Team, a group of
equity portfolio managers and senior investment professionals. The International
Securities Fund is managed by Trond Skramstad, Senior Vice President of WMC and
Chairman of the firm's Global Equity Strategy Group. Mr. Skramstad joined WMC in
1993.
In addition to the investment risks of the Year 2000 which are disclosed above,
the ability of FIMCO, WMC and their affiliates to price the Funds' shares,
process purchase and redemption orders, and render other services could be
adversely affected if the computers or other systems on which they rely are not
properly programmed to operate after January 1, 2000. Additionally, because the
services provided by FIMCO, WMC and their affiliates depend on the interaction
of their computer systems with the computer systems of brokers, information
services and other parties, any failure on the part of such third party computer
systems to deal with the Year 2000 may have a negative effect on the services
provided to the Funds. FIMCO, WMC and their affiliates are taking steps that
they believe are reasonably designed to address the Year 2000 problem for
computer and other systems used by them and are obtaining assurances that
comparable steps are being taken by the Funds' other service providers. However,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact on the Funds. Nor can the Funds estimate the extent of any
impact.
BUYING AND SELLING SHARES
How and when do the Funds price their shares?
The share price (which is called "net asset value" or "NAV" per share) for each
Fund is calculated once each day as of 4 p.m., Eastern Time ("ET"), on each day
the New York Stock Exchange ("NYSE") is open for regular trading. In the event
that the NYSE closes early, the share price will be determined as of the time of
the closing.
To calculate the NAV, each Fund's assets are valued and totaled, liabilities are
subtracted, and the balance, called net assets, is divided by the number of
shares outstanding.
In valuing its assets, each Fund other than Cash Management Fund uses the market
value of securities for which market quotations or last sale prices are readily
available. If there are no readily available quotations or last sale prices for
51
<PAGE>
an investment or the available quotations are considered to be unreliable, the
securities will be valued at their fair value as determined in good faith
pursuant to procedures adopted by the Board of Directors of the Funds. The Cash
Management Fund values its assets using the amortized cost method which is
intended to permit the Fund to maintain a stable $1.00 per share. Because the
International Securities Fund invests in securities that are primarily listed on
foreign exchanges that trade on days when the Fund is not open, the NAV of the
Fund's shares may change on days on which you are not able to purchase or redeem
the Fund's shares.
How do I buy and sell shares?
Investments in each of the Funds may only be made through purchases of variable
annuity contracts or variable life insurance policies offered by FIL. Purchase
payments for variable annuity contracts, less applicable charges or expenses,
are paid into specified unit investment trusts, Separate Account C or Separate
Account D. Variable life insurance policy premiums, less certain expenses, are
paid into a unit investment trust, Separate Account B. The Separate Accounts
pool these proceeds to purchase shares of a Fund designated by purchases of the
variable annuity contracts or variable life insurance policies.
For information about how to buy or sell the variable annuity contracts and
variable life insurance policies, see the Separate Account prospectus which is
attached to this prospectus. It will describe not only the process for buying
and selling contracts and policies but also the fees and charges involved. This
prospectus is not valid unless a Separate Account prospectus is attached hereto.
ACCOUNT POLICIES
What about dividends and capital gain distributions?
The Separate Accounts which own the shares of the Funds' will receive all
dividends and distributions. As described in the attached Separate Account
prospectus, all dividends and distributions are then reinvested by the
appropriate Separate Account in additional shares of the Fund.
Except for Cash Management Fund, to the extent that they have net investment
income, each Fund will declare and pay, on an annual basis, dividends from net
investment income. To the extent that the Cash Management Fund has net
investment income, the Fund will declare daily and pay monthly dividends from
net investment income. Each Fund will declare and distribute any net realized
capital gains, on an annual basis, usually after the end of each Fund's fiscal
year. Each Fund may make an additional distribution in any year if necessary to
avoid a Federal excise tax on certain undistributed income and capital gain.
What about taxes?
You will not be subject to taxes as the result of purchases or sales of Fund
shares by the Separate Account, or Fund dividends, or distributions to the
Separate Accounts. There are tax consequences associated with investing in the
variable annuity contracts and variable life insurance policies. These are
discussed on the attached Separate Account prospectus.
52
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance of each Fund for the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the tables
represent the rate that an investor would have earned (or lost) on an investment
in each Fund (assuming reinvestment of all dividends and distributions). The
information has been audited by Tait, Weller & Baker, whose report, along with
the Funds' financial statements, are included in the SAI, which is available
upon request.
53
<PAGE>
<TABLE>
<CAPTION>
- -------------------- ------------------------------------------------------------------------------------------------
PER SHARE DATA
------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS FROM
--------------------------------- -----------------------
NET
NET ASSET REALIZED AND
VALUE NET UNREALIZED TOTAL FROM NET NET
YEAR ENDED BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENTS REALIZED TOTAL
DECEMBER 31 OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAINS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------------------------------
BLUE CHIP
- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1994.............. $14.21 $.18 $(.39) $(.39) $.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
1997.............. 19.77 .19 4.88 5.07 .22 .91 1.13
1998.............. 23.71 .17 4.05 4.22 .19 1.49 1.68
CASH MANAGEMENT
- ---------------
1994.............. $1.00 $.037 $ -- $.037 $.037 $-- $.037
1995.............. 1.00 .054 -- .054 .054 -- .054
1996.............. 1.00 .049 -- .049 .049 -- .049
1997.............. 1.00 .050 -- .050 .050 -- .050
1998.............. 1.00 .049 -- .049 .049 -- .049
DISCOVERY
- ---------
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
1997.............. 25.06 .08 3.93 4.01 .14 1.16 1.30
1998.............. 27.77 .09 .79 .88 .08 1.83 1.91
(a) Annualized.
* Commencement of operations.
** Based on average shares outstanding during the year.
+ Some or all expenses have been waived or assumed by the investment adviser from commencement of operations
through December 31, 1998.
++ The effect of fees and charges incurred at the separate account level are not reflected in these performance
figures.
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET
RATIO TO AVERAGE ASSETS BEFORE EXPENSES
NET ASSETS + WAIVED OR ASSUMED
---------------- ----------------------
NET ASSET NET ASSETS
VALUE TOTAL END OF NET NET PORTFOLIO
END OF RETURN ++ PERIOD INVESTMENT INVESTMENT TURNOVER
PERIOD (%) (IN MILLIONS) EXPENSES(%) INCOME (%) EXPENSES(%) INCOME (%) RATE (%)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$13.75 (1.45) $41 .88 1.49 N/A N/A 82
16.98 34.00 67 .86 1.91 N/A N/A 26
19.77 21.52 100 .84 1.39 N/A N/A 45
23.71 26.72 154 .81 .99 N/A N/A 63
26.25 18.66 205 .82 .79 N/A N/A 91
$1.00 3.77 $4 .60 3.69 1.04 3.25 N/A
1.00 5.51 4 .60 5.36 1.10 4.87 N/A
1.00 5.00 4 .60 4.89 1.11 4.38 N/A
1.00 5.08 5 .70 4.97 1.06 4.61 N/A
1.00 5.02 7 .70 4.89 .99 4.60 N/A
$19.86 (2.53) $30 .88 .36 N/A N/A 53
23.27 25.23 51 .87 .63 N/A N/A 78
25.06 12.48 71 .85 .63 N/A N/A 98
27.77 16.84 100 .82 .34 N/A N/A 85
26.74 3.05 114 .83 .36 N/A N/A 121
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
- -------------------- ------------------------------------------------------------------------------------------------
PER SHARE DATA
------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS FROM
--------------------------------- -----------------------
NET
NET ASSET REALIZED AND
VALUE NET UNREALIZED TOTAL FROM NET NET
YEAR ENDED BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENTS REALIZED TOTAL
DECEMBER 31 OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAINS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------------------------------
GOVERNMENT
<S> <C> <C> <C> <C> <C> <C> <C>
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
1997............. 10.19 .72 .11 .83 .69 -- .69
1998............. 10.33 .66** .08** .74** .66 -- .66
GROWTH
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
1997............. 24.56 .15 6.57 6.72 .18 1.86 2.04
1998............. .24 .10 7.69 7.79 .15 1.10 1.25
HIGH YIELD
1994............. $11.16 $.87 $(1.14) $(.27) $.31 $-- $.31
1995............. 10.58 1.00 .95 1.95 .96 -- .96
1996............. 11.57 1.02 .35 1.37 1.01 -- 1.01
1997............. 11.93 .98 .41 1.39 1.02 -- 1.02
1998............. 12.30 1.00 (.62) .38 .98 -- .98
(a) Annualized.
* Commencement of operations.
** Based on average shares outstanding during the year.
+ Some or all expenses have been waived or assumed by the investment adviser from commencement of
operations through December 31, 1998.
++ The effect of fees and charges incurred at the separate account level are not reflected in these
performance figures.
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET
RATIO TO AVERAGE ASSETS BEFORE EXPENSES
NET ASSETS + WAIVED OR ASSUMED
---------------- ----------------------
NET ASSET NET ASSETS
VALUE TOTAL END OF NET NET PORTFOLIO
END OF RETURN ++ PERIOD INVESTMENT INVESTMENT TURNOVER
PERIOD (%) (IN MILLIONS) EXPENSES(%) INCOME (%) EXPENSES(%) INCOME (%) RATE (%)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$9.70 (4.10) $8 .35 6.74 .90 6.19 457
10.52 15.63 10 .40 6.79 .93 6.26 198
10.19 3.59 9 .60 6.75 .94 6.41 199
10.33 8.61 9 .60 6.95 .92 6.63 134
10.41 7.54 11 .70 6.59 .87 6.42 107
$16.73 (2.87) $33 .90 .60 N/A N/A 40
20.47 25.12 51 .88 1.11 N/A N/A 64
24.56 24.45 79 .85 .92 N/A N/A 49
29.24 29.28 128 .82 .64 N/A N/A 27
35.78 27.35 187 .82 .34 N/A N/A 26
$10.58 (1.56) $32 .88 9.43 N/A N/A 50
11.57 19.82 42 .87 9.86 N/A N/A 57
11.93 12.56 49 .85 9.43 N/A N/A 34
12.30 12.47 60 .83 8.88 N/A N/A 40
11.70 3.15 65 .83 8.93 N/A N/A 42
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
- -------------------- ------------------------------------------------------------------------------------------------
PER SHARE DATA
------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS FROM
--------------------------------- -----------------------
NET
NET ASSET REALIZED AND
VALUE NET UNREALIZED TOTAL FROM NET NET
YEAR ENDED BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENTS REALIZED TOTAL
DECEMBER 31 OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAINS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------------------------------
INTERNATIONAL SECURITIES
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
1997................ 17.19 .18 1.26 1.44 .20 1.52 1.72
1998................ 16.91 .12 2.87 2.99 .16 .86 1.02
INVESTMENT GRADE
- ----------------
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
1997................ 11.36 .74 .31 1.05 .74 -- .74
1998................ 11.67 .68** .33** 1.01** .71 -- .71
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
1997................ 11.71 .59 .90 1.49 .57 -- .57
1998................ 12.63 .61 1.20 1.81 .61 -- .61
TARGET MATURITY 2010
- --------------------
4/30/96* to 12/31/96 $10.00 $ .26 $ .90 $1.16 $-- $-- --
1997................ 11.16 .45 1.29 1.74 .20 -- .20
1998................ 12.70 .51 1.25 1.76 .48 .01 .49
UTILITIES INCOME
- ----------------
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
1997................ 12.57 .37 2.64 3.01 .36 .27 .63
1998................ 14.95 .32 1.46 1.78 .35 .55 .90
(a) Annualized.
* Commencement of operations.
** Based on average shares outstanding during the year.
+ Some or all expenses have been waived or assumed by the investment adviser from commencement of operations
through December 31, 1998.
++ The effect of fees and charges incurred at the separate account level are not reflected in these performance
figures.
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET
RATIO TO AVERAGE ASSETS BEFORE EXPENSES
NET ASSETS + WAIVED OR ASSUMED
---------------- ----------------------
NET ASSET NET ASSETS
VALUE TOTAL END OF NET NET PORTFOLIO
END OF RETURN ++ PERIOD INVESTMENT INVESTMENT TURNOVER
PERIOD (%) (IN MILLIONS) EXPENSES(%) INCOME (%) EXPENSES(%) INCOME (%) RATE (%)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$13.51 (1.29) $31 1.03 1.22 N/A N/A 36
15.58 18.70 41 1.02 1.42 N/A N/A 45
17.19 15.23 58 1.12 1.25 N/A N/A 67
16.91 9.09 74 1.13 1.15 N/A N/A 71
18.88 18.18 92 1.15 .75 N/A N/A 109
$10.31 (3.53) $12 .37 6.61 .92 6.06 15
11.73 19.69 16 .51 6.80 .91 6.40 26
11.36 2.84 16 .60 6.47 .88 6.19 19
11.67 9.81 17 .60 6.54 .87 6.27 41
11.97 9.15 22 .68 5.97 .84 5.81 60
$12.26 22.60 $10 .04(a) 6.25(a) .87(a) 5.42(a) 28
11.71 (2.16) 15 .60 6.05 .82 5.83 13
12.63 13.38 20 .60 5.91 .82 5.69 1
13.83 14.97 26 .67 5.18 .83 5.02 1
$11.16 11.60 $2 .60(a) 6.05(a) .98(a) 5.67(a) 0
12.70 15.86 5 .60 5.88 .87 5.61 13
13.97 14.36 9 .67 4.90 .82 4.75 0
$9.19 (7.24) $5 .17 4.13 .95 3.35 31
11.74 30.26 15 .41 4.23 .91 3.73 17
12.57 9.57 24 .60 3.48 .86 3.22 45
14.95 25.07 34 .67 3.12 .85 2.94 64
15.83 12.58 50 .73 2.61 .85 2.49 105
</TABLE>
59
<PAGE>
[FIRST INVESTORS LOGO]
LIFE SERIES FUND
BLUE CHIP
CASH MANAGEMENT
DISCOVERY
GOVERNMENT
GROWTH
HIGH YIELD
INTERNATIONAL SECURITIES
INVESTMENT GRADE
TARGET MATURITY 2007
TARGET MATURITY 2010
UTILITIES INCOME
For investors who want more information about the Funds, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS: Additional information about each Fund's investments
is available in the Funds' annual and semi-annual reports to shareholders. In
the Funds' annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected each Fund's performance
during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Funds and is incorporated by reference into this
prospectus.
You can get free copies of reports and the SAI, request other information and
discuss your questions about the Funds by contacting the Funds at:
Administrative Data Management Corp.
581 Main Street
Woodbridge, NJ 07095-1198
Telephone: 1-800-423-4026
You can review and copy information about the Funds (including the Funds'
reports and SAI) at the Public Reference Room of the Securities and Exchange
Commission ("SEC") in Washington, D.C. You can also send your request for copies
and a duplicating fee to the Public Reference Room of the SEC, Washington, DC
20549-6009. You can obtain information on the operation of the Public Reference
Room by calling 1-800-SEC-0330. Text-only versions of Fund documents can be
viewed online or downloaded from the SEC's Internet website at
http://www.sec.gov.
(Investment Company Act File No. 811-4325 First
First Investors Life Series Fund)
<PAGE>
THE INSURED SERIES PLAN
LEVEL PREMIUM VARIABLE LIFE INSURANCE POLICIES
ISSUED BY
FIRST INVESTORS LIFE INSURANCE COMPANY
95 Wall Street, New York, New York 10005/(212) 858-8200
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT CONTAINS
IMPORTANT INFORMATION THAT YOU SHOULD KNOW BEFORE BUYING OR TAKING ACTION UNDER
A POLICY. THIS PROSPECTUS IS VALID ONLY WHEN ATTACHED TO THE CURRENT PROSPECTUS
FOR FIRST INVESTORS LIFE SERIES FUND.
THE SECURITIES AND EXCHANGE COMMISSION (SEC) HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is April 30, 1999
<PAGE>
OVERVIEW
THE POLICY
This Prospectus describes a Level Premium Variable Life Insurance Policy
(the "Policy") that is offered by First Investors Life Insurance Company
(referred to hereafter as "First Investors Life," "we," "us" or "our") through
our Separate Account B. The Policy provides you with life insurance coverage and
the opportunity to invest your net premiums (i.e., premiums less certain fees
and charges) in one or more investment options ("Subaccounts") of Separate
Account B. For marketing purposes, we call the Policy our Insured Series Plan.
You are required to pay premiums for only 12 years. After 12 years, you
never have to make another premium payment. The Policy stays in force for the
life of the insured unless you decide to surrender it. The premiums are level.
You decide how much you want to pay each year. Once this amount is set, you pay
the same amount each year. This amount can never be increased by us.
The Policy is "variable." This means that the amount of the insurance
coverage, the cash value and the loan value of your Policy may increase or
decrease depending on the investment performance of the Subaccount(s) that you
select. You bear the entire investment risk with respect to the Policy's cash
value, which could decline to zero. However, the death benefit will never be
less than the Guaranteed Insurance Amount (adjusted for loans and partial
surrenders), if you pay all your premiums.
We offer nine Subaccounts, from which you may select up to five. Each
Subaccount invests in shares of a corresponding "Fund" of First Investors Life
Series Fund ("Life Series Fund"), as shown below.
SEPARATE ACCOUNT CORRESPONDING
B SUBACCOUNT FUND
---------------- -------------
Blue Chip Subaccount Blue Chip Fund
Cash Management Subaccount Cash Management Fund
Discovery Subaccount Discovery Fund
Government Subaccount Government Fund
Growth Subaccount Growth Fund
High Yield Subaccount High Yield Fund
International Securities Subaccount International Securities Fund
Investment Grade Subaccount Investment Grade Fund
Utilities Income Subaccount Utilities Income Fund
For information on the investment objectives, investment strategies, and
investment risks of each Fund, see the Life Series Fund prospectus, which is
attached at the end of this prospectus.
You may also choose to add riders your Policy to increase the death benefit
and protect against the risk that you will not be able to make the premium
payments due to your own death or disability. These optional riders are
described in the section called "Optional Insurance Riders."
To help you understand how the values of a hypothetical Policy would change
over time, we have included some hypothetical illustrations based on certain
assumptions we have made. Because your circumstances may vary considerably from
our assumptions, your registered representative will also provide you with a
similar hypothetical illustration that is more tailored to your own
circumstances and wishes. You should keep in mind that replacing existing
insurance with the Policy may not benefit you because of, among other things,
the cost of the Policy during the first few years.
If you are not satisfied with your Policy, you may be able to cancel and
return it to us for a full refund of any premiums that you have paid. For more
details, see the section entitled "Cancellation Rights" in this prospectus.
2
<PAGE>
THE CHARGES AND EXPENSES
We describe below the fees and charges that you may be required to pay to
purchase and maintain the Policy. Immediately thereafter, we describe the fees
and expenses of each of the underlying mutual funds that are available as
investment options. We guarantee that once you have purchased your policy, we
will not increase the amount of your premium payments, the charges that we
deduct from your premiums, or the charges that we deduct from your Subaccount(s)
for mortality and expense risks.
Deductions from Premium Payments
--------------------------------
We deduct from your premiums for the Policy the fees and charges listed
below. We allocate the balance of your premium payments to the Subaccount(s)
that you have selected.
Annual Administrative Charge. We impose a $30 charge on your premium payment
each Policy year. The charge is for our annual administrative expenses,
including expenses for (1) premium billing and collection, (2) recordkeeping,
(3) processing death benefit claims, (4) cash surrenders, (5) Policy changes,
and (6) reporting and other communications to Policyowners.
Additional First Year Charge. We impose an additional charge in the first
Policy year at the rate of $5 per $1,000 of initial face amount of insurance.
The charge is for our administrative expenses in issuing the Policy, including
expenses for (1) medical examinations, (2) insurance underwriting costs, and (3)
processing applications and establishing permanent Policy records.
Sales Load. We impose a sales charge in issuing a Policy. The charge in any
year does not specifically correspond to our sales expenses for that year. The
charge will not exceed the following percentages of the annual premium:
YEARS MAXIMUM PERCENTAGES
----- -------------------
1..............................30%
2-4.............................10%
5 and later......................... 6%
Premiums For Optional Insurance Riders. We will deduct from your premiums
any premiums for any optional insurance riders that you have chosen.
State Premium Tax Charge. This charge varies from state to state. We expect
that the average state premium tax rate on premiums for the Policies will be 2%.
Risk Charge. We impose a maximum risk charge of 1.5% of the premium. The
charge insures that the death benefit will always at least equal the guaranteed
minimum death benefit.
Other Charges. We may also deduct two other charges from your premium: (1)
an extra premium if you are rated as having a high mortality risk, and (2) an
additional charge for premiums if you pay premiums on other than on an annual
basis.
We begin to accrue and deduct all of the above charges on a Policy's issue
date. For the fiscal year ended December 31, 1998, we received a total of
$5,461,000 for these charges.
Deductions from the Value of Your Policy
----------------------------------------
Mortality And Expense Risks Charges. We deduct from the value of your Policy
a daily charge for the mortality and expense risks that we assume. We compute
the charge at an effective annual rate of .50% of the value of Subaccount assets
attributable to your Policy.
3
<PAGE>
The mortality risk that we assume is that the person named as the insured
under the Policy will live for a shorter time than we have estimated. In that
case, we will not receive enough premium to compensate us for the death benefit
we must pay. The expense risk we assume is that the expenses we incur in issuing
and administering the Policies will be greater than we have estimated.
Cost Of Insurance Protection. We deduct a charge for the cost of insurance
protection. This amount is determined by the insurance rates applicable to your
Policy based upon your age, sex, and other factors as well as the net amount of
insurance that is at risk (see "Cost of Insurance Protection").
Charges For Income Taxes. We do not currently charge for our corporate
Federal income taxes that may be attributable to Separate Account B. However, we
may impose such a charge in the future. We may also impose charges for other
applicable taxes attributable to Separate Account B (see "FEDERAL INCOME TAX
INFORMATION").
Expenses Paid by the Funds
--------------------------
The Funds of Life Series Fund (singularly, "Fund," and collectively,
"Funds") bear the cost of investment advisory and subadvisory fees, brokerage
commissions, transfer taxes and other fees related to securities transactions.
While you will not be required to pay any such expenses directly, they are
indirectly passed on to you. They are reflected in the net asset value of each
Fund's shares.
The following table shows the fees and expenses for each Fund that is available
to you:
FUND ANNUAL EXPENSES
(AS A PERCENTAGE OF FUND AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND FEE WAIVERS
MANAGEMENT OTHER OPERATING AND/OR EXPENSE NET
FEES(1) EXPENSES(2) EXPENSES(3) ASSUMPTION(1),(2) EXPENSES(3)
<S> <C> <C> <C> <C> <C>
Blue Chip Fund 0.75% 0.07% 0.82% N/A N/A
Cash Management Fund 0.75 0.24 0.99 0.29% 0.70
Discovery Fund 0.75 0.08 0.83 N/A N/A
Government Fund 0.75 0.12 0.87 0.15 0.72
Growth Fund 0.75 0.07 0.82 N/A N/A
High Yield Fund 0.75 0.08 0.83 N/A N/A
International Securities Fund 0.75 0.40 1.15 N/A N/A
Investment Grade Fund 0.75 0.10 0.85 0.15 0.70
Utilities Income Fund 0.75 0.13 0.88 0.15 0.73
</TABLE>
(1) For the fiscal year ended December 31, 1998, the Adviser waived Management
Fees in excess of 0.60% for Cash Management Fund, in excess of 0.60% for
Government Fund, in excess of 0.60% for Investment Grade Fund, and in
excess of 0.60% for Utilities Income Fund. The Adviser has contractually
agreed with Life Series Fund to waive Management Fees in excess of 0.60%
for Cash Management Fund, in excess of 0.60% for Government Fund, in
excess of 0.60% for Investment Grade Fund, in excess of 0.60% for
Utilities Income Fund for a period of twelve months commencing on May 1,
1999.
(2) For the fiscal year ended December 31, 1998, the Adviser assumed certain
Other Expenses in excess of 0.10% for Cash Management, in excess of 0.10%
for Government Fund, and in excess of 0.10% for Investment Grade Fund. The
Adviser has contractually agreed with Life Series Fund to assume Other
Expenses in excess of 0.10% for Cash Management Fund for a period of
twelve months commencing on May 1, 1999.
(3) Each Fund, other than International Securities Fund, has an expense offset
arrangement that may reduce the Fund's custodian fee based on the amount
4
<PAGE>
of cash maintained by the Fund with its custodian. Any such fee reductions
are not reflected under Total Fund Operating Expenses or Net Expenses.
WHO WE ARE
First Investors Life
--------------------
First Investors Life, 95 Wall Street, New York, New York 10005 , is a stock
life insurance company incorporated under the laws of the State of New York in
1962. We write life insurance, annuities, and accident and health insurance. We
assume all of the insurance risks under the Policy, and our assets support the
Policy's benefits. At December 31, 1998, we had over $1.017 billion of assets
and over $3.310 billion of life insurance in force. (See First Investors Life's
financial statements under "Financial Statements.")
First Investors Consolidated Corporation ("FICC") owns all of the
outstanding stock of First Investors Life, First Investors Corporation ("FIC"),
the underwriter of the policies sold by First Investors Life, and Administrative
Data Management Corp., the transfer agent for Life Series Fund ("Transfer
Agent"). FICC also owns all of the voting common stock of First Investors
Management Company, Inc. ("FIMCO"), the adviser of the Life Series Fund. Mr.
Glenn O. Head controls FICC and, therefore, controls First Investors Life and
the other companies which are owned by FICC.
We segregate the assets of Separate Account B from our other assets. The
assets fall into two categories: (1) assets equal to our reserves and other
liabilities under the Policies and (2) additional assets derived from expenses
that we charge to Separate Account B. The assets equal to our Policy reserves
and liabilities support the Policy. We cannot use these assets to satisfy any of
our other liabilities. The assets derived from our charges do not support the
Policy, and we can transfer these assets in cash to our General Account. Before
making a transfer, we will consider any possible adverse impact that the
transfer may have on Separate Account B.
Separate Account B
------------------
We established Separate Account B on June 4, 1985 under the provisions of
the New York Insurance Law. Separate Account B is a separate investment account.
Separate Account B has registered with the SEC as a unit investment trust under
the 1940 Act.
We allocate assets to Separate Account B to support the benefits under the
Policy. The assets are in turn invested by each Subaccount of Separate Account B
into a corresponding Fund at net asset value. Each Subaccount reinvests any
distributions it receives from a Fund by purchasing additional shares of the
distributing Fund at net asset value. Accordingly, we do not expect to pay you
any capital distributions from the Policies. We value shares of the Funds that
the Subaccounts hold at their net asset values.
Life Series Fund
----------------
Life Series Fund is a diversified open-end management investment company
registered under the 1940 Act. Life Series Fund consists of 11 separate Funds,
nine of which are available to Policyowners of Separate Account B. Target
Maturity 2007 Fund and Target Maturity 2010 Fund are the two Funds of Life
Series Fund that are not available to Policyowners of Separate Account B. The
Life Series Fund offers its shares only through the purchase of a Policy or a
variable annuity contract. It does not offer its shares directly to the general
public.
FIMCO is the investment adviser of each Fund. The Adviser is a New York
Corporation located at 95 Wall Street, New York, New York 10005. FIMCO and Life
Series Fund have retained Wellington Management Company, 75 State Street,
Boston, Massachusetts 02109 to serve as subadviser ("Subadviser") of the
International Securities Fund and the Growth Fund. See the Life Series Fund
Prospectus for more information about the Adviser and Subadviser.
5
<PAGE>
RISK AND REWARD CONSIDERATIONS
The Policy offers you not only insurance protection but also the opportunity
to accumulate assets on a tax deferred basis by investing in the underlying
investment options. However, there are several important factors that you should
consider before making a decision to purchase a Policy.
1. The Policy involves a long-term commitment on your part. Because most
of the fees and charges are paid during the early years, you will generally lose
money if you fail to make all premium payments required during the 12 year
period. This is illustrated in the hypotheticals that appear at the end of this
prospectus. Therefore, you should have the intention and financial ability to
complete the program.
2. With investment opportunity comes investment risk. Each Subaccount will
fluctuate in value on a daily basis. The investment objectives, primary
investment strategies, and primary risks of the underlying Funds are described
in the attached Life Series prospectus.
3. If you decide to take policy loans, you should be aware that they can
have adverse consequences. Among other things, they reduce the death benefit and
cash value of your Policy; they may undermine the growth potential of the cash
value of your Policy; and they may result in taxable distributions to you if
they exceed the cash value of a Policy as a result of a decline in the market
value of the underlying investments or for any other reason (see the discussion
on Policy Loans).
4. A surrender of your Policy prior to maturity may have tax implications.
You should carefully review the section on "FEDERAL INCOME TAX INFORMATION."
5. The ability of FIL and its affiliates to process policy-related requests,
and render other services could be adversely affected if the computers or other
systems on which they rely are not properly programmed to operate after January
1, 2000. (See "OTHER INFORMATION--Year 2000" for more information.) Additional
information on the risks of the Year 2000 may be found in the Life Series Fund
prospectus, which is attached at the end of this prospectus.
THE POLICY IN DETAIL
The following discussion summarizes important provisions of the Policy
offered by this Prospectus. The discussion generally assumes that premiums have
been duly paid and there have been no Policy loans. The death benefit and cash
value are affected if premiums are not duly paid or if a Policy loan is made.
YOUR PREMIUMS
The Amount of Your Premiums
---------------------------
Subject to our $600 minimum annual premium requirement (which does not
include additional premiums for any riders that you may select other than Waiver
of Premium), you decide how much you wish to pay in premiums. Once you have
decided how much you wish to pay, the premium remains level for all 12 years
that you are required to make premium payments. We can never increase the
amount. We allocate assets to our General Account to accumulate as a reserve for
the contingency that the insured will die when the Guaranteed Insurance Amount
exceeds the death benefit payable without such guarantee. In setting premium
rates, we took into consideration actuarial estimates of projected death and
surrender benefit payments, lapses, expenses, investment returns, and a
contribution to our surplus.
6
<PAGE>
The Frequency Of Payment
- ------------------------
You pay premiums under the Policy for only 12 years. You may choose to pay
these premiums on an annual, semi-annual, quarterly or monthly due date measured
from the date of issue of the Policy. Premium payments are due on or before the
due dates at our Home Office. If you pay early, we will place your premium
payment in our General Account and, on the day that it is due, we will allocate
the premium to the Subaccount(s) that you selected.
You will pay the lowest premium by paying annually. When you pay premiums on
other than an annual basis, the aggregate premium amounts for a Policy year are
higher, reflecting charges for loss of interest and additional billing and
collection expenses. The following table illustrates these premium amounts. We
deduct the additional charge from these premiums when we receive them.
PREMIUMS ON INSTALLMENT BASIS
(AS A PERCENTAGE OF AN ANNUAL PREMIUM)
AGGREGATE PREMIUMS
FREQUENCY EACH PREMIUM FOR POLICY YEAR
--------- ------------ ---------------
Annual................... 100.00% 100.00%
Semiannual............... 51.00 102.00
Quarterly................ 26.00 104.00
Pre-authorized Monthly... 8.83 105.96
Under the pre-authorized monthly plan ("Lifeline"), your bank automatically
makes an electronic funds transfer to us from your bank account to pay your
premiums.
Automatic Premium Loans to Pay Premiums
---------------------------------------
Under the Automatic Premium Loan provision, you pay any premium not paid
before the end of the grace period (see definition in "Other Provisions") by an
automatic loan against the Policy. The Automatic Premium Loan provision is
available only if:
. you elect the Automatic Premium Loan provision in your application for
the Policy or in a written request that we receive at our Home Office at
any time when no premium is in default, and
. the resulting Policy loan and loan interest to the next premium due date
do not exceed the maximum loan value of your Policy (see "Policy
Loans").
You may revoke the Automatic Premium Loan Provision at any time by written
request that we receive at our Home Office.
ALLOCATION OF YOUR NET PREMIUMS TO INVESTMENT OPTIONS
When you purchase a Policy, you select the allocation of the net premium
(premium less deductions) (see "The Charges And Expenses--Deductions from
Premium Payments") to not more than five of the Subaccounts of Separate Account
B. You must allocate at least 10% of the net premium to each Subaccount you
select. The actual allocation of net premium occurs on the Policy's issue date
and at the beginning of each Policy year after that.
We offer nine Subaccounts, from which you may select up to five. Each
Subaccount in turn invests in the corresponding Fund of Life Series Fund. For
information on the investment objectives, investment strategies, and investment
risks of the Funds, see the Life Series Fund prospectus which is attached at the
end of this prospectus.
7
<PAGE>
While your premium will never increase, the net amount which is invested in
the subaccounts you select will increase over time, as charges and expenses
decline. Thus, as time goes by, more of your premium will be invested. As an
example, based on the Policies illustrated on page 25 through 27, we would
allocate to the selected Subaccount(s) the following amounts for each Policy
year:
MALE ISSUE MALE ISSUE MALE ISSUE
AGE 10 AGE 25 AGE 40
BEGINNING $600 ANNUAL $1,200 ANNUAL $1,800 ANNUAL
OF POLICY PREMIUM FOR PREMIUM FOR PREMIUM FOR
YEAR STANDARD RISK STANDARD RISK STANDARD RISK
- --------- -------------- ------------- -------------
1....................... $170.81 $ 508.46 $ 927.23
2-4..................... 489.00 1,008.00 1,527.00
5 and later............. 513.00 1,056.00 1,599.00
THE DEATH BENEFIT
The death benefit is the amount we pay to your named beneficiary at the
death of the person whom you name as the insured. It is the sum of the
Guaranteed Insurance Amount (face amount of the Policy) plus, if positive, a
Variable Insurance Amount that is based upon the performance of the Subaccounts
that you have selected. We increase the death benefit to reflect (1) any
insurance on the life of the insured that you may have added by rider and (2)
any premium you have paid that applies to a period of time after the Insured's
death. We reduce the death benefit to reflect (1) any Policy loan and loan
interest and (2) any unpaid premium that applies to a period before the
insured's death.
Generally, we pay the death benefit within seven days after we receive all
claim requirements at our Home Office located at 95 Wall Street, New York, NY
10005. We pay interest on death benefit proceeds from the date of death until we
pay the death benefit. We pay this interest at the same annual rate that we pay
on death benefit proceeds you leave on deposit with us under a Settlement
Option. We may pay interest at a higher rate if the law requires.
The Guaranteed Insurance Amount
-------------------------------
We guarantee that the death benefit on your policy will never be less than
the Policy's face amount, which is the Guaranteed Insurance Amount. The Policy's
face amount is constant throughout the life of the Policy. During the first
Policy year, the death benefit is equal to the Guaranteed Insurance Amount.
Thereafter, we determine the death benefit on each Policy anniversary by adding
the Variable Insurance Amount, if positive, to the Guaranteed Insurance Amount.
The death benefit then remains level during the following Policy year. The death
benefit payable, therefore, depends on the Policy year in which the Insured
dies.
The Variable Insurance Amount
-----------------------------
The Variable Insurance Amount is based upon the investment results of the
Subaccounts that you have selected. During the first Policy year, the Variable
Insurance Amount is zero. On the first Policy anniversary, and on each
anniversary thereafter, we determine your Variable Insurance Amount by comparing
the Actual Rate of Return (the gross rate of return less all fees and charges)
on your Subaccounts with an assumed rate of return of 4%, which we call the
"Base Rate of Return."
Your Variable Insurance Amount does not change if the Actual Rate of Return
on all of your Subaccounts is exactly equal to the Base Rate of Return. Your
Variable Insurance Amount increases if the Actual Rate of Return is greater than
the Base Rate of Return. The Variable Insurance Amount decreases if the Actual
Rate of Return is less than the Base Rate of Return. The difference between
these rates of return, if any, is called the Differential Rate of Return. We set
the Variable Insurance Amount on each Policy anniversary and do not change it
until the next Policy anniversary.
8
<PAGE>
The amount by which your Variable Insurance Amount will increase or decrease
during any policy year is determined by dividing the Differential Investment
Return (the Differential Rate of Return times the Investment Base) for a policy
year by the applicable net single premium rate that is specified in your Policy.
Your policy includes a table of the applicable net single premium rates per
$1.00 from ages 0 to 99. The net single premium increases as the Insured grows
older, meaning that the insured will receive less Variable Insurance per dollar
of Differential Investment Return as the insured grows older. The net single
premium does not depend upon the risk classification of a Policy or any changes
in the insured's health after issue of a Policy. The net single premium will be
lower for a Policy that we issue to a female than for a Policy that we issue to
a male of the same age.
The Variable Insurance Amount is calculated on a cumulative basis. This
means that the amount reflects the accumulation of increases and decreases from
past Policy years. The cumulative amount may be positive or negative, depending
on the investment performance, while the Policy is in force, of the Subaccounts
that you have selected. If the Variable Insurance Amount is negative, the death
benefit is the Guaranteed Insurance Amount. In other words, the death benefit is
never less than the Guaranteed Insurance Amount.
The following example illustrates how the Variable Insurance Amount is
calculated. For this example, we use the Policy illustration on page 26 for a
male age 25, and assume an 8% hypothetical gross annual investment return
(equivalent to an Actual Rate of Return of approximately .064399). The
calculations are for policy years 6 and 12:
CALCULATION OF CHANGE IN
VARIABLE INSURANCE
AMOUNT AT END OF POLICY YEAR
6 12
----------------------------
(1) Cash Value at End of Prior Year..... $4,972.00 $14,529.00
(2) Net Premium......................... 1,056.00 1,056.00
(3) Investment Base at Beginning of
Current Policy Year: (1)+(2)........ 6,028.00 15,585.00
(4) Differential Rate of Return
(.064399 - .04)..................... .024399 .024399
(5) Differential Investment Return:
(3)x(4)............................. $147.08 $380.25
(6) Net Single Premium at
End of Current Year................. 0.22416 0.27338
(7) Change in Variable Insurance
Amount (to nearest dollar):
(5) divided by (6).................. $ 656 $ 1,391
If the hypothetical gross annual investment return in the year illustrated
had been 0% (equivalent to an Actual Rate of Return of approximately -1.445%),
the results in the calculation above would have been as follows: the death
benefit would have decreased by $1,464, and the death benefit for the end of
Policy year 6 would have been $51,934.
YOUR CASH VALUE
Determining Your Cash Value
---------------------------
The cash value you have in your Policy will vary daily depending on the
investment experience of the Subaccounts you have selected. (See "Valuation of
Assets.") The cash value on any day within the policy year equals the cash value
as of the end of the prior Policy year, plus the premiums that you have paid
since the Policy's last anniversary, adjusted to reflect the Actual Rates of
Return of the Subaccounts you have selected, less the cost of insurance
protection.
9
<PAGE>
Assuming no partial surrenders or Policy Loans have been taken, the
following example illustrates how the cash value of a Policy at the end of any
year is calculated. For this example, we use the Policy illustration for a male
issue age 25 on Page 26, and we assume an 8% hypothetical gross annual
investment return (equivalent to an Actual Rate of Return of approximately
6.4399%). The "Investment Base" is the value of your investments on all
Subaccounts you have selected. In this case, the cash value we show for the end
of Policy year 5 increases to the amount we show for the end of Policy year 6
for the Policy, as follows:
(1) Cash Value at End of Prior Year.................................. $4,972
(2) Net Premium Paid by You.......................................... 1,056
(3) Investment Base at Beginning of Current Policy Year 6: (1)+(2)... 6,028
(4) Actual Rate of Return............................................ .064399
(5) Investment Return: (3)x(4)....................................... 388
(6) Benefit Base at End of Policy Year 6: (3)+(5).................... 6,416
(7) Cost of Insurance Protection During Policy Year 6................ (84)
(8) Cash Value at End of Policy Year 6: (6)-(7)...................... 6,332
We do not guarantee that you will have any cash value in your Policy. The
Policy offers the possibility of increased cash value resulting from good
investment performance. However, there is no assurance that any increase will
occur. It is also possible, due to poor investment performance, for the cash
value to decline to the point of having no value or, in fact, a negative value.
In that case, we would credit subsequent net premium payments and investment
returns against the negative cash value. You bear all the investment risk.
Deduction of Cost of Insurance Protection from Cash Value
---------------------------------------------------------
Your cash value is reduced by an annual charge for the cost of insurance
protection. We issue variable life insurance policies to (1) persons with
standard mortality risks and (2) persons with higher mortality risks, as our
underwriting rules permit. We charge a higher gross premium for the person with
the higher mortality risk.
We use the 1980 Commissioners' Standard Ordinary Mortality Table to compute
the cost of insurance protection for each Policy, with one exception. For
mortality rates for extended term insurance, we use the Commissioners' 1980
Extended Term Table.
In all cases, we base the cost of insurance protection on the net amount of
insurance at risk (the Policy's face amount, plus the Variable Insurance Amount,
minus the cash value) and the person's sex and attained age. The amount that we
deduct each year is different, because the probability of death generally
increases as a person's age increases. The net amount of insurance at risk may
decrease or increase each year depending on the investment experience of the
Subaccount(s) that you have selected.
Accessing Your Cash Value
-------------------------
FULL OR PARTIAL SURRENDERS. You may surrender the Policy for its cash
value at any time while the Insured is living. The amount payable will be the
cash value that we next compute after we receive the surrender request at our
Home Office. Surrender will be effective on the date that we receive both the
Policy and a written request in a form acceptable to us.
On any Policy anniversary, you may also make a partial surrender of the
Policy by reducing the premium amount. We permit a partial surrender only if you
(1) have no outstanding policy loan and (2) have paid the new premium due on the
Policy anniversary.
10
<PAGE>
We must receive all requirements for a partial surrender at our Home Office
on or before the Policy anniversary. The partial surrender will be effective on
the Policy anniversary. The amounts of the Guaranteed Insurance Amount (face
amount of the Policy), death benefit, and cash value for the reduced Policy will
be the same as they would have been had you paid the reduced premium from
inception. We will pay the portion of the cash value of the original Policy that
exceeds the cash value of the reduced Policy to you as a partial surrender. We
will allocate the cash value of the reduced Policy among the Subaccounts in the
same proportion as the allocation of the cash value of the original Policy.
We will usually pay the surrender value within seven days. However, we may
delay payment for the following reasons:
. a recent payment that you made by check has not yet cleared the bank,
. we are not able to determine the amount of the payment because the New
York Stock Exchange is closed for trading or the Commission determines
that a state of emergency exists, or
. for such other periods as the Commission may by order permit for the
protection of security holders.
We will pay interest if we delay payment of the surrender value beyond seven
days. Under Federal tax laws, we may deduct withholding taxes from the surrender
value.
POLICY LOANS. You may borrow up to 75% of the cash value during the first
three Policy years, or 90% of the cash value after the first three Policy years,
if you assign your Policy to us as sole security. We charge interest daily at an
effective annual rate of 6% compounded on each Policy anniversary. In general,
we send the loan amount within seven days of receipt of the request. We will not
permit a new loan unless it is at least $100, or unless you use it to pay
premiums. You may repay all or a portion of any loan and accrued interest while
the Insured is living and the Policy is in force.
When you take out a loan, we transfer a portion of the cash value equal to
the loan from the Subaccount(s) that you have selected to our General Account.
We charge the loan to each Subaccount in the proportion which the value of each
Subaccount bears to the cash value of the Policy as of the date of the loan. A
Policy loan does not affect the amount of the premiums due. A Policy loan does,
however, reduce the death benefit and cash value by the amount of the loan. A
Policy loan may also permanently affect the death benefit above the Guaranteed
Insurance Amount and the cash value, whether or not you repay the loan in whole
or in part. This occurs because we will not credit Net Investment Return that
the Subaccount(s) earn to the amount that we maintain in the General Account
during the period that the loan is outstanding. Instead, we credit the amount in
the General Account at the assumed interest rate of 4%, in accordance with the
tabular cash value calculations that we have filed with the state insurance
departments.
A Policy loan will have a negative impact on the growth of the cash value
during periods when the actual rates of return of the Subaccounts you have
selected exceed the assumed rate of 4%. Recall that the death benefit is made up
of two parts: the Guaranteed Insurance Amount and, if positive, the Variable
Insurance Amount (see "The Guaranteed Insurance Amount" and "The Variable
Insurance Amount"). The cash value and the Variable Insurance Amount, if any,
depend on the Actual Rate of Return of the Subaccount(s). Thus, during periods
of favorable investment return (an Actual Rate of Return greater than 4%), an
outstanding Policy loan results in lower investment return than would have
otherwise resulted in the absence of any indebtedness.
For example, use the Policy for a male issue age 25 illustrated on Page 26,
and assume a hypothetical 8% gross annual investment return and that you made a
$3,000 Policy loan at the end of Policy year 9. For the end of Policy year 10,
the death benefit and cash value would be $57,612 and $12,612, respectively. The
differences between these amounts and the $57,898 death benefit and $12,685 cash
11
<PAGE>
value that appear on Page 26 for Policy year 10 result because the portion of
the cash value equal to the indebtedness does not reflect the Subaccount(s)'
Actual Rate of Return of approximately 6.4399%.
Conversely, outstanding indebtedness will diminish the adverse effect on
cash value during a period of unfavorable investment return (an Actual Rate of
Return less than 4%). This is because the portion of the cash value that we
transfer from the Subaccount(s) to the General Account will grow at the assumed
rate of 4% even if Actual Rates of Return are below 4%. Thus, a Policy loan will
tend to protect the cash value and Variable Insurance Amount from decreasing if
the Actual Rate of Return is less than 4%.
If you do not pay loan interest when it is due, we increase your loan by the
amount of any unpaid interest, and we transfer an equivalent amount of cash
value from the Subaccount(s) to the General Account. We credit loan repayments
to each Subaccount in proportion to your allocation to each Subaccount as of the
date of repayment.
We subtract the amount of any outstanding loan plus interest from any death
benefit or any surrender value that we pay. If your outstanding loan with
accrued interest ever equals or exceeds the cash value, we will mail notice of
such event to you and any assignee at the assignee's last known address. The
Policy terminates 31 days after we mail such notice. The Policy does not
terminate if you make a repayment within that 31-day period.
Generally, on a Policy's termination or surrender, you pay income tax on the
following:
. the surrender value, plus
. any outstanding Policy loan plus interest, if applicable, minus
. the total premiums that you paid on the Policy.
Consult with your representative or tax adviser before taking Policy loans.
Transferring Your Cash Value Among Investment Options
-----------------------------------------------------
Twice each Policy year, you may transfer part or all of your cash value from
each Subaccount that you have selected to any other Subaccount or Subaccounts.
You may make these transfers only if
. you allocate the cash value to no more than five of the Subaccounts, and
. the allocation to any one Subaccount is not less than 10% of the cash
value.
SETTLEMENT OPTIONS
You or your named beneficiary may receive a single sum payment of Policy
proceeds on the death of the Insured or surrender of the Policy. Alternately,
you or your beneficiary may elect to apply all or a portion of the proceeds
under any one of the fixed benefit settlement options that the Policy provides.
Tax consequences may vary depending on the settlement option that the recipient
chooses. The options are as follows:
PROCEEDS LEFT AT INTEREST - Proceeds left on deposit with us to accumulate,
with interest payable at a rate of 2 1/2% per year, which may be increased by
additional interest.
PAYMENT OF A DESIGNATED AMOUNT - Payments in installments until proceeds
applied under the option and interest on unpaid balance at a rate of 2 1/2% per
year and any additional interest are exhausted.
12
<PAGE>
PAYMENT FOR A DESIGNATED NUMBER OF YEARS - Payments in installments for up
to 25 years, including interest at a rate of 2 1/2% per year. Payments may
increase by additional interest, which we would pay at the end of each
installment year.
LIFE INCOME, GUARANTEED PERIOD - Payments guaranteed for 10 or 20 years, as
you elect, and for life thereafter. During the guaranteed period of 10 or 20
years, the payments may be increased by additional interest, which we would pay
at the end of each installment year.
LIFE INCOME, GUARANTEED RETURN - The sum of the payments made and any
payments due at the death of the person on whom the payments are based, never to
be less than the proceeds applied.
LIFE INCOME ONLY - Payments made only while the person on whom the payments
are based is alive.
OPTIONAL INSURANCE RIDERS
The following optional provisions may be included in a Policy, in States
where available, subject to the payment of an additional premium, certain age
and insurance underwriting requirements, and the restrictions and limitations
that apply to the Policy, as described above.
Accidental Death Benefit
------------------------
You may elect to obtain an Accidental Death Benefit rider if the Insured's
age is 0 to 60. The rider provides for an additional fixed amount of death
benefit in the event the Insured dies from accidental bodily injury while the
Policy is in force and before the Policy anniversary when the Insured attains
age 70. The premium is $1.75 per $1,000 of benefit and is payable for 12 years.
The amount of the benefit is equal to the face amount of the Policy, but cannot
exceed an amount equal to $200,000 minus the sum of the Insured's Accidental
Death Benefit coverage in all companies.
12 Year Level Term Rider
------------------------
You may elect to obtain a 12 Year Level Term Insurance rider where the
Insured is age 18 to 58 for an amount equal to (1) the Policy face amount or (2)
two times the Policy face amount. The rider is convertible, without evidence of
insurability, to a new Policy or other permanent plan of insurance. The amount
of the insurance under the new Policy may be any amount up to the face amount of
the rider. The conversion may occur at any time during the 12 years of rider
coverage, but not later than the Policy anniversary when the Insured reaches age
65.
Waiver Of Premium
-----------------
You can choose to obtain a Waiver of Premium rider where the Insured is age
15 to 55. Under the rider, the Company will waive all premiums falling due after
the date of commencement of the disability and for as long as the disability
continues. Disability, for this purpose, means the Insured's total disability
(1) commencing before the Policy anniversary when the Insured reaches age 60 and
(2) continuing for six months.
Payor Benefit
-------------
You can also choose to obtain a Payor Benefit rider where the Insured is age
0 to 14 and you are age 18 to 55. It provides insurance on the life of the
person who is responsible for paying the premiums. If you die or become disabled
before reaching age 60 and before the Insured is age 21, the Company waives all
premiums that become due before the Insured's age 21.
13
<PAGE>
OTHER PROVISIONS
Age And Sex
-----------
If you have misstated the age or sex of the Insured, the benefits available
under the Policy are those that the premiums paid would have purchased for the
correct age and sex.
Assignment
----------
You may transfer ownership of your Policy from yourself to someone else.
However, the assignment is not binding on us, unless it is in writing and filed
with us at our Home Office. We assume no responsibility for the validity or
sufficiency of any assignment. Unless otherwise provided in the assignment, the
interest of any revocable beneficiary is subordinate to the interest of any
assignee, regardless of when you made the assignment. The assignee receives any
sum payable to the extent of his or her interest.
Beneficiary
-----------
This is the person you designate in the Policy to receive death benefits
upon the death of the Insured. You may change this designation, during the
Insured's lifetime, by filing a written request with our Home Office in a form
acceptable to us.
Cancellation Rights
-------------------
You have a limited right to cancel and return the Policy to us, or our
representative through whom you bought the Policy. You must submit a written
request for cancellation. You may examine and return the Policy within ten days
after you receive the Policy or notice of right of withdrawal. You may also
return the Policy within 45 days after completion of Part I of the application
for the Policy. In either case, you obtain a full refund of the premiums that
you paid.
Default And Options On Lapse
----------------------------
A premium is in default if you do not pay it on or before its due date. The
insurance continues in force during the 31-day grace period (see "Grace Period"
below). However, if the Insured dies during the grace period, we deduct from the
death benefit the portion of the premium applicable to the period from the
premium due date to the end of the Policy month in which death occurs.
We apply the Policy's cash value minus any loan and interest to purchase
continued insurance, if you do not surrender a Policy within 60 days after the
date of default. You may choose either reduced paid-up whole life insurance or
extended term insurance for the continued insurance. Under the Policy, you
automatically have the extended term insurance if you make no choice. However,
that option is available only in standard risk cases. If we rated the Policy for
extra mortality risks, the paid-up insurance is the automatic option. Both
options are for fixed life insurance, and neither option requires the further
payment of premiums.
The reduced paid-up whole life insurance option provides a fixed and level
amount of paid-up whole life insurance. The amount of coverage is the amount
that the surrender value purchases on the date the option becomes effective. The
extended term insurance option provides a fixed and level amount of term
insurance equal to the death benefit (minus any indebtedness) as of the date the
option becomes effective. The insurance coverage under this option continues for
as long a period as the surrender value on such date purchases.
For example, use the Policy for a male issue age 25 illustrated on Page 26
and assume the 0% and 8% hypothetical gross annual investment returns. If an
option became effective at the end of Policy year 5, the fixed insurance
coverage under these Policies would be as follows:
14
<PAGE>
0% 8%
-------- --------
Cash Value........................... $ 3,992 $ 4,972
Reduced Paid-up Insurance............ 18,406 22,925
for life for life
Extended Term Insurance.............. 51,908 53,398
for 25 years for 28 years
You may surrender a Policy continued under either option for its cash value
while the Insured is living. You may make a loan under the reduced paid-up whole
life insurance option, but not under the extended term insurance option.
Exchange Privilege
------------------
The exchange privilege allows you to exchange the Policy for a permanent
fixed life insurance policy on the Insured's life. The exchange privilege is
available:
. within the first 24 months after the issue Policy's date, if you have
duly paid all premiums, or
. if any Fund changes its investment adviser or makes a material change in
its investment objectives or restrictions.
You do not need to provide evidence of insurability to exercise this
privilege. The new policy has a level face amount equal to the face amount of
the Policy. It also has the same benefit riders, issue dates, and risk
classification for the Insured as the Policy does. We base premiums for the new
policy on the premium rates for the new policy that were in effect on the Policy
date. You may elect either a continuous-premium policy or a limited-payment
policy for your exchanged policy.
In some cases, we may adjust the cash on exchange. The adjustment equals the
Policy's surrender value minus the new policy's tabular cash value. If the
result is positive, we pay that amount to you. If the result is negative, you
pay that amount to us. We will determine the amount of a cash adjustment as of
the date we receive the Policy and written request at our Home Office.
If we do not issue a Policy for any reason, we refund to the applicant the
amount of the premium without interest.
Grace Period
------------
With the exception of the first premium, we allow a Grace Period of 31 days
for payment of each premium after it is due. The Policy continues in force
during the Grace Period unless you surrender it.
Incontestability
----------------
Except for nonpayment of premiums, we do not contest the validity of the
Policy and its riders after it has been in force during the lifetime of the
Insured for two years from the Date of Issue.
Payment and Deferment
---------------------
We will usually pay the death benefit, surrender value, or loan proceeds
within seven days after we receive all documents required for such payments.
However, we may delay payment if (1) a recent payment by check has not yet
cleared the bank, (2) we cannot determine the amount because the New York Stock
Exchange is closed for trading, or (3) the Commission determines that a state of
emergency exists.
15
<PAGE>
Under a Policy continued as paid-up or extended term insurance, we may defer
the payment of the surrender value or loan proceeds for up to six months. If we
postpone the payment more than 30 days, we will pay interest at a rate of not
less than 3% per year on the Surrender Value. We will pay the interest from the
date of surrender to the date we make payment.
Payment of Dividends
--------------------
The Policies do not provide for dividend payments. Therefore, they are
"non-participating" in the earnings of First Investors Life.
Policy Years and Anniversaries
------------------------------
We measure Policy years and anniversaries from the Date of Issue of the
Policy which will generally be the date on which we approve the application. The
Date of Issue may be backdated on your request to save age. However, the Date of
Issue cannot be earlier than either (1) the date you sign the application or (2)
a date 15 days before the date on which we approve the application. Each Policy
year will commence on the anniversary of the Date of Issue.
Reinstatement
-------------
You may reinstate a Policy that you did not surrender for its cash value
within five years from the date of default, in accordance with the Policy. To
reinstate, you must present evidence of insurability acceptable to us, and you
must pay to us the greater of:
(1) (a) all premiums from the date of default with interest to the date of
reinstatement, plus (b) any Policy debt (plus interest to the date of
reinstatement) in effect when you continued the Policy as paid up insurance
or extended term insurance; or
(2) 110% of the increase in cash value resulting from reinstatement.
To reinstate, you must also pay us any Policy debt that arose after the
continuation of the Policy as paid up insurance. We calculate interest on any
such debt at the rate of 6% per year compounded annually.
Suicide
-------
If the Insured commits suicide within two years from the Policy's date of
issue, our liability under the Policy is limited to all premiums paid less any
indebtedness.
Valuation Of Assets
-------------------
We determine the value of the assets of each Subaccount as of the close of
business on each business day. We value shares of the underlying Fund at the net
asset value per share as determined by the Fund. The Fund determines the net
asset value of a Fund's share as described in Life Series Fund's Prospectus.
FEDERAL INCOME TAX INFORMATION
We base this discussion on current federal income tax law and
interpretations. It assumes that the policyowner is a natural person who is a
U.S. citizen and U.S. resident. The tax effect on a corporate taxpayers,
non-U.S. citizens, and non-U.S. residents may be different. The law and
interpretations could change, possibly retroactively. The discussion is general
in nature. We do not intend it as tax advice, for which you should consult a
qualified tax adviser.
We believe that the Policy qualifies as a life insurance contract for
federal income tax purposes because the Policy meets the definition of life
16
<PAGE>
insurance in Section 7702(a) of the Internal Revenue Code of 1986, as amended
(the "Code") and the investments of the Subaccounts satisfy the investment
diversification requirements of Section 817(h) of the Code. Consequently:
. the death benefit will not be subject to federal income tax;
. you will generally not be taxed on the growth of the cash value of the
Policy, if any, that is attributable to the investments in the
underlying investment portfolios (this is known as the "inside
build-up"), unless or until there is a full or partial surrender of the
Policy; and
. transfers among the investment subaccounts will not be subject to
federal income tax, unless or until there is a full or partial surrender
of the Policy.
Qualification as a life insurance contract for Federal income tax purposes
depends, in part, upon the satisfaction by the Subaccounts of Separate Account B
of certain investment diversification requirements in Section 817(h) of the
Code. We expect that the Adviser will continue to manage the assets of the Funds
in a manner that complies with these diversification requirements. A Policy that
invests in a Fund that fails to meet diversification requirements will not
receive tax treatment as a life insurance contract for the period of such
diversification failure, and any subsequent period.
The Treasury Department has stated that it may issue guidelines that limit a
Policyowner's control of investments underlying a variable life insurance
policy. If a Policy failed to meet those guidelines, you would be taxed on the
Policy's current income. The Treasury Department has said informally that those
guidelines may limit the number of investment funds and the frequency of
transfers among those funds. The issuance of such guidelines may require us to
limit your right to control the investment. The guidelines may apply only
prospectively, although they could apply retroactively if they do not reflect a
new Treasury Department position.
We do not believe that any Policy will be a "modified endowment contract" at
issuance, within the meaning of Section 7702A of the Code. A modified endowment
contract is a life insurance policy under which the total premiums paid, at any
time during the first seven years of the policy, exceed the premiums that would
have been paid by that time under a similar fixed-benefit life insurance policy
designed to provide for paid-up future benefits after the payment of seven equal
annual premiums. This is called the "seven-pay" test.
Whenever there is a "material change" under a Policy, the Policy is
generally subject to a new seven-pay test during the next seven years to
determine whether it is a modified endowment contract. A material change for
these purposes could occur because of a change in death benefit, and because of
certain other changes.
If your Policy's benefits are reduced during its first seven years (or
within seven years after issuance or a material change), we will redetermine the
seven-pay test based on the reduced level of benefits and apply the new test to
all prior premium payments. Such a reduction in benefits could include a
decrease in face amount, a partial surrender, or a termination of additional
benefits under a rider. If the premiums that you previously paid are at any time
greater than the recalculated limit under the seven-pay test, we will treat the
Policy as a modified endowment contract from that time forward.
A Policy that you receive in exchange for a modified endowment contract will
also be a modified endowment contract.
Any distribution from a Policy that is a modified endowment contract will be
taxed on an "income-first" basis. A distribution, for this purpose, includes a
loan or surrender. "Income first" means that the distribution is taxed to the
extent that your cash value exceeds your basis in the Policy (premiums paid less
previous distributions that were not taxable). Premiums paid, for this purpose,
include loans that have been taxable as income because of the Policy's modified
17
<PAGE>
endowment contract status. An additional 10% tax will also be imposed on any
amount so taxed, subject to certain exceptions for distributions:
. before you reach age 59-1/2,
. in case of disability as defined in the Code, or
. received as part of a series of substantially equal periodic payments
for the life (or life expectancy) of the taxpayer or the joint lives (or
joint life expectancies) of the taxpayer and his or her beneficiary.
All modified endowment contracts that we (or our affiliates) issue to you
during any calendar year generally will be treated as one Policy under the
modified endowment contract rules. You should consult your tax adviser if you
have questions regarding the possible impact of the modified endowment contract
rules on your Policy.
If a Policy is not a modified endowment contract, Policy loans will be
treated as indebtedness, and no part of such loans will be subject to current
federal income tax. In addition, the interest on such loans generally will not
be deductible. If you surrender your Policy while a loan is outstanding, the
amount of the loan will be treated as a partial surrender. You should be aware
that if the cash value of your Policy falls below the aggregate amount of loans
outstanding, as the result of the fluctuation in the value of the underlying
portfolios or otherwise, the entire Policy may terminate. In that case, all
loans will be taxable to the extent they exceed premiums paid.
If you make a partial surrender after the first 15 Policy years, the
distribution will not be subject to federal income tax except to the extent that
it exceeds your basis in the Policy. During the first 15 Policy years, however,
the proceeds from a partial withdrawal could be subject to federal income tax,
under a complex formula, to the extent that your cash value exceeds your basis.
Upon surrender of a Policy, taxation of the Surrender Value depends on the
Payment Option that you have selected. If payment is in one sum, you are taxed
on the income in the Policy at the time payment is made. If payment is in
installments, you may be taxed:
. on all or a portion of each installment until the income in the Policy
has been paid,
. only after all your basis in the Policy has been paid, or
. on a portion of each payment.
You should consult your tax adviser if you have questions about the taxation
of a Policy surrender.
Under the Code, we must generally withhold income tax from the taxable
portion of the distribution that we pay upon surrender of a Policy. We will not
withhold, if you so request in writing, before the payment date. Failure to
withhold or withholding of an insufficient amount may subject you to taxation.
In addition, insufficient withholding and insufficient estimated tax payments
may subject you to penalties.
The Life Series Fund sells its shares to more than one separate account
funding variable annuity contracts or variable life insurance policies.
Consequently, violation of the Federal tax laws by another separate account
investing in Life Series Fund could cause the Policies funded through Separate
Account B to lose their tax-deferred status. Such a result might cause us to
take remedial action.
We are taxed as a "life insurance company" under Subchapter L of the Code.
Under the applicable provisions of the Code, we include our variable life
insurance operations in our Federal income tax return. Currently, we do not make
18
<PAGE>
any charge against the Subaccount(s) for our Federal income taxes attributable
to the Subaccount(s). However, we may make such charges in the future. Any such
charges against a Subaccount would reduce its Net Investment Return.
Under current laws, we may incur state and local taxes (in addition to
premium taxes) in several states. At present, these taxes are not significant.
If we make any tax charges in the future, we will accumulate them daily and
transfer them from the Subaccount(s) to our General Account. We will retain any
investment earnings on tax charges accumulated in the Subaccount(s).
OUR OFFICERS AND DIRECTORS
NAME OFFICE PRINCIPAL OCCUPATION FOR LAST FIVE YEARS
- ---- ------ ----------------------------------------
Dori Allen Associate Associate Counsel, First Investors Life since
Counsel May 1998; Staff Attorney since February 1997;
and Staff Supervisor, Toxic Tort Unit, Claims
Attorney Administration Corporation, New York, prior
thereto.
Jay G. Baris Director Partner, Kramer, Levin, Naftalis & Frankel,
LLP, New York, Attorneys; Secretary and
Counsel, First Financial Savings Bank, S.L.A.,
New Jersey.
Glenn T. Dallas Director Retired since April 1996; Division President
and Senior Vice President, ADT Security
Systems, Parsippany, New Jersey, prior
thereto.
William H. First Vice First Vice President and Chief Actuary, First
Drinkwater President Investors Life.
and Chief
Actuary
Lawrence M. Senior Senior Vice President and Comptroller, First
Falcon Vice Investors Life.
President
and
Comptroller
Richard H. President President, First Investors Life.
Gaebler and
Director
George V. Ganter Director Vice President, First Investors Asset
Management Company, Inc., Portfolio Manager,
FIMCO.
Robert J. Grosso Director Director of Compliance, FIC since April 1997;
Assistant Counsel since January 1995; Business
Consultant from August 1994 to January 1995;
Assistant Vice President and Assistant General
Counsel, Alliance Fund Distributors, Inc. from
September 1993 to August 1994.
Glenn O. Head Chairman Chairman and Director, FICC, FIMCO and FIC.
and
Director
19
<PAGE>
OUR OFFICERS AND DIRECTORS
NAME OFFICE PRINCIPAL OCCUPATION FOR LAST FIVE YEARS
- ---- ------ ----------------------------------------
Kathryn S. Head Director President and Director, FICC and FIMCO; Vice
President and Director, FIC; Chairman,
President and Director, First Financial
Savings Bank, S.L.A.
Scott Hodes Director Partner, Ross & Hardies, Chicago, Illinois,
Attorneys.
Carol Lerner Secretary Assistant Secretary, FIC; Secretary, FIMCO and
Brown FICC.
William M. Vice Chief Financial Officer, FIC since December
Lipkus President 1997, FICC since June 1997; Vice President,
and Chief First Investors Life since May 1996; Chief
Financial Financial Officer since May 1998; Chief
Officer Accounting Officer since June 1992.
Jackson Ream Director Retired since January 1999; Senior Vice
President, NationsBank, NA , Dallas, Texas
prior hereto.
Nelson Schaenen Director Partner, Weiss, Peck & Greer, New York,
Jr. Investment Managers.
Martin A. Smith Vice Vice President, First Investors Life since
President February 1998; Vice President, The United
States Life Insurance Company, New York, prior
thereto.
Ada M. Suchow Vice Vice President, First Investors Life.
President
John T. Sullivan Director Director, FIMCO and FIC; Of Counsel to
Hawkins, Delafield & Wood, New York,
Attorneys.
Gulf Insurance Company has issued a fidelity bond for $5,000,000 covering
our officers and employees. Great American Insurance Companies has issued a
directors and officers liability policy for $3,000,000 covering our directors
and officers.
In addition to Separate Account B, First Investors Life also maintains First
Investors Life Variable Annuity Fund A, First Investors Life Variable Annuity
Fund C and First Investors Life Variable Annuity Fund D. We offer variable
annuity contracts supported by Variable Annuity Fund A through its own
prospectus and by Variable Annuity Funds C and D through a combined prospectus.
OTHER INFORMATION
VOTING RIGHTS
Because the Life Series Fund is not required to have annual shareholder
meetings, policyowners generally will not have an occasion to vote on matters
that pertain to the Life Series Fund. In certain circumstances, the Fund may be
required to hold a shareholders meeting or may choose to hold one voluntarily.
For example, a Fund may not change fundamental investment objectives or
investment policies without the approval of a majority vote of that Fund's
20
<PAGE>
shareholders in accordance with the 1940 Act. Thus, if the Fund sought to change
a fundamental investment objective or policy, policyowners would have an
opportunity to provide voting instructions for shares of a Fund held by a
Subaccount in which their Policy invests.
We will vote the shares of any Fund held in a corresponding Subaccount or
directly, at any Fund shareholders meeting as follows:
. shares attributable to Policyowners for which we have received
instructions, in accordance with the instructions;
. shares attributable to Policyowners for which we have not received
instructions, in the same proportion that we voted shares held in the
Subaccount for which we received instructions; and
. shares not attributable to Policyowners, in the same proportion that we
have voted shares held in the Subaccount attributable to Policyowners
for which we have received instructions.
We will vote Fund shares that we hold directly in the same proportion that
we vote shares held in any corresponding Subaccounts that are attributable to
Policyowners and for which we receive instructions. However, we will vote our
own shares as we deem appropriate where there are no shares held in any
Subaccount. We will present all the shares of any Fund that we hold through a
Subaccount or directly at any Fund shareholders meeting for purposes of
determining a quorum.
We will determine the number of Fund shares held in a corresponding
Subaccount that is attributable to each Policyowner by dividing the value of the
Subaccount by the net asset value of one Fund share. We will determine the
number of votes that a Policyowner has the right to cast as of the record date
established by Life Series Fund.
We will solicit instructions by written communication before the date of the
meeting at which votes will be cast. We will send meeting and other materials
relating to the Fund to each Policyowner having a voting interest in a
Subaccount.
The voting rights that we describe in this Prospectus are created under
applicable laws. If the laws eliminate the necessity to submit such matters for
approval by persons having voting rights in separate accounts of insurance
companies or restrict such voting rights, we reserve the right to proceed in
accordance with any such changed laws or regulations. We specifically reserve
the right to vote shares of any Fund in our own right, to the extent permitted
by law.
RESERVATION OF RIGHTS
We also reserve the following rights, subject to compliance with applicable
law, including any required approval of Policyowners:
. to invest the assets of Separate Account B in the shares of any
investment company or series thereof or any investment permitted by law;
. to transfer assets from Separate Account B to another separate account,
with appropriate adjustments to avoid odd lots and fractions;
. to operate Separate Account B as a "management company" under the 1940
Act, or in any other form permitted by law (we or our affiliate would
serve as investment adviser);
. to deregister Separate Account B under the 1940 Act; and
. to operate Separate Account B under the general supervision of a
committee any or all of whose members may be interested persons (as
defined in the 1940 Act) of First Investors Life or an affiliate, or to
discharge the committee.
21
<PAGE>
DISTRIBUTION OF POLICIES
First Investors Life and Separate Account B have entered into an
Underwriting Agreement with their affiliate, FIC, 95 Wall Street, New York, New
York 10005 to sell the policies through FIC's agents. For the fiscal years ended
December 31, 1996, 1997, and 1998, FIC received fees of $5,207,230, $4,487,918
and $5,121,393, respectively, in connection with the distribution of Policies in
a continuous offering. First Investors Life has reserved the right in the
Underwriting Agreement to sell the Policies directly. Insurance agents licensed
to sell variable life insurance policies sell the Policies. These agents are
registered representatives of the Underwriter or of the broker-dealers who have
sales agreements with the Underwriter. We pay these agents a commission of
28.55% of the first year premium payment and 1% of the premium payments for
years 2 through 12.
We offer the Policies for sale in Alabama, Arizona, Arkansas, California,
Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Iowa,
Illinois, Indiana, Kentucky, Louisiana, Massachusetts, Maryland, Michigan,
Minnesota, Missouri, Mississippi, North Carolina, Nebraska, New Jersey, New
Mexico, New York, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South
Carolina, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, Wisconsin
and Wyoming.
CUSTODIAN
Subject to applicable laws and regulations, we are the custodian of the
securities of the Subaccounts. We maintain the records and accounts of Separate
Account B.
REPORTS
At least once each Policy year, we mail a report to the Policyowner within
31 days after the Policy anniversary. We mail the report to the last address
known to us. The report shows (1) the death benefit, (2) the cash value, (3) the
policy debt on the anniversary and (4) any loan interest for the prior year. The
report also shows your allocation among the Subaccounts on that anniversary. We
will not send a report if the Policy is continued as reduced paid-up or extended
term insurance.
STATE REGULATION
We are subject to the laws of the State of New York governing insurance
companies and to regulations of the New York State Insurance Department. We file
an annual statement in a prescribed form with the Department of Insurance each
year covering our operations for the preceding year and our financial condition
as of the end of such year.
Our books and accounts are subject to review by the Insurance Department at
any time. The Department conducts a full examination of our operations
periodically. Such regulation does not, however, involve any supervision of
management or investment practices or policies except to determine compliance
with the requirements of the New York Insurance Law. In addition, we are subject
to regulation under the insurance laws of other jurisdictions in which we may
operate.
EXPERTS
Tait, Weller & Baker, independent certified public accountants have examined
the financial statements included in this Prospectus. We include the financial
statements in reliance upon the authority of said firm as experts in accounting
and auditing.
22
<PAGE>
RELEVANCE OF FINANCIAL STATEMENTS
You should consider our financial statements, which appear in this
Prospectus, only as bearing on our ability to meet our obligations to
Policyowners under the Policies. You should not consider our financial
statements as bearing on the investment performance of the Subaccount(s). Only
the investment results of the Subaccount(s) affect the values of Policyowner
interests under the Policies.
YEAR 2000
On and after January 1, 2000, computer date-related errors could adversely
affect Separate Account B, as they could other separate accounts. These errors
could occur in the computer and other information processing systems used by
First Investors Life, the underlying Funds, the Adviser, Subadviser, Transfer
Agent and other service providers. Typically, these systems use a two-digit
number to represent the year for any date. Consequently, computer systems could
incorrectly identify "00" as 1900, rather than 2000, and make related mistakes
when performing operations. First Investors Life, the Funds, the Adviser,
Subadviser, and Transfer Agent are taking steps that they believe are reasonable
to address the Year 2000 problem for computer and other systems used by them.
They are also obtaining assurances from other service providers that the service
providers are taking comparable steps. However, there can be no assurance that
these steps will avoid any adverse impact on Separate Account B. Nor can
Separate Account B estimate the extent of any adverse impact.
ILLUSTRATIONS OF DEATH BENEFITS,
CASH VALUES AND ACCUMULATED PREMIUMS
The tables on Pages 25 to 30 illustrate the way the Policy operates. They
show how the death benefit and the cash value may vary over an extended period
of years. The tables are based on assumed annual premiums of $600 for a 10 year
old male, $1,200 for a 25 year old male, and $1,800 for a 40 year old male. The
tables assume that premiums are paid in one lump sum promptly at the beginning
of each year. The tables assume a standard risk classification. There are two
sets of illustrations for each age. The first set of tables assumes that each
Subaccount will experience hypothetical rates of investment return (I.E.,
investment income and capital gains and losses, realized or unrealized)
equivalent to constant hypothetical gross annual investment returns of 0%, 4%
and 8%. The second set of tables assumes constant hypothetical gross annual
investment returns of 0%, 6% and 12%.
The death benefit and cash value for the Policy would be different from those
shown:
. if you spread the payment of premiums over the year, or
. if the gross annual rates of return applicable to the Policy average 0%,
4%, 6%, 8% and 12% over a period of years, but nevertheless fluctuate
above or below that average for individual Policy years.
The cash values and death benefits shown in the illustrations assume the
deduction of all fees and charges. When we take all fees and charges into
account, the hypothetical gross annual investment returns of 0%, 4%, 6%, 8%, and
12% correspond to Actual Rates of Return of approximately -1.445%, 2.4975%,
4.4687%, 6.4399%, and 10.3823%, respectively.
For purposes of the illustration, we have assumed:
. a daily charge to the Subaccount(s) for mortality and expense risks
equivalent to an annual charge of 0.50% at the beginning of each year,
. a premium tax of 2.00% on each premium payment,
. an investment advisory fee of 0.75% of each Fund's average daily net
assets, and
23
<PAGE>
. other expenses of 0.20% of each Fund's average daily net assets.
The assumed other expenses of 0.20% exceed the average of the actual other
expenses of all of the Funds combined. Certain of the Funds had actual expenses
greater than 0.20%. As of December 31, 1998, International Securities Fund had
other expenses of 0.40%. Absent reimbursement of a portion of the other expenses
by the Adviser, Cash Management Fund would have had other expenses of 0.24%.
There is no assurance that the Adviser will continue to reimburse other expenses
for Cash Management Fund, or any other Fund, in the future. Without these
reimbursements, the corresponding Actual Rates of Return would be lower.
The tables also reflect that we currently make no charge to the
Subaccount(s) for our corporate Federal income taxes. However, we may make such
charges in the future. If we do, a Policy would need higher hypothetical gross
annual investment returns greater than 0%, 4%, 6%, 8% and 12% to produce, on an
after tax basis, the results shown.
We have included a column captioned "Total Premiums Paid Plus Interest at
5%" in each table to show you the amount that would accumulate if the annual
premium (gross amount) that you allocated to the Subaccounts earned interest,
after taxes, at 5% compounded annually.
----------------------------
We will furnish, upon request, a comparable illustration using the proposed
Insured's age and the face amount or premium amount that you request. The
illustration will assume that you pay premiums on an annual basis and that the
proposed Insured is a standard risk. In addition, we will include a comparable
illustration, reflecting the Insured's risk classification if other than
standard, at the delivery of the Policy, if you make a purchase.
24
<PAGE>
<TABLE>
<CAPTION>
MALE ISSUE AGE 10
$600 ANNUAL PREMIUM FOR STANDARD RISK
$39,638 FACE AMOUNT (GUARANTEED INSURANCE AMOUNT)
TOTAL DEATH BENEFIT CASH VALUES
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
POLICY PREMIUM PAID PLUS ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
YEAR DUE INTEREST AT 5% 0% 4% 8% 0% 4% 8%
- -------- --------- -------------- ----------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 $600 $ 630 $39,638 $39,638 $ 39,673 $ 138 $ 145 $ 152
2 600 1,291 39,638 39,638 39,798 586 617 650
3 600 1,986 39,638 39,638 40,014 1,023 1,098 1,176
4 600 2,715 39,638 39,638 40,321 1,450 1,585 1,730
5 600 3,481 39,638 39,638 40,720 1,889 2,104 2,339
6 600 4,285 39,638 39,638 41,213 2,316 2,629 2,981
7 600 5,129 39,638 39,638 41,799 2,734 3,163 3,658
8 600 6,016 39,638 39,638 42,479 3,143 3,707 4,374
9 600 6,947 39,638 39,638 43,253 3,547 4,263 5,132
10 600 7,924 39,638 39,638 44,120 3,946 4,832 5,936
15 0 11,608 39,638 39,638 49,496 4,473 6,382 9,133
20 0 14,816 39,638 39,638 55,625 4,010 6,971 12,064
25 0 18,909 39,638 39,638 62,507 3,610 7,646 15,998
30 0 24,133 39,638 39,638 70,244 3,244 8,369 21,173
Attained Age
65 0 81,723 39,638 39,638 126,226 1,685 11,721 76,980
</TABLE>
The hypothetical gross annual rates of return shown in the illustration and
elsewhere in the prospectus are illustrative only and are not representations of
past or future rates of return. The cash values and death benefits shown in the
illustration assume the deduction of all fees and charges and that no Policy
Loans have been taken. Actual rates may be higher or lower than hypothetical
rates and will depend on a number of factors, including the investment
allocations made by a policy owner, the frequency of premium payments chosen and
the investment experience of the Policy's Subaccounts. The death benefits and
cash values would be different from those shown if the average of the actual
gross annual rates of return over a period of years equaled those shown, but the
rates varied from year to year. They would also be different if any Policy Loan
were made during the period. No representations can be made that those
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
25
<PAGE>
<TABLE>
<CAPTION>
MALE ISSUE AGE 25
$1,200 ANNUAL PREMIUM FOR STANDARD RISK
$51,908 FACE AMOUNT (GUARANTEED INSURANCE AMOUNT)
TOTAL DEATH BENEFIT CASH VALUES
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
POLICY PREMIUM PAID PLUS ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
YEAR DUE INTEREST AT 5% 0% 4% 8% 0% 4% 8%
- -------- --------- -------------- ----------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 $1,200 $ 1,260 $51,908 $51,908 $ 51,973 $ 409 $ 429 $ 449
2 1,200 2,583 51,908 51,908 52,154 1,308 1,385 1,462
3 1,200 3,972 51,908 51,908 52,451 2,197 2,366 2,543
4 1,200 5,431 51,908 51,908 52,864 3,076 3,375 3,695
5 1,200 6,962 51,908 51,908 53,398 3,992 4,459 4,972
6 1,200 8,570 51,908 51,908 54,054 4,897 5,572 6,332
7 1,200 10,259 51,908 51,908 54,832 5,791 6,713 7,778
8 1,200 12,032 51,908 51,908 55,732 6,673 7,882 9,315
9 1,200 13,893 51,908 51,908 56,754 7,544 9,080 10,949
10 1,200 15,848 51,908 51,908 57,898 8,404 10,308 12,685
15 0 23,217 51,908 51,908 64,950 9,524 13,635 19,577
20 0 29,631 51,908 51,908 72,999 8,504 14,836 25,762
25 0 37,818 51,908 51,908 82,058 7,539 16,033 33,680
30 0 48,266 51,908 51,908 92,259 6,628 17,185 43,687
Attained Age
65 0 78,620 51,908 51,908 116,712 4,947 19,096 71,178
</TABLE>
The hypothetical gross annual rates of return shown in the illustration and
elsewhere in the prospectus are illustrative only and are not representations of
past or future rates of return. The cash values and death benefits shown in the
illustration assume the deduction of all fees and charges and that no Policy
Loans have been taken. Actual rates may be higher or lower than hypothetical
rates and will depend on a number of factors, including the investment
allocations made by a policy owner, the frequency of premium payments chosen and
the investment experience of the Policy's Subaccounts. The death benefits and
cash values would be different from those shown if the average of the actual
gross annual rates of return over a period of years equaled those shown, but the
rates varied from year to year. They would also be different if any Policy Loan
were made during the period. No representations can be made that those
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
26
<PAGE>
<TABLE>
<CAPTION>
MALE ISSUE AGE 40
$1,800 ANNUAL PREMIUM FOR STANDARD RISK
$47,954 FACE AMOUNT (GUARANTEED INSURANCE AMOUNT)
TOTAL DEATH BENEFIT CASH VALUES
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
POLICY PREMIUM PAID PLUS ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
YEAR DUE INTEREST AT 5% 0% 4% 8% 0% 4% 8%
- -------- --------- -------------- ----------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 $1,800 $ 1,890 $47,954 $47,954 $48,027 $ 762 $ 799 $ 835
2 1,800 3,874 47,954 47,954 48,206 2,097 2,225 2,355
3 1,800 5,958 47,954 47,954 48,492 3,406 3,678 3,964
4 1,800 8,146 47,954 47,954 48,883 4,689 5,161 5,667
5 1,800 10,443 47,954 47,954 49,386 6,020 6,747 7,549
6 1,800 12,856 47,954 47,954 49,999 7,328 8,367 9,543
7 1,800 15,388 47,954 47,954 50,724 8,615 10,023 11,656
8 1,800 18,048 47,954 47,954 51,560 9,884 11,717 13,898
9 1,800 20,840 47,954 47,954 52,509 11,137 13,450 16,276
10 1,800 23,772 47,954 47,954 53,571 12,375 15,225 18,798
15 0 34,825 47,954 47,954 60,126 13,764 19,765 28,471
20 0 44,447 47,954 47,954 67,618 11,963 20,956 36,545
25 0 56,727 47,954 47,954 76,062 10,274 21,963 46,387
30 0 72,399 47,954 47,954 85,589 8,695 22,699 58,095
Attained Age
65 0 56,727 47,954 47,954 76,062 10,274 21,963 46,387
</TABLE>
The hypothetical gross annual rates of return shown in the illustration and
elsewhere in the prospectus are illustrative only and are not representations of
past or future rates of return. The cash values and death benefits shown in the
illustration assume the deduction of all fees and charges and that no Policy
Loans have been taken. Actual rates may be higher or lower than hypothetical
rates and will depend on a number of factors, including the investment
allocations made by a policy owner, the frequency of premium payments chosen and
the investment experience of the Policy's Subaccounts. The death benefits and
cash values would be different from those shown if the average of the actual
gross annual rates of return over a period of years equaled those shown, but the
rates varied from year to year. They would also be different if any Policy Loan
were made during the period. No representations can be made that those
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
27
<PAGE>
<TABLE>
<CAPTION>
MALE ISSUE AGE 10
$600 ANNUAL PREMIUM FOR STANDARD RISK
$39,638 FACE AMOUNT (GUARANTEED INSURANCE AMOUNT)
TOTAL DEATH BENEFIT CASH VALUES
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
POLICY PREMIUM PAID PLUS ANNUAL RATES OF RETURN OF ANNUAL RATES OF RETURN OF
YEAR DUE INTEREST AT 5% 0% 6% 12% 0% 6% 12%
- --------- --------- -------------- ----------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 $600 $ 630 $39,638 $39,645 $ 39,729 $ 138 $ 148 $ 158
2 600 1,291 39,638 39,669 40,061 586 633 682
3 600 1,986 39,638 39,710 40,642 1,023 1,136 1,256
4 600 2,715 39,638 39,767 41,482 1,450 1,656 1,884
5 600 3,481 39,638 39,841 42,599 1,889 2,219 2,597
6 600 4,285 39,638 39,932 44,005 2,316 2,800 3,375
7 600 5,129 39,638 40,039 45,711 2,734 3,402 4,227
8 600 6,016 39,638 40,161 47,732 3,143 4,026 5,160
9 600 6,947 39,638 40,299 50,081 3,547 4,676 6,184
10 600 7,924 39,638 40,453 52,774 3,946 5,354 7,309
15 0 11,608 39,638 41,363 70,965 4,473 7,632 13,094
20 0 14,816 39,638 42,310 95,773 4,010 9,176 20,771
25 0 18,909 39,638 43,278 129,224 3,610 11,076 33,073
30 0 24,133 39,638 44,269 174,378 3,244 13,343 52,561
Attained Age
65 0 81,723 39,638 49,597 785,431 1,685 30,247 479,001
</TABLE>
The hypothetical gross annual rates of return shown in the illustration and
elsewhere in the prospectus are illustrative only and are not representations of
past or future rates of return. The cash values and death benefits shown in the
illustration assume the deduction of all fees and charges and that no Policy
Loans have been taken. Actual rates may be higher or lower than hypothetical
rates and will depend on a number of factors, including the investment
allocations made by a policy owner, the frequency of premium payments chosen and
the investment experience of the Policy's Subaccounts. The death benefits and
cash values would be different from those shown if the average of the actual
gross annual rates of return over a period of years equaled those shown, but the
rates varied from year to year. They would also be different if any Policy Loan
were made during the period. No representations can be made that those
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
28
<PAGE>
<TABLE>
<CAPTION>
MALE ISSUE AGE 25
$1,200 ANNUAL PREMIUM FOR STANDARD RISK
$51,908 FACE AMOUNT (GUARANTEED INSURANCE AMOUNT)
TOTAL DEATH BENEFIT CASH VALUES
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
POLICY PREMIUM PAID PLUS ANNUAL RATES OF RETURN OF ANNUAL RATES OF RETURN OF
YEAR DUE INTEREST AT 5% 0% 6% 12% 0% 6% 12%
- -------- --------- -------------- ------------ -------- ------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 $1,200 $ 1,260 $51,908 $51,921 $ 52,078 $ 409 $ 439 $ 469
2 1,200 2,583 51,908 51,955 52,558 1,308 1,423 1,542
3 1,200 3,972 51,908 52,011 53,359 2,197 2,454 2,727
4 1,200 5,431 51,908 52,088 54,495 3,076 3,532 4,037
5 1,200 6,962 51,908 52,188 55,994 3,992 4,710 5,535
6 1,200 8,570 51,908 52,308 57,870 4,897 5,941 7,187
7 1,200 10,259 51,908 52,450 60,141 5,791 7,226 9,008
8 1,200 12,032 51,908 52,612 62,823 6,673 8,568 11,014
9 1,200 13,893 51,908 52,794 65,934 7,544 9,969 13,222
10 1,200 15,848 51,908 52,996 69,495 8,404 11,430 15,653
15 0 23,217 51,908 54,188 93,429 9,524 16,333 28,161
20 0 29,631 51,908 55,430 126,119 8,504 19,562 44,508
25 0 37,818 51,908 56,702 170,313 7,539 23,273 69,903
30 0 48,266 51,908 58,005 230,101 6,628 27,467 108,958
Attained Age
65 0 78,620 51,908 60,711 420,822 4,947 37,025 256,641
</TABLE>
The hypothetical gross annual rates of return shown in the illustration and
elsewhere in the prospectus are illustrative only and are not representations of
past or future rates of return. The cash values and death benefits shown in the
illustration assume the deduction of all fees and charges and that no Policy
Loans have been taken. Actual rates may be higher or lower than hypothetical
rates and will depend on a number of factors, including the investment
allocations made by a policy owner, the frequency of premium payments chosen and
the investment experience of the Policy's Subaccounts. The death benefits and
cash values would be different from those shown if the average of the actual
gross annual rates of return over a period of years equaled those shown, but the
rates varied from year to year. They would also be different if any Policy Loan
were made during the period. No representations can be made that those
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
29
<PAGE>
<TABLE>
<CAPTION>
MALE ISSUE AGE 40
$1,800 ANNUAL PREMIUM FOR STANDARD RISK
$47,954 FACE AMOUNT (GUARANTEED INSURANCE AMOUNT)
TOTAL DEATH BENEFIT CASH VALUES
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
POLICY PREMIUM PAID PLUS ANNUAL RATES OF RETURN OF ANNUAL RATES OF RETURN OF
YEAR DUE INTEREST AT 5% 0% 6% 12% 0% 6% 12%
- -------- --------- -------------- --------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 $1,800 $ 1,890 $47,954 $47,968 $ 48,144 $ 762 $ 817 $ 872
2 1,800 3,874 47,954 48,002 48,621 2,097 2,289 2,488
3 1,800 5,958 47,954 48,056 49,393 3,406 3,819 4,263
4 1,800 8,146 47,954 48,129 50,473 4,689 5,409 6,211
5 1,800 10,443 47,954 48,222 51,886 6,020 7,138 8,431
6 1,800 12,856 47,954 48,335 53,645 7,328 8,937 10,869
7 1,800 15,388 47,954 48,467 55,766 8,615 10,809 13,548
8 1,800 18,048 47,954 48,617 58,266 9,884 12,760 16,491
9 1,800 20,840 47,954 48,786 61,164 11,137 14,792 19,724
10 1,800 23,772 47,954 48,973 64,480 12,375 16,911 23,276
15 0 34,825 47,954 50,080 86,798 13,764 23,714 41,101
20 0 44,447 47,954 51,233 117,342 11,963 27,690 63,419
25 0 56,727 47,954 52,416 158,741 10,274 31,966 96,809
30 0 72,399 47,954 53,630 214,919 8,695 36,402 145,879
Attained Age
65 0 56,727 47,954 52,416 158,741 10,274 31,966 96,809
</TABLE>
The hypothetical gross annual rates of return shown in the illustration and
elsewhere in the prospectus are illustrative only and are not representations of
past or future rates of return. The cash values and death benefits shown in the
illustration assume the deduction of all fees and charges and that no Policy
Loans have been taken. Actual rates may be higher or lower than hypothetical
rates and will depend on a number of factors, including the investment
allocations made by a policy owner, the frequency of premium payments chosen and
the investment experience of the Policy's Subaccounts. The death benefits and
cash values would be different from those shown if the average of the actual
gross annual rates of return over a period of years equaled those shown, but the
rates varied from year to year. They would also be different if any Policy Loan
were made during the period. No representations can be made that those
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
30
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
First Investors Life Insurance Company
New York, New York
We have audited the accompanying balance sheets of First Investors Life
Insurance Company as of December 31, 1998 and 1997, and the related statements
of income, stockholder's equity and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of First Investors Life
Insurance Company as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 17, 1999
<PAGE>
<TABLE>
<CAPTION>
FIRST INVESTORS LIFE INSURANCE COMPANY
BALANCE SHEET
ASSETS
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Investments (note 2):
Available-for-sale securities....................................... $131,031,939 $125,380,627
Held-to-maturity securities......................................... 5,491,598 5,529,687
Short term investments.............................................. 3,982,209 3,083,769
Policy loans........................................................ 24,961,708 21,527,810
-------------- ------------
Total investments................................................ 165,467,454 155,521,893
Cash ................................................................. 113,094 1,145,215
Premiums and other receivables, net of allowances of
$30,000 in 1998 and 1997............................................ 6,297,635 4,749,099
Accrued investment income............................................. 3,473,067 3,180,924
Deferred policy acquisition costs (note 6)............................ 20,873,233 18,446,716
Deferred Federal income taxes (note 7) ........................... 473,000 1,039,000
Furniture, fixtures and equipment, at cost, less accumulated
depreciation of $1,110,857 in 1998 and $1,036,604 in 1997........... 102,448 97,379
Other assets.......................................................... 82,822 120,044
Separate account assets............................................... 821,105,059 642,453,414
-------------- ------------
Total assets..................................................... $1,017,987,812 $826,753,684
============== ============
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Policyholder account balances (note 6)................................ $118,786,854 $115,281,318
Claims and other contract liabilities................................. 13,934,636 12,548,096
Accounts payable and accrued liabilities.............................. 3,796,503 4,426,355
Separate account liabilities.......................................... 821,105,059 642,453,314
--------------- ------------
Total liabilities................................................ 957,623,052 774,709,083
--------------- ------------
STOCKHOLDER'S EQUITY:
Common Stock, par value $4.75; authorized,
issued and outstanding 534,350 shares............................... 2,538,163 2,538,163
Additional paid in capital............................................ 6,496,180 6,496,180
Accumulated other comprehensive income (note 2)....................... 2,193,000 1,608,000
Retained earnings .................................................... 49,137,417 41,402,258
--------------- ------------
Total stockholder's equity....................................... 60,364,760 52,044,601
--------------- ------------
Total liabilities and stockholder's equity....................... $1,017,987,812 $826,753,684
=============== ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
FIRST INVESTORS LIFE INSURANCE COMPANY
STATEMENT OF INCOME
Year Ended Year Ended Year Ended
December 31, 1998 December 31,1997 December 31,1996
----------------- ---------------- ----------------
<S> <C> <C> <C>
REVENUES
Policyholder fees................................... $25,393,372 $24,826,454 $22,955,165
Premiums.............................................. 6,091,731 6,279,137 6,725,329
Investment income (note 2).......................... 10,501,572 10,259,601 9,771,389
Realized gain (loss) on investments................. 914,891 158,874 (221,025)
Other income........................................ 893,181 702,644 704,678
----------- ------------ -----------
Total income..................................... 43,794,747 42,226,710 39,935,536
----------- ------------ -----------
BENEFITS AND EXPENSES
Benefits and increases in contract liabilities...... 13,803,921 14,370,510 12,912,810
Dividends to policyholders.......................... 1,749,579 1,033,663 964,913
Amortization of deferred acquisition costs (note 6). 1,005,483 663,200 1,454,408
Commissions and general expenses.................... 15,553,605 15,445,888 16,287,498
----------- ------------ -----------
Total benefits and expenses...................... 32,112,588 31,513,261 31,619,629
----------- ------------ -----------
Income before Federal income tax ..................... 11,682,159 10,713,449 8,315,907
Federal income tax (note 7):
Current............................................. 3,682,000 4,285,000 3,099,000
Deferred............................................ 265,000 (603,000) (286,000)
----------- ------------ -----------
3,947,000 3,682,000 2,813,000
----------- ------------ -----------
Net Income............................................ $ 7,735,159 $ 7,031,449 $ 5,502,907
=========== ============ ===========
Income per share, based on 534,350 shares outstanding
$14.48 $13.16 $10.30
=========== ============ ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
FIRST INVESTORS LIFE INSURANCE COMPANY
STATEMENT OF STOCKHOLDER'S EQUITY
Year Ended Year Ended Year Ended
December 31,1998 December 31,1997 December 31, 1996
---------------- ---------------- -----------------
<S> <C> <C> <C>
Balance at beginning of year............................. $52,044,601 $ 44,049,152 $ 39,780,245
------------ ------------ ------------
Net income............................................... 7,735,159 7,031,449 5,502,907
Other comprehensive income
Increase (decrease) in unrealized holding gains on
available-for-sale securities.......................... 585,000 964,000 (1,234,000)
------------ ------------- ------------
Comprehensive income..................................... 8,320,159 7,995,449 4,268,907
------------ ------------- ------------
Balance at end of year................................... $ 60,364,760 $ 52,044,601 $ 44,049,152
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
Year Ended Year Ended Year Ended
December 31, 1998 December 31, 1997 December 31,1996
----------------- ----------------- ----------------
<S> <C> <C> <C>
Increase (decrease) in cash:
Cash flows from operating activities:
Policyholder fees received.......................... $ 25,010,611 $ 24,587,113 $ 22,925,131
Premiums received................................... 5,433,211 6,088,582 6,413,009
Amounts received on policyholder accounts........... 132,528,386 125,818,334 105,489,481
Investment income received.......................... 10,630,564 10,263,095 9,964,169
Other receipts...................................... 91,864 57,287 55,779
Benefits and contract liabilities paid.............. (142,124,914) (138,420,373) (117,321,389)
Commissions and general expenses paid............... (24,138,476) (20,899,476) (20,857,687)
------------ ------------ -------------
Net cash provided by operating activities........... 7,431 246 7,494,562 6,668,493
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sale of investment securities......... 42,655,632 38,900,851 39,062,702
Purchase of investment securities................... (47,605,879) (44,021,791) (44,134,604)
Purchase of furniture, equipment and other assets... (79,322) (62,170) (34,485)
Net increase in policy loans........................ (3,433,898) (2,662,162) (1,848,956)
Investment in Separate Account ..................... 100 593,945 (200)
------------ ------------ ------------
Net cash used for investing activities.............. (8,463,367) (7,251,327) (6,955,543)
------------ ------------ ------------
Net increase (decrease) in cash..................... (1,032,121) 243,235 (287,050)
Cash
Beginning of year ..................................... 1,145,215 901,980 1,189,030
------------ ------------- ------------
End of year ........................................... $ 113,094 $ 1,145,215 $ 901,980
============ ============ ============
</TABLE>
The Company received a refund of Federal income tax of $79,000 in 1997 and
$102,000 in 1996 and paid Federal income tax of $4,400,000 in 1998, $4,358,000
in 1997 and $3,243,000 in 1996.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
FIRST INVESTORS LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
Year ended Year Ended Year Ended
December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Reconciliation of net income to net cash
provided by operating activities:
Net income........................................ $ 7,735,159 $ 7,031,449 $ 5,502,907
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 82,342 117,804 130,924
Amortization of deferred policy acquisition costs 1,005,483 663,200 1,454,408
Realized investment (gains) losses............. (914,891) (158,874) 221,025
Amortization of premiums and discounts on
investments.................................. 421,135 280,852 262,785
Deferred Federal income taxes.................. 265,000 (603,000) (286,000)
Other items not requiring cash - net........... (660) 9,771 6,794
(Increase) decrease in:
Premiums and other receivables, net............ (1,548,536) (750,889) 336,385
Accrued investment income...................... (292,143) (277,358) (70,005)
Deferred policy acquisition costs, exclusive
of amortization.............................. (3,613,000) (1,866,787) (1,275,323)
Other assets................................... 29,133 9,323 (18,574)
Increase (decrease) in:
Policyholder account balances.................. 3,505,536 1,985,844 (78,699)
Claims and other contract liabilities.......... 1,386,540 357,815 901,173
Accounts payable and accrued liabilities....... (629,852) 695,412 (419,307)
------------ ----------- -----------
$ 7,431,246 $ 7,494,562 $ 6,668,493
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF FINANCIAL STATEMENTS
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles (GAAP). Such basis of presentation
differs from statutory accounting practices permitted or prescribed by insurance
regulatory authorities primarily in that:
(a) policy reserves are computed according to the Company's estimates
of mortality, investment yields, withdrawals and other benefits and
expenses, rather than on the statutory valuation basis;
(b) certain expenditures, principally for furniture and equipment and
agents' debit balances, are recognized as assets rather than being
non-admitted and therefore charged to retained earnings;
(c) commissions and other costs of acquiring new business are
recognized as deferred acquisition costs and are amortized over the premium
paying period of policies and contracts, rather than charged to current
operations when incurred;
(d) income tax effects of temporary differences, relating primarily to
policy reserves and acquisition costs, are provided;
(e) the statutory asset valuation and interest maintenance reserves are
reported as retained earnings rather than as liabilities;
NOTE 2 -- OTHER SIGNIFICANT ACCOUNTING PRACTICES
(a) ACCOUNTING ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosures of contingent assets and liabilities, at the date
of the financial statements and revenues and expenses during the reported
period. Actual results could differ from those estimates.
(b) DEPRECIATION. Depreciation is computed on the useful service life
of the depreciable asset using the straight line method of depreciation over
three to seven years.
(c) INVESTMENTS. Investments in equity securities that have readily
determinable fair values and all investments in debt securities are classified
in separate categories and accounted for as follows:
HELD-TO-MATURITY SECURITIES
Debt securities in which the Company has the positive intent and
ability to hold to maturity are recorded at amortized cost.
AVAILABLE-FOR-SALE SECURITIES
Debt securities not classified as held to maturity securities and
equity securities are recorded at fair value with unrealized gains
and losses excluded from earnings and reported as "accumulated
other comprehensive income" in stockholder's equity.
Short term investments are reported at market value which approximates
cost.
Gains and losses on sales of investments are determined using the
specific identification method. Investment income for the years indicated
consists of the following:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31,1998 December 31, 1997 December 31,1996
---------------- ----------------- ----------------
<S> <C> <C> <C>
Interest on fixed maturities............... $ 9,276,036 $ 9,029,979 $ 8,559,429
Interest on short term investments......... 226,544 307,656 410,930
Interest on policy loans................... 1,465,497 1,268,834 1,151,681
Dividends on equity securities............. -- -- 43,756
----------- ------------ -----------
Total investment income............... 10,968,077 10,606,469 10,165,796
Investment expense.................... 466,505 346,868 394,407
----------- ------------ -----------
Net investment income...................... $10,501,572 $ 10,259,601 $ 9,771,389
=========== ============ ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
The amortized cost and estimated market values of investments at December 31, 1998 and 1997 are as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-For-Sale Securities
December 31, 1998
U.S. Treasury Securities and obligations
of U.S. Government Corporations
and Agencies............................... $ 28,353,391 $ 1,703,441 $ 912 $ 30,055,920
Debt Securities issued by
States of the U.S.......................... 13,964,587 261,109 8,696 14,217,000
Corporate Debt Securities................... 77,938,088 2,148,113 378,682 79,707,519
Other Debt Securities ...................... 6,676,873 374,627 -- 7,051,500
------------ ------------ ------------ ------------
$126,932,939 $ 4,487,290 $ 388,290 $131,031,939
============ ============ ============ ============
December 31,1997
U.S. Treasury Securities and obligations
of U.S. Government Corporations
and Agencies............................... $ 39,532,729 $ 975,819 $ -- $ 40,508,548
Debt Securities issued by
States of the U.S.......................... 7,309,135 92,015 -- 7,401,150
Corporate Debt Securities................... 67,900,325 1,739,318 75,913 69,563,730
Other Debt Securities....................... 7,606,438 300,761 -- 7,907,199
------------ ------------ ----------- ------------
$122,348,627 $ 3,107,913 $ 75,913 $125,380,627
============ ============ =========== ============
At December 31, 1998 and 1997, the Company had "Unrealized Holding Gains on
Available-For-Sale Securities" of $2,193,000 and $1,608,000, net of applicable
deferred income taxes and amortization of deferred acquisition costs. The change
in the Unrealized Holding Gains of $585,000, $964,000 and ($1,234,000) for 1998,
1997 and 1996, respectively is reported as other comprehensive income in
stockholders' equity.
Held-To-Maturity Securities
December 31,1998
U.S. Treasury Securities and obligations
of U.S. Government Corporations
and Agencies*.............................. $ 3,381,598 $ 223,647 $ -- $ 3,605,245
Corporate Debt Securities................... 2,000,000 125,400 -- 2,125,400
Other Debt Securities....................... 110,000 -- -- 110,000
------------ ----------- ----------- -----------
$ 5,491,598 $ 349,047 $ -- $ 5,840,645
============ =========== =========== ===========
December 31,1997
U.S. Treasury Securities and obligations
of U.S. Government Corporations
and Agencies*.............................. $ 3,419,687 $ 90,126 $ 700 $ 3,509,113
Corporate Debt Securities................... 2,000,000 109,000 -- 2,109,000
Other Debt Securities....................... 110,000 -- -- 110,000
-------------- --------- --------- -----------
$ 5,529,687 $ 199,126 $ 700 $ 5,728,113
============ ========= ========= ===========
</TABLE>
*These securities are on deposit for various state insurance departments and are
therefore restricted as to sale.
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
The amortized cost and estimated market value of debt securities at
December 31, 1998, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Held to Maturity Available For Sale
-----------------------------------------------------------------
Amortized Estimated Amortized Estimated
Cost Market Value Cost Market Value
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less....................... $ 10,000 $ 10,000 $ 1,255,531 $ 1,256,810
Due after one year through five years......... 2,954,022 3,142,745 33,385,925 34,635,479
Due after five years through ten years........ 527,576 562,500 55,672,616 57,463,964
Due after ten years........................... 2,000,000 2,125,400 36,618,867 37,675,686
---------- ---------- ------------ ------------
$5,491,598 $5,840,645 $126,932,939 $131,031,939
========== ========== ============ ============
</TABLE>
Proceeds from sales of investments in fixed maturities were $42,655,632,
$38,900,851 and $39,046,422 in 1998, 1997 and 1996, respectively. Gross gains of
$977,442 and gross losses of $62,551 were realized on those sales in 1998. Gross
gains of $374,583 and gross losses of $215,709 were realized on those sales in
1997. Gross gains of $185,708 and gross losses of $406,733 were realized on
those sales in 1996.
(d) RECOGNITION OF REVENUE, POLICYHOLDER ACCOUNT BALANCES AND POLICY
BENEFITS
TRADITIONAL ORDINARY LIFE AND HEALTH
Revenues from the traditional life insurance policies represent
premiums that are recognized as earned when due. Health insurance
premiums are recognized as revenue over the time period to which the
premiums relate. Benefits and expenses are associated with earned
premiums so as to result in recognition of profits over the lives of
the contracts. This association is accomplished by means of the
provision for liabilities for future policy benefits and the deferral
and amortization of policy acquisition costs.
UNIVERSAL LIFE AND VARIABLE LIFE
Revenues from universal life and variable life policies
represent amounts assessed against policyholders. Included in such
assessments are mortality charges, surrender charges and policy
service fees.
Policyholder account balances on universal life consist of the
premiums received plus credited interest, less accumulated
policyholder assessments. Amounts included in expense represent
benefits in excess of policyholder account balances. The value of
policyholder accounts on variable life are included in separate
account liabilities as discussed below.
ANNUITIES
Revenues from annuity contracts represent amounts assessed
against contractholders. Such assessments are principally sales
charges, administrative fees, and in the case of variable annuities,
mortality and expense risk charges. The carrying value and fair value
of fixed annuities are equal to the policyholder account balances,
which represent the net premiums received plus accumulated interest.
(e) SEPARATE ACCOUNTS. Separate account assets and the related
liabilities, both of which are valued at market, represent segregated variable
annuity and variable life contracts maintained in accounts with individual
investment objectives. All investment income (gains and losses of these
accounts) accrues directly to the contractholders and therefore does not affect
net income of the Company.
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
(f) COMPREHENSIVE INCOME. For 1998, the Company adopted Statement of
Financial Accounting Standards No, 130 ("SFAS 130"), "Reporting Comprehensive
Income". SFAS 130 establishes the disclosure requirements for reporting
comprehensive income in an entity's financial statements. Total comprehensive
income includes net income and unrealized gains and losses on available-for-sale
securities. Accumulated other comprehensive income, a component of stockholders'
equity, was formerly reported as unrealized gains and losses on
available-for-sale securities. There was no impact on previously reported net
income from the adoption of SFAS 130.
Note 3 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for cash, short-term investments and policy loans as
reported in the accompanying balance sheet approximate their fair values. The
fair values for fixed maturity and equity-securities are based upon quoted
market prices, where available or are estimated using values from independent
pricing services.
The carrying amounts for the Company's liabilities under investment - type
contracts approximate their fair values because interest rates credited to
account balances approximate current rates paid on similar investments and are
generally not guaranteed beyond one year. Fair values for the Company's
insurance contracts other than investment - type contracts are not required to
be disclosed. However, the fair values of liabilities for all insurance
contracts are taken into consideration in the overall management of interest
rate risk, which minimizes exposure to changing interest rates.
NOTE 4 -- RETIREMENT PLANS
The Company participates in a non-contributory profit sharing plan for the
benefit of its employees and those of other wholly-owned subsidiaries of its
parent. The Plan provides for retirement benefits based upon earnings. Vesting
of benefits is based upon years of service. For the years ended December 31,
1998, 1997 and 1996, the Company charged operations approximately $79,000,
$70,000 and $100,000 respectively for its portion of the contribution.
The Company also has a non-contributory retirement plan for the benefit of
its sales agents. The plan provides for retirement benefits based upon
commission on first-year premiums and length of service. The plan is unfunded.
Vesting of benefits is based upon graduated percentages dependent upon the
number of allocations made in accordance with the plan by the Company for each
participant. The Company charged to operations pension expenses of approximately
$475,000 in 1998, $419,000 in 1997 and $414,000 in 1996. The accrued liability
of approximately $3,251,000 in 1998 and $2,913,000 in 1997 was sufficient to
cover the value of benefits provided by the plan.
In addition, the Company participates in a 401(k) savings plan covering
all of its eligible employees and those of other wholly-owned subsidiaries of
its parent whereby employees may voluntarily contribute a percentage of their
compensation with the Company matching a portion of the contributions of certain
employees. Contributions to this plan were not material.
NOTE 5 -- COMMITMENTS AND CONTINGENT LIABILITIES
The Company has agreements with affiliates and non-affiliates as follows:
(a) The Company's maximum retention on any one life is $100,000. The
Company reinsures a portion of its risk with other insurance companies and
reserves are reduced by the amount of reserves for such reinsured risks. The
Company is liable for any obligations that any reinsurance company may be unable
to meet. The Company had reinsured approximately 10% of its net life insurance
in force at December 31, 1998, 1997 and 1996. The Company also had assumed
reinsurance amounting to approximately 20%, 20% and 21% of its net life
insurance in force at the respective year ends. None of these transactions had
any material effect on the Company's operating results.
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
(b) The Company and certain affiliates share office space, data processing
facilities and management personnel. Charges for these services are based upon
the Company's proportionate share of: space occupied, usage of data processing
facilities and time allocated to management. During the years ended December 31,
1998, 1997 and 1996, the Company paid approximately $1,440,000, $1,114,000 and
$1,222,000, respectively, for these services. In addition, the Company
reimbursed an affiliate approximately $10,799,000 in 1998, $9,814,000 in
1997,and $9,709,000 in 1996 for commissions relating to the sale of its
products.
The Company maintains a checking account with a financial
institution, which is also a wholly-owned subsidiary of its parent. The balance
in this account was approximately $387,000 at December 31, 1998 and $332,000 at
December 31, 1997.
(c) The Company is subject to certain claims and lawsuits arising in the
ordinary course of business. In the opinion of management, all such claims
currently pending will not have a material adverse effect on the financial
position of the Company or its results of operations.
NOTE 6 -- ADJUSTMENTS MADE TO STATUTORY ACCOUNTING PRACTICES
Note 1 describes some of the common differences between statutory practices
and generally accepted accounting principles. The effects of these differences
for the years ended December 31, 1998, 1997 and 1996 are shown in the following
table in which net income and capital shares and surplus reported therein on a
statutory basis are adjusted to a GAAP basis.
<TABLE>
<CAPTION>
NET INCOME CAPITAL SHARES AND SURPLUS
YEAR ENDED DECEMBER 31 AT DECEMBER 31
---------------------------------- ---------------------------------
1998 1997 1996 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Reported on a statutory basis.......... $6,191,762 $5,809,629 $5,002,533 $37,991,708 $32,159,721 $26,580,877
---------- ---------- ---------- ----------- ----------- -----------
Adjustments:
Deferred policy acquisition costs (b) 2,607,517 351,239 (179,085) 20,873,233 18,446,716 17,547,129
Future policy benefits (a).......... (1,259,673) 133,848 514,086 (4,260,262) (3,000,589) (2,398,397)
Deferred income taxes............... (265,000) 603,000 286,000 473,000 1,039,000 934,000
Premiums due and deferred (e)....... 85,385 84,291 85,461 (1,189,428) (1,274,816) (1,359,107)
Cost of colletion and other statutory
liabilities....................... (6,185) (924) (12,283) 29,874 36,060 36,984
Non-admitted assets................. -- -- -- 218,959 224,411 298,731
Asset valuation reserve............. -- -- -- 1,691,873 1,325,986 1,136,664
Interest maintenance reserve........ (223,136) (55,019) (48,542) 436,803 56,112 6,271
Gross unrealized holding gains on
available-for-sale securities... -- -- -- 4,099,000 3,032,000 1,266,000
Net realized capital gains (losses). 914,891 158,874 (221,025) -- -- --
Other............................... (310,402) (53,489) 75,762 -- --
---------- ---------- ---------- ----------- ----------- -----------
1,543,397 1,221,820 500,374 22,373,052 19,884,880 17,468,275
---------- ---------- ---------- ---------- ---------- ----------
In accordance with generally accepted
accounting principles............... $7,735,159 $7,031,449 $5,502,907 $60,364,760 $52,044,601 $44,049,152
========== ========== ========== =========== =========== ===========
Per share, based on 534,350 shares
outstanding......................... $14.48 $13.16 $10.30 $112.97 $97.40 $82.44
========== ========== ========== =========== ========== ===========
</TABLE>
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
The following is a description of the significant policies used to adjust
the net income and capital shares and surplus from a statutory to a GAAP basis.
(a) Liabilities for future policy benefits have been computed primarily by
the net level premium method with assumptions as to anticipated mortality,
withdrawals and investment yields. The composition of the policy liabilities and
the more significant assumptions pertinent thereto are presented below:
<TABLE>
<CAPTION>
DISTRIBUTION OF LIABILITIES* BASIS OF ASSUMPTIONS
- ----------------------------------------------------------------------------------
YEARS
1998 1997 OF ISSUE INTEREST MORTALITY TABLE WITHDRAWAL
---- ---- -------- -------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Non-par:
$1,458,458 $ 1,505,551 1962-1967 4 1/2% 1955-60 Basic Select plus Ultimate Linton B
5,021,949 5,310,394 1968-1988 5 1/2% 1955-60 Basic Select plus Ultimate Linton B
2,403,257 2,433,724 1984-1988 7 1/2% 85% of 1965-70 Basic Select Modified
plus Ultimate Linton B
116,030 101,775 1989-Present 7 1/2% 1975-80 Basic Select plus Ultimate Linton B
63,482 108,985 1989-Present 7 1/2% 1975-80 Basic Select plus Ultimate Actual
26,682 28,971 1989-Present 8% 1975-80 Basic Select plus Ultimate Actual
33,158,902 32,412,007 1985-Present 6% Accumulation of Funds --
Par:
216,096 224,913 1966-1967 4 1/2% 1955-60 Basic Select plus Ultimate Linton A
13,141,191 13,273,949 1968-1988 5 1/2% 1955-60 Basic Select plus Ultimate Linton A
907,950 899,407 1981-1984 7 1/4% 90% of 1965-70 Basic Select
plus Ultimate Linton B
4,791,142 4,699,324 1983-1988 9 1/2% 80% of 1965-70 Basic Select
plus Ultimate Linton B
17,805,284 15,977,808 1990-Present 8% 66% of 1975-80 Basic Select
plus Ultimate Linton B
Annuities:
16,075,327 19,581,382 1976-Present 5 1/2% Accumulation of Funds --
Miscellaneous:
24,418,452 19,604,218 1962-Present 2 1/2%-3 1/2% 1958-CSO None
</TABLE>
* The above amounts are before deduction of deferred premiums of $817,348 in
1998 and $881,090 in 1997.
(b) The costs of acquiring new business, principally commissions and
related agency expenses, and certain costs of issuing policies, such as medical
examinations and inspection reports, all of which vary with and are primarily
related to the production of new business, have been deferred. Costs deferred on
universal life and variable life are amortized as a level percentage of the
present value of anticipated gross profits resulting from investment yields,
mortality and surrender charges. Costs deferred on traditional ordinary life and
health are amortized over the premium-paying period of the related policies in
proportion to the ratio of the annual premium revenue to the total anticipated
premium revenue. Anticipated premium revenue was estimated using the same
assumptions that were used for computing liabilities for future policy benefits.
Amortization of $1,005,483 in 1998 and $663,200 in 1997, $1,454,408 in 1996 was
charged to operations.
(c) Participating business represented 8.8% and 9.5% of individual life
insurance in force at December 31, 1998 and 1997, respectively.
The Board of Directors annually approves a dividend formula for
calculation of dividends to be distributed to participating policyholders.
The portion of earnings of participating policies that can inure to the
benefit of shareholders is limited to the larger of 10% of such earnings or $.50
per thousand dollars of participating insurance in force. Earnings in excess of
that limit must be excluded from shareholders' equity by a charge against
operations. No such charge has been made, since participating business has
operated at a loss to date on a statutory basis. It is anticipated, however,
that the participating lines will be profitable over the lives of the policies.
(d) New York State insurance law prohibits the payment of dividends to
stockholders from any source other than the statutory unassigned surplus. The
amount of said surplus was $28,207,166, $22,374,879 and $16,796,135 at December
31, 1998, 1997 and 1996, respectively.
(e) Statutory due and deferred premiums are adjusted to conform to the
expected premium revenue used in computing future benefits and deferred policy
acquisition costs. In this regard, the GAAP due premium is recorded as an asset
and the GAAP deferred premium is applied against future policy benefits.
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 7 -- FEDERAL INCOME TAXES
The Company joins with its parent company and other affiliated companies
in filing a consolidated Federal income tax return. The provision for Federal
income taxes is determined on a separate company basis.
Retained earnings at December 31, 1998 included approximately $146,000
which is defined as "policyholders' surplus" and may be subject to Federal
income tax at ordinary corporate rates under certain future conditions,
including distributions to stockholders.
Deferred tax liabilities (assets) are comprised of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Policyholder dividend provision........................................ $ (448,300) $ (357,200)
Non-qualified agents' pension plan reserve............................. (1,262,900) (1,161,300)
Deferred policy acquisition costs...................................... 2,956,800 2,215,900
Future policy benefits................................................. (2,835,100) (2,575,400)
Bond discount.......................................................... 35,900 39,200
Unrealized holding gains on Available-For-Sale Securities............. 1,130,000 829,000
Other.................................................................. (49,400) (29,200)
------------ --------------
$ (473,000) $ (1,039,000)
============ ==============
</TABLE>
The currently payable Federal Income tax provision of $3,099,000 for 1996
is net of a $75,000 Federal tax benefit resulting from a capital loss carryback
of $221,025.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
First Investors Life Insurance Company
New York, New York
We have audited the statement of assets and liabilities of First Investors
Life Level Premium Variable Life Insurance (a separate account of First
Investors Life Insurance Company, registered as a unit investment trust under
the Investment Company Act of 1940), as of December 31, 1998, and the related
statement of operations for the year then ended and changes in net assets for
each of the two years in the period then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of First Investors Life Level
Premium Variable Life Insurance as of December 31, 1998, and the results of its
operations for the year then ended and the changes in its net assets for each of
the two years in the period then ended, in conformity with generally accepted
accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 17, 1999
<PAGE>
FIRST INVESTORS LIFE
LEVEL PREMIUM VARIABLE LIFE INSURANCE
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
ASSETS
Investments at net asset value (Note 3):
First Investors Life Series Fund.............................$214,155,664
LIABILITIES
Payable to First Investors Life Insurance Company............ 3,141,177
------------
NET ASSETS......................................................$211,014,487
============
Net assets represented by Contracts.............................$211,014,487
============
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
INVESTMENT INCOME
Income:
Dividends....................................................$ 11,381,018
------------
Total income.............................................. 11,381,018
------------
Expenses:
Cost of insurance charges (Note 4)........................... 3,722,098
Mortality and expense risks (Note 4)......................... 953,562
-----------
Total expenses............................................ 4,675,660
-----------
NET INVESTMENT INCOME........................................... 6,705,358
-----------
UNREALIZED APPRECIATION ON INVESTMENTS
Beginning of year.............................................. 48,303,546
End of year.................................................... 62,632,266
Change in unrealized appreciation on investments................ 14,328,720
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............$21,034,078
===========
See accompanying notes to financial statements.
34
<PAGE>
FIRST INVESTORS LIFE
LEVEL PREMIUM VARIABLE LIFE INSURANCE
STATEMENT OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997
-------------- ----------------
<S> <C> <C>
Increase (Decrease) in Net Assets
From Operations
Net investment income................................................. $ 6,705,358 $ 6,135,321
Change in unrealized appreciation on investments...................... 14,328,720 16,231,615
------------- -------------
Net increase in net assets resulting from operations.................. 21,034,078 22,366,936
-------------- -------------
From Unit Transactions
Net insurance premiums................................................ 32,896,170 30,069,380
Contract payments..................................................... (15,071,523) (13,435,961)
-------------- --------------
Net increase in net assets derived from unit transactions............. 17,824,647 16,633,419
-------------- --------------
Net increase in net assets............................................ 38,858,725 39,000,355
Net Assets
Beginning of year....................................................... 172,155,762 133,155,407
------------- --------------
End of year............................................................. $211,014,487 $172,155,762
============ =============
</TABLE>
See accompanying notes to financial statements.
35
<PAGE>
FIRST INVETORS LIFE
LEVEL PREMIUM VARIABLE LIFE INSURANCE
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 -- ORGANIZATION
First Investors Life Level Premium Variable Life Insurance (Separate Account
B), a unit investment trust registered under the Investment Company Act of 1940
(the 1940 Act), is a segregated investment account established by First
Investors Life Insurance Company (FIL). Assets of the Separate Account B have
been used to purchase shares of First Investors Life Series Fund (The Fund), an
open-end diversified management investment company registered under the 1940
Act.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
Shares of the Fund held by Separate Account B are valued at net asset
value per share. All distributions received from the Fund are reinvested to
purchase additional shares of the Fund at net asset value.
NET ASSETS REPRESENTED BY CONTRACTS
The net assets represented by contracts represents the cash value of the
policyholder accounts which is the estimated liability for future policy
benefits. The liability for future policy benefits is computed based upon
assumptions as to anticipated mortality, withdrawals and investment yields.
The mortality assumption is based upon the 1975-80 Basic Select plus
Ultimate mortality table.
FEDERAL INCOME TAXES
Separate Account B is not taxed separately because its operations are
part of the total operations of FIL, which is taxed as a life insurance
company under the Internal Revenue Code. Separate Account B will not be
taxed as a regulated investment company under Subchapter M of the Code.
Under existing Federal income tax law, no taxes are payable on the
investment income or on the capital gains of Separate Account B.
NOTE 3 -- INVESTMENTS
Investments consist of the following:
<TABLE>
<CAPTION>
NET ASSET MARKET
SHARES VALUE VALUE COST
------ --------- ------ ----
<S> <C> <C> <C> <C>
First Investors Life
Series Fund
Cash Management.................................. 1,232,598 $ 1.00 $ 1,232,598 $ 1,232,598
High Yield....................................... 3,076,907 11.70 36,001,354 33,131,839
Growth........................................... 1,401,591 35.78 50,145,861 27,668,428
Discovery........................................ 1,409,785 26.74 37,697,283 29,978,530
Blue Chip........................................ 1,774,663 26.25 46,582,619 27,793,401
International Securities......................... 1,764,647 18.88 33,321,641 24,199,648
Government....................................... 103,688 10.41 1,079,314 1,066,529
Investment Grade................................. 217,715 11.97 2,605,307 2,316,602
Utility Income................................... 346,741 15.83 5,489,687 4,135,823
-------------- --------------
$214,155,664 $151,523,398
============ ============
</TABLE>
The High Yield Series' investments in high yield securities whether rated or
unrated may be considered speculative and subject to greater market fluctuations
and risks of loss of income and principal than lower yielding, higher rated,
fixed income securities.
NOTE 4 -- MORTALITY AND EXPENSE RISKS AND DEDUCTIONS
In consideration for its assumption of the mortality and expense risks
connected with the Variable Life Contracts, FIL deducts an amount equal on an
annual basis to .50% of the daily net asset value of Separate Account B. The
deduction for the year ended December 31, 1998 was $953,562.
A monthly charge is also made to Separate Account B for the cost of
insurance protection. This amount varies with the age and sex of the insured and
the net amount of insurance at risk. For further discussion, see "Cost of
Insurance Protection" in the Prospectus. For the year ended December 31, 1998
cost of insurance charges amounted to $3,722,098.
36
[FIRST INVESTORS LOGO]
INSURED SERIES PLAN
This booklet contains two prospectuses. The first prospectus is for our Level
Premium Variable Life Insurance Policy, which we call our Insured Series Plan
("ISP"). The second prospectus is for the First Investors Life Series Fund,
which serves as the underlying investment options for our variable life
insurance policy.
THE DATE OF THIS PROSPECTUS IS APRIL 30, 1999.
<PAGE>
CONTENTS*
LEVEL PREMIUM VARIABLE LIFE INSURANCE POLICIES PROSPECTUS
OVERVIEW.......................................................2
The Policy..................................................2
The Charges and Expenses....................................3
Who We Are..................................................5
Risk and Reward Considerations..............................6
THE POLICY IN DETAIL...........................................6
Your Premiums...............................................6
Allocation of Your Net Premium to Investment Options........7
The Death Benefit...........................................8
Your Cash Value.............................................9
Settlement Options..........................................12
Optional Insurance Riders...................................13
Other Provisions............................................14
FEDERAL INCOME TAX INFORMATION.................................16
OUR OFFICERS AND DIRECTORS.....................................19
OTHER INFORMATION..............................................20
Voting Rights...............................................20
Reservation of Rights.......................................21
Distribution of Policies....................................22
Custodian...................................................22
Reports.....................................................22
State Regulation............................................22
Experts.....................................................22
Relevance of Financial Statements...........................23
Year 2000...................................................23
ILLUSTRATIONS OF DEATH BENEFITS,
CASH VALUES AND ACCUMULATED PREMIUMS........................23
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS.........................
FINANCIAL STATEMENTS OF FIRST INVESTORS LIFE...................
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS.........................
FINANCIAL STATEMENTS OF SEPARATE ACCOUNT B.....................
- -----------------------------
*A Table of Contents for the Life Series Fund prospectus can be found on page 1
of that prospectus.
i
<PAGE>
[FIRST INVESTORS LOGO]
95 Wall Street
New York, New York 10005
(212) 858-8200
i
<PAGE>
[FIRST INVESTORS LOGO]
LIFE SERIES FUND
BLUE CHIP
CASH MANAGEMENT
DISCOVERY
GOVERNMENT
GROWTH
HIGH YIELD
INTERNATIONAL SECURITIES
INVESTMENT GRADE
TARGET MATURITY 2007
TARGET MATURITY 2010
UTILITIES INCOME
The Securities and Exchange Commission has not approved or disapproved
these securities or 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, 1999
<PAGE>
CONTENTS
INTRODUCTION
FUND DESCRIPTIONS
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
FUND MANAGEMENT
BUYING AND SELLING SHARES
How and when do the Funds price their shares?
How do I buy and sell shares?
ACCOUNT POLICIES
What about dividends and capital gain distributions?
What about taxes?
FINANCIAL HIGHLIGHTS
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
2
<PAGE>
INTRODUCTION
This prospectus describes the First Investors Funds that are used solely as the
underlying investment options for variable annuity contracts or variable life
insurance policies offered by First Investors Life Insurance Company ("FIL").
This means that you cannot purchase shares of the Funds directly, but only
through such a contract or policy as offered by FIL. Each individual Fund
description in this prospectus has an "Overview" which provides a brief
explanation of the Fund's objectives, its primary strategies and primary risks,
how it has performed, and its fees and expenses. Each Fund description also
contains a "Fund in Detail" section with more information on the strategies and
risks of the Fund.
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BLUE CHIP FUND
OVERVIEW
OBJECTIVE: The Fund seeks high total investment return consistent with
the preservation of capital.
PRIMARY
INVESTMENT
STRATEGIES: The Fund primarily invests in the common stocks of large,
well-established companies that are included in the Standard
and Poor's 500 Composite Stock Price Index ("S&P 500 Index").
These are defined by the Fund as "Blue Chip" stocks. The Fund
selects stocks that it believes will have earnings growth in
excess of the average company in the S&P 500 Index. While the
Fund attempts to diversify its investments so that its
weightings in different industries are similar to those of the
S&P 500 Index, it is not an index fund and therefore will not
necessarily mirror the S&P 500 Index. The Fund generally stays
fully invested in stocks under all market conditions.
PRIMARY
RISKS: While Blue Chip stocks are regarded as among the most
conservative stocks, like all stocks they fluctuate in price
in response to movements in the overall securities markets,
general economic conditions, and changes in interest rates or
investor sentiment. Fluctuations in the prices of Blue Chip
stocks at times can be substantial. Accordingly, the value of
an investment in the Fund will go up and down, which means
that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
How has the Blue Chip Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Fund's shares from year to
year over the life of the Fund. The bar chart does not reflect fees and expenses
that may be deducted by the variable annuity contract or variable life insurance
policy through which you invest. If they were included, the returns would be
less than those shown.
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[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 20.03% (for the
quarter ended September 30, 1998), and the lowest quarterly return was -13.16%
(for the quarter ended September 30, 1990). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for the Blue Chip
Fund's shares compare to those of the S&P 500 Index. The S&P 500 Index is an
unmanaged index generally representative of the market for the stocks of
large-sized U.S. companies. The S&P 500 Index does not take into account fees
and expenses that an investor would incur in holding the securities in the S&P
500 Index. If it did so, the returns would be lower than those shown.
Inception
1 Year* 5 Years* (3/8/90)
Blue Chip Fund 10.37% 17.54% 14.47%
S&P 500 Index 28.34 24.55 18.87
* The annual returns are based upon calendar years.
THE FUND IN DETAIL
What are the Blue Chip Fund's objective, principal investment strategies,
and risks?
OBJECTIVE: The Fund seeks high total investment return consistent with the
preservation of capital.
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PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in common stocks of large, well-established companies that are included
in the S&P 500 Index. These are defined by the Fund as "Blue Chip" stocks. The
S&P 500 Index consists of both U.S. and foreign corporations.
The Fund uses fundamental research to select stocks of companies with strong
balance sheets, relatively consistent records of achievement, and potential
earnings growth that is greater than that of the average company included in the
S&P 500 Index. The Fund attempts to stay broadly diversified and sector neutral
relative to the S&P 500 Index, but it may emphasize certain industry sectors
based on economic and market conditions. The Fund intends to remain relatively
fully invested in stocks under all market conditions rather than attempt to time
the market by maintaining large cash or fixed income securities positions when
market declines are anticipated. The Fund usually will sell a stock when the
reason for holding it is no longer valid, it shows deteriorating fundamentals,
or it falls short of the Fund's expectations. Information on the Fund's recent
strategies and holdings can be found in the most recent annual report (see back
cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of investing in the Blue Chip Fund:
MARKET RISK: Because the Fund primarily invests in common stocks, it is subject
to market risk. Stock prices in general may decline over short or even extended
periods not only because of company-specific developments but also due to an
economic downturn, a change in interest rates or a change in investor sentiment,
regardless of the success or failure of an individual company's operations.
Stock markets tend to run in cycles with periods when prices generally go up,
known as "bull" markets, and periods when stock prices generally go down,
referred to as "bear" markets. While Blue Chip stocks have historically been the
least risky and most liquid stocks, like all stocks they fluctuate in value.
Fluctuations of Blue Chip stocks can be sudden and substantial. Accordingly, the
value of an investment in the Fund will go up and down, which means that you
could lose money.
OTHER RISKS: While the Fund generally attempts to remain sector neutral relative
to the S&P 500 Index, it is not an index fund. The Fund may hold securities
other than those in the S&P 500 Index, may hold fewer securities than the index,
and may have sector or industry allocations different from the index, each of
which could cause the Fund to underperform the index.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
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with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses by
investing up to 100% of its assets in short-term money market instruments. If
the Fund does so, it may not achieve its investment objective.
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CASH MANAGEMENT FUND
OVERVIEW
OBJECTIVE: The Fund seeks to earn a high rate of current income
consistent with the preservation of capital and maintenance of
liquidity.
PRIMARY
INVESTMENT
STRATEGIES: The Fund invests in high-quality money market instruments that
the Fund determines present minimal credit risk. These
instruments include prime commercial paper, variable and
floating rate corporate notes, and short term U.S. agency
obligations. The Fund's portfolio is managed to meet
regulatory requirements that permit the Fund to maintain a
stable net asset value ("NAV") of $1.00 per share. These
regulatory requirements include stringent credit quality
standards on investments, limits on the maturity of individual
investments and the dollar weighted average maturity of the
entire portfolio, and diversification requirements.
PRIMARY
RISKS: While money market funds are designed to be relatively low
risk investments, they are not entirely free of risk. Like all
money market funds, these are the risks of investing in the
Fund:
. The Fund's NAV could decline (below $1.00 per share) if
there is a default by an issuer of one of the Fund's
investments, a credit downgrade of one of the Fund's
investments, or an unexpected change in interest rates.
. The Fund's yield will change daily based upon changes in
interest rates and other market conditions.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND
SEEKS TO PRESERVE THE VALUE OF AN INVESTMENT AT $1.00 PER
SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.
How has the Cash Management Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Fund's shares from year to
year over the last ten years. The bar chart does not reflect fees and expenses
that may be deducted by the variable annuity contract or variable life insurance
policy through which you invest. If they were included, the returns would be
less than those shown.
8
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[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 2.00% (for the
quarter ended June 30, 1990), and the lowest quarterly return was 0.65% (for the
quarter ended June 30, 1993. THE FUND'S PAST PERFORMANCE DOES NOT NECESSARILY
INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows the average annual total returns for the Cash
Management Fund's shares.
1 Year* 5 Years* 10 Years*
Cash Management Fund 5.02% 4.88% 5.08%
* The annual returns are based upon calendar years.
THE FUND IN DETAIL
What are the Cash Management Fund's objective, principal investment
strategies, and risks?
OBJECTIVE: The Fund seeks to earn a high rate of current income consistent
with the preservation of capital and maintenance of liquidity.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests primarily in high-quality
money market instruments that are determined by the Fund's Adviser to present
minimal credit risk. Some common types of money market instruments are Treasury
bills and notes, which are securities issued by the U.S. government; commercial
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paper, which are promissory notes issued by large companies or financial firms;
banker's acceptances, which are credit instruments guaranteed by a bank;
negotiable certificates of deposit, which are issued by banks in large
denominations; and floating rate notes. The interest rate of a floating rate
instrument is generally based on a known lending rate, such as a bank's prime
rate, and is reset whenever the underlying rate is adjusted.
The Fund's portfolio is managed to meet regulatory requirements that permit the
Fund to maintain a stable NAV of $1.00 per share. These include requirements
relating to the credit quality, maturity, and diversification of the Fund's
investments. For example, to be an eligible investment for the Fund, a security
must have a remaining maturity of 397 calendar days or less. The security must
be rated in one of the two highest credit ratings categories for short-term
securities by at least two nationally recognized rating services organizations
(or by one, if only one rating service has rated the security), or if unrated,
be determined by the Fund's Adviser to be of quality equivalent to those in the
two highest credit ratings categories. The Fund must also maintain a
dollar-weighted average portfolio maturity of 90 days or less.
In buying and selling securities, the Fund will consider ratings assigned by
ratings services as well as its own credit analysis. The Fund considers, among
other things, the issuer's earnings and cash flow generating capabilities, the
security's yield and relative value, and the outlook for interest rates and the
economy. In the case of instruments with demand features or credit enhancements,
the Fund considers the financial strength of the party providing the demand
feature or credit enhancement, including any ratings assigned to such party.
Information on the Fund's recent holdings can be found in the most recent annual
report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of investing in the Cash Management Fund:
INTEREST RATE RISK: Like the values of other debt instruments, the market values
of money market instruments are affected by changes in interest rates. When
interest rates rise, the market values of money market instruments decline; when
interest rates decline, the market values of money market instruments increase.
The price volatility of money market instruments also depends on their
maturities and durations. Generally, the shorter the maturity and duration of a
money market instrument, the lesser its sensitivity to interest rates.
Interest rate risk also includes the risk that in a declining interest rate
environment the Fund will have to invest the proceeds of maturing investments in
lower-yielding investments. The yields received by the Fund on some of its
investments will also decline as interest rates decline. For example, the Fund
invests in floating rate bonds and notes. When interest rates decline, the
yields paid on these securities may decline.
CREDIT RISK: A money market instrument's credit quality depends upon the
issuer's ability to pay interest on the security and, ultimately, to repay the
principal. The lower the rating by one of the independent bond-rating agencies
(for example, Moody's Investors Service, Inc. or Standard & Poor's Ratings
Group), the greater the chance (in the rating agency's opinion) the security's
issuer will default, or fail to meet its repayment obligations. Direct U.S.
Treasury obligations (securities backed by the U.S. government) carry the
highest credit ratings. All things being equal, money market instruments with
greater credit risk offer higher yields.
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YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
11
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DISCOVERY FUND
OVERVIEW
OBJECTIVE: The Fund seeks long-term growth of capital, without regard to
dividend or interest income.
PRIMARY
INVESTMENT
STRATEGIES: The Fund primarily invests in common stocks of companies with
small market capitalizations ("small-cap stocks") which have the
potential for substantial long-term growth. The Fund looks for
companies that are in the early stages of their development, have
a new product or service, are in a position to benefit from some
change in the economy, have new management, or are experiencing
some other "special situation" which makes their stocks
undervalued. Because these companies tend to be smaller, their
growth potential is often greater.
PRIMARY
RISKS: While the potential long-term rewards of investing in small-cap
stocks are substantial, there are also substantial risks.
Small-cap stocks carry more risk because they are often in the
early stages of development, dependent on a small number of
products or services, lack substantial financial resources, and
have less predictable earnings. Small-cap stocks also tend to be
less liquid, and experience sharper price fluctuations than
stocks of companies with large capitalizations. These
fluctuations can be substantial. Accordingly, the value of an
investment in the Fund will go up and down, which means that you
could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
How has the Discovery Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Discovery Fund's shares
from year to year over the last ten years. The bar chart does not reflect fees
and expenses that may be deducted by the variable annuity contract or variable
life insurance policy through which you invest. If they were included, the
returns would be less than those shown.
12
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[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 26.55% (for the
quarter ended December 31,1998), and lowest quarterly return was -22.34% (for
the quarter ended September 30,1998). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for Discovery
Fund's shares compare to those of the Russell 2000 Index. The Russell 2000 Index
is an unmanaged index generally representative of the U.S. market for small-cap
stocks. The Russell 2000 Index does not take into account fees and expenses that
an investor would incur in holding the securities in the Russell 2000 Index. If
it did so, the returns would be lower than those shown.
1 Year* 5 Years* 10 Years*
Discovery Fund (4.17)% 8.98% 14.44%
Russell 2000 Index (2.24) 12.31 11.65
*The annual returns are based upon calendar years.
THE FUND IN DETAIL
What are the Discovery Fund's objective, principal investment strategies, and
risks?
OBJECTIVE: The Fund seeks long-term growth of capital, without regard to
dividend or interest income.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in common stocks of companies with small market capitalizations, which
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have the potential for substantial long-term growth. The Fund defines small-cap
stocks as those with market capitalizations of less than 90% of the weighted
market capitalization of the Standard & Poor's 600 Smallcap Index ("S&P 600
Index") (currently $1.8 billion). The weighted market capitalization of the S&P
600 Index will change with market conditions. The Fund looks for companies that
are in the early stages of their development, have a new product or service, are
in a position to benefit from some change in the economy, have new management,
or are experiencing some other "special situation" which makes their stocks
undervalued. Because these companies tend to be smaller, their growth potential
is often greater.
In selecting stocks, the Fund relies on fundamental research. It considers,
among other things, earnings growth potential, revenue growth potential, cash
flow and tangible book value. The Fund attempts to stay broadly diversified but
it may emphasize certain industry sectors based on economic and market
conditions. The Fund usually will sell a stock when it shows deteriorating
fundamentals or falls short of the portfolio manager's expectations. Information
on the Fund's recent strategies and holdings can be found in the most recent
annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of investing in the Discovery Fund:
MARKET RISK. Because this Fund invests in stocks, an investment in the Fund is
subject to stock market risk. Stock prices in general may decline over short or
even extended periods not only because of company-specific developments but also
due to an economic downturn, a change in interest rates, or a change in investor
sentiment, regardless of the success or failure of an individual company's
operations. Stock markets tend to run in cycles with periods when prices
generally go up, known as "bull" markets and periods when stock prices generally
go down, referred to as "bear" markets. The market risk associated with
small-cap stocks is greater than that associated with larger-cap stocks because
small-cap stocks tend to experience sharper price fluctuations than larger-cap
stocks, particularly during bear markets.
Small-cap companies are generally dependent on a small number of products or
services, their earnings are less predictable, and their share prices more
volatile. These companies are also more likely to have limited markets or
financial resources, and may depend on a small, inexperienced management group.
LIQUIDITY: Stocks of small-cap companies often are not as broadly traded as
those of larger-cap companies and are often subject to wider price fluctuations.
As a result, at times it may be difficult for the Fund to sell these securities
at a reasonable price.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
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ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then temporarily may use
alternative strategies that are mainly designed to limit the Fund's losses by
investing up to 100% of its assets in short-term money market instruments. If
the Fund does so, it may not achieve its investment objective.
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GOVERNMENT FUND
OVERVIEW
OBJECTIVE: The Fund seeks to achieve a significant level of current income
which is consistent with security and liquidity of principal.
PRIMARY
INVESTMENT
STRATEGIES: The Fund primarily invests in obligations issued or guaranteed as
to payment of principal and interest by the U.S. Government, its
agencies or instrumentalities. The majority of the Fund's
investments consist of mortgage-backed securities issued or
guaranteed by the Government National Mortgage Association,
Federal National Mortgage Association, and Federal Home Loan
Mortgage Corporation. Mortgage-backed securities represent
interests in "pools" of mortgage loans. Because the
mortgage-backed securities purchased by the Fund are generally
guaranteed as to the timely payment of principal and interest to
investors in the pools, the Fund's primary strategies revolve
around managing interest rate risk, prepayment risk, and
extension risk. The Fund attempts to manage these risks by
adjusting the duration of its portfolio and the average coupon
rate of its mortgage-backed securities holdings.
PRIMARY
RISKS: While mortgage-backed securities are guaranteed in varying
degrees as to payment of principal and interest, this guarantee
does not apply in any way to the market prices of these
securities or the Fund's share price, both of which will
fluctuate. There are three main risks of investing in the Fund:
interest rate risk, prepayment risk, and extension risk. When
interest rates rise, the mortgage-backed securities held by the
Fund tend to decline in price, and when interest rates fall, they
tend to increase in price. This is interest rate risk. When
interest rates fall, homeowners also tend to refinance their
mortgages. When this occurs, the Fund loses the benefit of higher
yielding mortgages and must reinvest in lower interest rate
mortgages. This is prepayment risk. Extension risk is the flip
side of prepayment risk. Rising interest rates can cause the
Fund's average maturity to lengthen unexpectedly due to a drop in
mortgage prepayments. This will increase both the Fund's
sensitivity to rising interest rates and its potential for price
declines. The Fund may, at times, engage in short-term trading,
which could produce higher brokerage costs and taxable
distributions and may result in a lower total return for the
Fund. Accordingly, the value of an investment in the Fund as well
as the dividends you receive will go up and down, which means
that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
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How has the Government Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Government Fund's shares
from year to year over the life of the Fund. The bar chart does not reflect fees
and expenses that may be deducted by the variable annuity contract or variable
life insurance policy through which you invest. If they were included, the
returns would be less than those shown.
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 6.05% (for the
quarter ended September 30,1992), and the lowest quarterly return was -3.21%
(for the quarter ended March 31,1994). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for Government
Fund's shares compare to those of the Salomon Brothers Mortgage Index ("Mortgage
Index") and the Salomon Brothers Government Index ("Government Index"). The
Mortgage Index is a market capitalization-weighted index that consists of all
agency pass-throughs and Federal Housing Administration ("FHA") and Government
National Mortgage Association project notes. The Government Index is a market
capitalization-weighted index that consists of debt issued by the U.S. Treasury
and U.S. Government sponsored agencies. The indices do not take into account
fees and expenses that an investor would incur in holding the securities in the
indices. If they did so, the returns would be lower than those shown.
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Inception
1 Year* 5 Years* (1/7/92)
Government Fund (0.01)% 4.53% 5.54%
Mortgage Index 6.98 7.27 7.39**
Government Index 9.84 7.24 7.98**
*The annual returns are based upon calendar years.
**The average annual total return shown is for the period 12/31/91 to 12/31/98.
THE FUND IN DETAIL
What are the Government Fund's objective, principal investment strategies,and
risks?
OBJECTIVE: The Fund seeks to achieve a significant level of current income which
is consistent with security and liquidity of principal.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in obligations issued or guaranteed as to payment of principal and
interest by the U.S. Government, its agencies or instrumentalities. The majority
of the Fund's investments consist of mortgage-backed securities. Mortgage-backed
securities represent interests in pools of mortgages. The principal and interest
from the underlying mortgages are passed through to investors in the pools. Some
pools are supported by the full faith and credit of the U.S. government, such as
Government National Mortgage Association pass-through mortgage certificates
(called "Ginnie Maes"). Some pools are supported by the right of the issuer to
borrow from the U.S. Treasury under certain circumstances, such as Federal
National Mortgage Association bonds (called "Fannie Maes"). Other pools are
supported only by the credit of the entity that issued them, such as Federal
Home Loan Mortgage Corporation obligations (called "Freddie Macs"). The Fund
also invests in U.S. Treasury securities and securities issued by U.S. agencies,
such as the Tennessee Valley Authority.
The Fund's primary investment strategies revolve around managing interest rate
risk, prepayment risk, and extension risk. Interest rate risk is managed by
adjusting the duration of the securities owned by the Fund. Duration is a
measurement of a bond's sensitivity to changes in interest rates that takes into
consideration not only the maturity of the bond but also the time value of money
that will be received from the bond over its life. The Fund will generally
adjust duration by buying or selling U.S. Treasury securities. For example, if
the Fund believes that interest rates are likely to rise, it will generally
attempt to reduce its duration by purchasing U.S. Treasury securities with
shorter maturities or selling U.S. Treasury securities with longer maturities.
Prepayment risk and extension risk are managed by adjusting the composition of
the Fund's holdings. For example, if interest rates appear likely to decline,
the Fund may attempt to reduce prepayment risk by buying new mortgage-backed
securities with lower coupons. Conversely, if interest rates appear likely to
increase, the Fund may reduce extension risk by purchasing mortgage-backed
securities with higher coupons.
The Fund uses a "top-down" approach in making investment decisions based on
interest rate, economic and market conditions. In selecting investments, the
Fund considers coupon and yield, relative value and weighted average maturity of
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the pool. The Fund will usually sell an investment when there are changes in the
interest rate environment that are adverse to the investment or if it fails to
meet the expectations of the portfolio manager. Information on the Fund's recent
strategies and holdings can be found in the most recent annual report (see back
cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of investing in the Government Fund:
INTEREST RATE RISK: All of the securities held by the Fund are subject to
interest rate risk. In general, the market prices of bonds rise when interest
rates fall, and fall when interest rates rise. Short-term interest rates and
long-term interest rates do not necessarily move in the same direction or in the
same amounts. Bonds with longer maturities tend to be more sensitive to interest
rate changes than those with shorter maturities.
PREPAYMENT RISK: Because the Fund invests primarily in mortgage-backed
securities, it is subject to prepayment risk. When interest rates decline,
homeowners tend to refinance their mortgages. When this occurs, investors in
pools suffer a higher rate of prepayment. As a result, investors in pools not
only lose the benefit of the higher yielding underlying mortgages that are being
prepaid but they must reinvest the proceeds at lower interest rates. This could
cause a decrease in the Fund's income and share price.
EXTENSION RISK: Extension risk is the flip side of prepayment risk. Rising
interest rates can cause the Fund's average maturity to lengthen unexpectedly
due to a drop in mortgage prepayments. This will increase both the Fund's
sensitivity to rising interest rates and its potential for price declines.
CREDIT RISK: This is the risk that an issuer of bonds will be unable to pay
interest or principal when due. There is some credit risk associated with the
Funds investments; however, it is perceived to be minimal. Most of the
securities owned by the Fund are backed by the full faith and credit of the U.S.
Government, the ability to borrow from the U.S. Treasury, or the perceived moral
obligation of the U.S. Government.
FREQUENT TRADING: The Fund may, at times, engage in short-term trading, which
could produce higher brokerage costs and taxable distributions and may result in
a lower total return for the Fund.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
19
<PAGE>
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
20
<PAGE>
GROWTH FUND
OVERVIEW
OBJECTIVE: The Fund seeks long-term capital appreciation.
PRIMARY
INVESTMENT
STRATEGIES: Under normal circumstances, the Fund will remain fully
invested in equity securities, with most of its holdings in
U.S. common stocks. The Fund seeks to invest in seasoned
companies with proven track records and above-average earnings
growth. The Fund invests predominantly in larger companies,
but will also attempt to enhance its return by investing in
mid-sized and smaller companies that the Fund's investment
subadviser believes have attractive growth potential.
PRIMARY
RISKS: Like all stocks, growth stocks fluctuate in price in response
to movements in the overall securities markets, general
economic conditions, changes in interest rates,
company-specific developments and other factors. Mid-cap
stocks tend to experience sharper price fluctuations than
stocks of large-cap companies. To the extent that the Fund
decides to invest in small-cap companies, the risk of price
fluctuations is even greater. Fluctuations in the prices of
the stocks held by the Fund at times can be substantial.
Accordingly, the value of an investment in the Fund will go up
and down, which means that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
How has the Growth Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Growth Fund's shares for
each of the last ten calendar years. The bar chart does not reflect fees and
expenses that may be deducted by the variable annuity contract or variable life
insurance policy through which you invest. If they were included, the returns
would be less than those shown.
21
<PAGE>
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 23.98% (for the
quarter ended December 31, 1998), and the lowest quarterly return was -15.45%
(for the quarter ended September 30, 1990). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for the Fund's
shares compare to those of the S&P 500 Index. The S&P 500 Index is an unmanaged
index generally representative of the market for the stocks of large-sized U.S.
companies. The S&P 500 Index does not take into account fees and expenses that
an investor would incur in holding the securities in the S&P 500 Index. If it
did so, the returns would be lower than those shown.
1 Year* 5 Years* 10 Years*
Growth Fund 18.44% 18.29% 15.88%
S&P 500 Index 28.34 24.55 18.95
*The annual returns are based upon calendar years.
THE FUND IN DETAIL
What are the Growth Fund's objectives, principal investment strategies,
and risks?
OBJECTIVE: The Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES: Under normal circumstances, the Fund will
remain fully invested in equity securities, with most of its holdings in U.S.
22
<PAGE>
common stocks. The Fund will also invest in foreign companies whose stocks are
denominated in U.S. dollars and listed and traded on a U.S. securities exchange,
either directly or through Depository Receipts. The Fund favors stocks of
seasoned companies with proven records and above-average earnings growth, and
stocks of companies with outstanding growth records and potential. The Fund
invests predominantly in larger companies, but will also attempt to enhance its
return by investing in mid-sized and smaller companies that the investment
subadviser believes have attractive growth potential. The Fund will typically
invest in most major sectors of the economy and therefore the Fund's investments
will be widely diversified by company and industry. The Fund may invest up to
25% of its assets in certain industry sectors based on economic and market
conditions.
The Fund uses fundamental research and analysis to identify prospective
investments. The Fund looks to identify industry leaders and those companies
which are leaders in industry niches. Research is focused on companies with a
proven record of sales and earnings growth, profitability, and cash flow
generation. Security selection is based on any one or more of the following
characteristics: (1) accelerating earnings growth and the possibility of
positive earnings surprises; (2) strong possibility of price to earnings
multiple expansion (or increases in other similar valuation measures); (3)
hidden or unappreciated value; or (4) improving company and/or industry outlook.
Every company in the portfolio is monitored to ensure its fundamental
attractiveness. A stock may be sold if (1) its downside risk equals or exceeds
its upside potential; (2) it suffers from a decreasing trend of earnings growth
or suffers an earnings disappointment; (3) it experiences excessive valuations;
or (4) there is a deteriorating company and/or industry outlook.
Information on the Fund's recent strategies and holdings can be found in the
most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of investing in the Growth Fund:
MARKET RISK: Because the Fund invests in stocks, an investment in the Fund is
subject to stock market risk. Stock prices in general may decline over short or
even extended periods not only because of company-specific developments but also
due to an economic downturn, a change in interest rates, or a change in investor
sentiment, regardless of the success or failure of an individual company's
operations. Stock markets tend to run in cycles with periods when prices
generally go up, known as "bull" markets and periods when stock prices generally
go down, referred to as "bear" markets.
The market risk associated with mid-cap and small-cap stocks is generally
greater than that associated with large-cap stocks because mid-cap and small-cap
stocks tend to experience sharper price fluctuations than large-cap stocks,
particularly during bear markets. Their earnings tend to be less predictable
than those of larger, more established companies. The prices of these stocks can
also be influenced by the anticipation of future products and services which, if
delayed, could cause the prices to drop. Fluctuation in prices of stocks can be
sudden and substantial. Accordingly, the value of your investment in the Fund
will go up and down, which means that you could lose money.
23
<PAGE>
LIQUIDITY RISK: The risk that certain securities may be difficult or impossible
to sell at the same time and the price that the seller would like. Stocks of
small-cap companies often are not as broadly traded as those of larger-cap
companies and are often subject to wider price fluctuations. As a result, at
times it may be difficult for the Fund to sell these securities at a reasonable
price.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund's investment subadviser may judge that
market, economic or political conditions make pursuing the Fund's investment
strategies inconsistent with the best interests of its shareholders. The Fund
then may temporarily use alternative strategies that are mainly designed to
limit the Fund's losses by investing up to 100% of its assets in short-term
money market instruments. If the Fund does so, it may not achieve its investment
objective.
24
<PAGE>
HIGH YIELD FUND
OVERVIEW
OBJECTIVES: The Fund primarily seeks high current income and secondarily
seeks capital appreciation.
PRIMARY
INVESTMENT
STRATEGIES: The Fund primarily invests in a diversified portfolio of
high-yield, below-investment grade corporate bonds (commonly
known as "junk bonds"). These bonds provide a higher level of
income than investment grade bonds because they have a higher
risk of default. The Fund seeks to reduce the risk of a
default by selecting bonds through careful credit research and
analysis. The Fund seeks to reduce the impact of a potential
default by diversifying its investments among bonds of many
different companies and industries. While the Fund invests
primarily in domestic companies, it also invests in securities
of issuers domiciled in foreign countries. These securities
will generally be dollar-denominated and traded in the U.S.
The Fund seeks to achieve capital appreciation by investing in
high-yield bonds with stable to improving credit conditions.
PRIMARY
RISKS: There are four primary risks of investing in the Fund. First,
the value of the Fund's shares could decline as a result of a
deterioration of the financial condition of an issuer of bonds
owned by the Fund or as a result of a default by the issuer.
This is known as credit risk. High-yield bonds carry higher
credit risks than investment grade bonds because the companies
that issue them are not as strong financially as companies
with investment grade credit ratings. High-yield bonds issued
by foreign companies are subject to additional risks including
political instability, government regulation, and differences
in financial reporting standards. Second, the value of the
Fund's shares could decline if the entire high-yield bond
market were to decline, even if none of the Fund's bond
holdings were at risk of a default. The high-yield market can
experience sharp declines at times as the result of a
deterioration in the overall economy, declines in the stock
market, a change of investor tolerance for risk, or other
factors. Third, high-yield bonds tend to be less liquid than
other bonds, which means that they are more difficult to sell.
Fourth, while high-yield bonds are generally less interest
rate sensitive than higher-quality bonds, their values
generally will decline when interest rates rise. Fluctuations
in the prices of high-yield bonds can be substantial.
Accordingly, the value of an investment in the Fund will go up
and down, which means that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
25
<PAGE>
How has the High Yield Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the High Yield Fund's shares
for each of the last ten calendar years. The bar chart does not reflect fees and
expenses that may be deducted by the variable annuity contract or variable life
insurance policy through which you invest. If they were included, the returns
would be less than those shown.
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 11.16% (for the
quarter ended March 31, 1991), and the lowest quarterly return was -8.11% (for
the quarter ended September 30, 1990). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for the High
Yield Fund's shares compare to those of the Credit Suisse First Boston High
Yield Index ("High Yield Index"). The High Yield Index is designed to measure
the performance of the high yield bond market. The High Yield Index does not
take into account fees and expenses that an investor would incur in holding the
securities in the Index. If it did so, the returns would be lower than those
shown.
1 Year* 5 Years* 10 Years*
High Yield Fund (4.10)% 7.45% 8.90%
High Yield Index 0.58 8.16 10.74
*The annual returns are based upon calendar years.
26
<PAGE>
THE FUND IN DETAIL
What are the High Yield Fund's objectives, principal investment strategies, and
risks?
OBJECTIVES: The Fund primarily seeks high current income and secondarily seeks
capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in a diversified portfolio of high-yield, below-investment grade
corporate bonds commonly known as "junk bonds" (those rated below Baa by Moody's
Investors Service, Inc. or below BBB by Standard & Poor's Ratings Group).
High-yield bonds generally provide higher income than investment grade bonds to
compensate investors for their higher risk of default (i.e., failure to make
required interest or principal payments). High-yield bond issuers include small
or relatively new companies lacking the history or capital to merit investment
grade status, former Blue Chip companies downgraded because of financial
problems, companies using debt rather than equity to fund capital investment or
spending programs, companies electing to borrow heavily to finance or avoid a
takeover or buyout, and firms with heavy debt loads. The Fund's portfolio may
include zero coupon bonds and pay in kind bonds. While the Fund invests
primarily in domestic companies, it also invests in securities of issuers
domiciled in foreign countries. These securities will generally be
dollar-denominated and traded in the U.S. The Fund seeks to reduce the risk of a
default by selecting bonds through careful credit research and analysis. The
Fund seeks to reduce the impact of a potential default by diversifying its
investments among bonds of many different companies and industries.
To achieve its secondary objective of capital appreciation, the Fund attempts to
invest in bonds that have stable to improving credit quality that could
appreciate in value because of a credit rating upgrade or an improvement in the
outlook for a particular company, industry or the economy as a whole.
Although the Fund will consider ratings assigned by ratings agencies in
selecting high-yield bonds, it relies principally on its own research and
investment analysis. The Fund considers a variety of factors, including the
issuer's managerial strength, anticipated cash flow, debt maturity schedules,
borrowing requirements, interest or dividend coverage, asset coverage and
earnings prospects. The Fund will usually sell a bond when it shows
deteriorating fundamentals or falls short of the portfolio manager's
expectations. Information on the Fund's recent strategies and holdings can be
found in the most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of the investment, the greater the risk. Here
are the principal risks of investing in the High Yield Fund:
CREDIT RISK: This is the risk that an issuer of bonds will be unable to pay
interest or principal when due. The prices of bonds are affected by the credit
quality of the issuer. High-yield bonds are subject to greater credit risk than
higher quality bonds because the companies that issue them are not as
financially strong as companies with investment grade ratings. Changes in the
financial condition of an issuer, changes in general economic conditions, and
changes in specific economic conditions that affect a particular type of issuer
27
<PAGE>
can impact the credit quality of an issuer. Such changes may weaken an issuer's
ability to make payments of principal or interest, or cause an issuer of bonds
to fail to make timely payments of interest or principal. Lower quality bonds
generally tend to be more sensitive to these changes than higher quality bonds.
While credit ratings may be available to assist in evaluating an issuer's credit
quality, they may not accurately predict an issuer's ability to make timely
payments of principal and interest.
MARKET RISK: The entire junk bond market can experience sharp price swings due
to a variety of factors, including changes in economic forecasts, stock market
volatility, large sustained sales of junk bonds by major investors, high-profile
defaults, or changes in the market's psychology. This degree of volatility in
the high-yield market is usually associated more with stocks than bonds. The
prices of high-yield bonds held by the Fund could therefore decline, regardless
of the financial condition of the issuers of such bonds. Markets tend to run in
cycles with periods when prices generally go up, known as "bull" markets, and
periods when prices generally go down, referred to as "bear" markets.
LIQUIDITY: High-yield bonds tend to be less liquid than higher quality bonds,
meaning that it may be difficult to sell high-yield bonds at a reasonable price,
particularly if there is a deterioration in the economy or in the financial
prospects of their issuers. As a result, the prices of high-yield bonds may be
subject to wide price fluctuations due to liquidity concerns.
INTEREST RATE RISK: The market value of a bond is affected by changes in
interest rates. When interest rates rise, the market value of a bond declines;
when interest rates decline, the market value of a bond increases. The price
volatility of a bond also depends on its maturity and duration. Generally, the
longer the maturity and duration of a bond, the greater its sensitivity to
interest rates. To compensate investors for this higher risk, bonds with longer
maturities and durations generally offer higher yields than bonds with shorter
maturities and durations.
FOREIGN ISSUERS: Foreign investments involve additional risks, including
political instability, government regulation, differences in financial reporting
standards, and less stringent regulation of foreign securities markets.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
28
<PAGE>
INTERNATIONAL SECURITIES FUND
OVERVIEW
OBJECTIVES: The Fund primarily seeks long-term capital growth and
secondarily a reasonable level of current income.
PRIMARY
INVESTMENT
STRATEGIES: The Fund invests in a diversified portfolio of common stocks
(and other equity securities) of companies which are located
throughout the world, including the United States. The Fund
primarily invests in large or medium capitalization stocks
which are traded in larger or more established markets
throughout the world. The Fund also invests opportunistically
in small capitalization stocks and stocks of smaller,
less-developed or emerging markets. The Fund generally does not
attempt to hedge its foreign securities investments against
currency rate fluctuations. To a limited extent, the Fund uses
stock index futures contracts and options thereon as temporary
substitutes for purchases of foreign stocks and to adjust
country weightings.
PRIMARY
RISKS: All stocks fluctuate in price in response to movements in the
overall securities markets, general economic conditions, and
changes in interest rates or investor sentiment. The risks of
investing in a stock fund that invests in foreign stocks are
accentuated because investments in foreign stocks, particularly
emerging markets, can decline in value because of declines in
the values of local currencies, irrespective of how well the
companies that issue such stocks are doing; there is less
supervision and regulation of foreign securities markets;
foreign securities markets are generally less liquid than U.S.
markets; there may be less financial information available on
certain foreign companies; and there may be political
instability in some countries in which the Fund may invest.
Fluctuations in the prices of foreign stocks can be especially
sudden and substantial. Stocks with smaller market
capitalizations tend to experience sharper price fluctuations.
Using stock index futures and options thereon as temporary
substitutes for foreign stocks carries the same risks as direct
ownership of all of the stocks in the index. Accordingly, the
value of an investment in the Fund will go up and down, which
means that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
How has the International Securities Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
29
<PAGE>
The bar chart shows changes in the performance of the International Securities
Fund's shares from year to year over the life of the Fund. The bar chart does
not reflect fees and expenses that may be deducted by the variable annuity
contract or variable life insurance policy through which you invest. If they
were included, the returns would be less than those shown.
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 18.22% (for the
quarter ended December 31, 1998), and the lowest quarterly return was -14.92%
(for the quarter ended September 30, 1998). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for the
International Securities Fund's shares compare to those of the Morgan Stanley
All Country World Free Index ("All Country Index"). The All Country Index is
designed to measure the performance of stock markets in the United States,
Europe, Canada, Australia, New Zealand and the developed and emerging markets of
Eastern Europe, Latin America, Asia and the Far East. The index consists of
approximately 60% of the aggregate market value of the covered stock exchanges
and is calculated to exclude companies and share classes which cannot be freely
purchased by foreigners. The All Country Index does not take into account fees
and expenses that an investor would incur in holding the securities in the
index. If it did so, the returns would be lower than those shown.
Inception
1 Year* 5 Years* (4/16/90)
International Securities
Fund 9.92% 10.12% 10.23%
All Country Index 21.96 7.13 12.62**
*The annual returns are based upon calendar years.
**The average annual total return shown is for the period 4/30/90 to 12/31/98.
30
<PAGE>
THE FUND IN DETAIL
What are the International Securities Fund's objectives, principal investment
strategies, and risks?
OBJECTIVES: The Fund primarily seeks long-term capital growth and secondarily a
reasonable level of current income.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests in a diversified portfolio of
common stocks of companies which are located throughout the world, including the
United States ("U.S.") Under normal market conditions, the Fund attempts to
maintain broad country diversification. The Fund has a fundamental policy (which
may only be changed by shareholder vote) to invest no more than 35% of its total
assets in securities of U.S. companies, obligations of the U.S. government, its
agencies and instrumentalities, and cash or cash equivalents denominated in U.S.
dollars. The foreign stocks that the Fund purchases are typically denominated in
foreign currencies. The Fund generally does not hedge against fluctuations in
the value of foreign currencies.
The Fund invests primarily in stocks of companies which are considered large to
medium in size (as measured by market capitalization). The Fund may also invest
in smaller companies when management views them as attractive alternatives to
the stocks of larger or more established companies. The Fund will make direct
investments in foreign issuers by purchasing securities traded in a foreign
market, as well as indirect investments through purchases of Depositary
Receipts, such as American Depository Receipts and Global Depository Receipts.
The Fund invests primarily in stocks which trade in larger or more established
markets, but also may invest (to a lesser degree) in smaller, less-developed or
emerging markets where management believes there is significant opportunity for
growth of capital. The status of markets as less-developed or emerging may
change over time as a result of developments in national or regional economies
and capital markets. Within emerging markets, the Fund seeks to participate in
the more established markets which management believes provide sufficient
liquidity.
The Fund also uses stock index futures contracts and options thereon as
temporary substitutes for purchases of foreign stocks. This practice can afford
a hedge against not participating in an advance in a country at a time when the
Fund is not fully invested in the country. Stock index futures contracts and
options thereon are also used to maintain desired country exposures. The Fund
will not invest more than 5% of its assets in stock index futures or options
thereon.
The Fund uses fundamental research and analysis to identify prospective
investments. Security selection is based on any one or more of the following
characteristics: (1) accelerating earnings growth or the possibility of positive
earnings surprises; (2) strong possibility of price-to-earnings multiple
expansion (or increases in other similar valuation measures); (3) hidden or
unappreciated value; or (4) improving local market and/or industry outlook.
31
<PAGE>
Once the best purchase candidates for the Fund are identified, the portfolio
construction process begins. In this phase, many factors are considered in
creating a total portfolio of securities for the Fund, including: (1) regional
and country weightings; (2) currency exposure; (3) industry and sector
allocation; and (4) exposure to a number of other factors, such as interest
rates or company size.
Every company in the portfolio is monitored to ensure its fundamental
attractiveness. A stock may be sold if: (1) its downside risk equals or exceeds
its upside potential; (2) it suffers from a decreasing trend of earnings growth
or suffers an earnings disappointment; (3) it experiences excessive valuations;
or (4) there is a deteriorating local market and/or industry outlook.
Information on the Fund's recent strategies and holdings can be found in the
most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of investing in the International Securities Fund:
MARKET RISK: Because the Fund primarily invests in common stocks, it is subject
to market risk. Stock prices in general may decline over short or even extended
periods not only because of company-specific developments but also due to an
economic downturn, a change in interest rates, or a change in investor
sentiment, regardless of the success or failure of an individual company's
operations. Stock markets tend to run in cycles, with periods when prices
generally go up, known as "bull" markets, and periods when stock prices
generally go down, referred to as "bear" markets.
While the Fund's strategy of being globally diversified may help to reduce the
volatility or variability of the Fund's returns relative to another global fund
which invests in fewer stocks or whose investments are focused in fewer
countries or industry sectors, this strategy may not prevent a loss if stock
markets worldwide were to decline at the same time. Fluctuations of stock prices
can be sudden and substantial. Accordingly, the value of an investment in the
Fund will go up and down, which means that you could lose money.
FOREIGN SECURITIES RISK: Investments in foreign markets involve special risks
and considerations. Some of these factors are also present when investing in the
United States but are heightened issues when investing in non-U.S. markets and
especially emerging markets. For example, such risks and considerations may
include political and economic instability, nationalization, confiscatory
taxation, differing accounting and financial reporting standards, the inability
to obtain reliable financial information regarding a company's balance sheet and
operations. Risks such as these are common to all investments but are
exacerbated when investing in international markets. In addition, international
investors may experience higher commission rates on foreign portfolio
transactions, potential adverse changes in tax and exchange control regulations,
and the potential for restrictions on the flow of international capital. Many
foreign countries impose withholding taxes on income from investments in such
countries, which a portfolio may not recover. Also, fluctuations in the exchange
rates between the US dollar and foreign currencies may have a negative impact on
investments denominated in foreign currencies, for example, by eroding or
reversing gains or widening losses from those investments. These risks are
common to all mutual funds investing in international securities. Using stock
32
<PAGE>
index futures and options thereon as temporary substitutes for foreign stocks
carries the same risks as direct ownership of all of the stocks in the index.
LIQUIDITY RISK: Liquidity risk is the risk that certain securities may be
difficult or impossible to sell at the time and the price that the seller would
like. In such a situation, the seller may have to lower the price, sell other
securities instead, or forego an investment opportunity, any of which could have
a negative effect on fund management or performance.
SMALL-CAP RISK: The market risk associated with small-to mid-cap stocks is
greater than that associated with larger-cap stocks because small-to mid-cap
stocks tend to experience sharper price fluctuations than larger-cap stocks,
particularly during bear markets. Small-to mid-cap companies are generally
dependent on a smaller number of products or services, their earnings are less
predictable, and their share prices more volatile. These companies are also more
likely to have limited markets or financial resources, or to depend on a small,
inexperienced management group.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
be particularly acute in the case of the Fund's holdings in foreign securities
since foreign issuers and foreign markets may be more likely to experience Year
2000 problems. These problems could have a negative effect on the Fund's
investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund's investment subadviser may judge that
market, economic or political conditions make pursuing the Fund's investment
strategies inconsistent with the best interests of its shareholders. The Fund
then may temporarily use alternative strategies that are mainly designed to
limit the Fund's losses by investing up to 100% of its assets in short-term
money market instruments. If the Fund does so, it may not achieve its investment
objective.
33
<PAGE>
INVESTMENT GRADE FUND
OVERVIEW
OBJECTIVE: The Fund seeks to generate a maximum level of income
consistent with investment in investment grade debt
securities.
PRIMARY
INVESTMENT
STRATEGIES: The Fund primarily invests in corporate bonds of U.S.
companies that are rated in one of the four highest ratings
categories by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Ratings Group ("S&P"). Such bonds are
generally called "investment grade bonds." Investment grade
bonds offer higher yields than Treasury securities of
comparable maturities to compensate investors for the risk of
default. The Fund selects bonds primarily on the basis of its
own research and investment analysis. The Fund also takes
economic and interest rate outlooks into consideration when
selecting investments.
PRIMARY
RISKS: There are two main risks of investing in the Fund: credit risk
and interest rate risk. The Fund's share price will decline if
one or more of its bond holdings is downgraded in rating, or
one or more issuers suffers a default, or there is a concern
about credit downgrades or defaults in general as a result of
a deterioration in the economy as a whole. Also the Fund's
share price will decline as interest rates rise. Like all
bonds, investment grade bonds tend to rise in price when
interest rates decline, and decline in price when interest
rates rise. Accordingly, the value of an investment in the
Fund will go up and down, which means that you could lose
money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
How has the Investment Grade Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Investment Grade Fund's
shares from year to year over the life of the Fund. The bar chart does not
reflect fees and expenses that may be deducted by the variable annuity contract
or variable life insurance policy through which you invest. If they were
included, the returns would be less than those shown.
34
<PAGE>
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 6.50% (for the
quarter ended June 30, 1995), and the lowest quarterly return was -3.57% (for
the quarter ended March 31, 1994). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for the
Investment Grade Fund's shares compare to those of the Lehman Brothers Corporate
Bond Index ("Corporate Bond Index"). The Corporate Bond Index includes all
publicly issued, fixed rate, nonconvertible investment grade dollar-denominated,
corporate debt which have at least one year to maturity and an outstanding par
value of at least $100 million. The Corporate Bond Index does not take into
account fees and expenses that an investor would incur in holding the securities
in the Corporate Bond Index. If it did so, the returns would be lower than those
shown.
Inception
1 Year* 5 Years* (1/7/92)
Investment Grade Fund 1.50% 5.78% 6.92%
Corporate Bond Index 8.57 7.74 8.51**
*The annual returns are based upon calendar years.
**The average annual total return shown is for the period 12/31/91 to 12/31/98.
35
<PAGE>
THE FUND IN DETAIL
What are the Investment Grade Fund's objective, principal investment
strategies, and risks?
OBJECTIVE: The Fund seeks to generate a maximum level of income consistent with
investment in investment grade debt securities.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in corporate bonds of companies that are rated investment grade by
Moody's or S&P ("investment grade bonds"). These are bonds that are rated among
the four highest ratings categories by Moody's or S&P. Investment grade bonds
generally offer higher yields than Treasury securities of comparable maturities
to compensate investors for the risk of default.
Although the Fund may diversify among the four investment grade ratings, it may
emphasize bonds with higher ratings at times when the economy appears to be
weakening and bonds with lower ratings when the economy appears to be improving.
The Fund adjusts the average weighted maturity of the bonds in its portfolio
based on its interest rate outlook. If it believes that interest rates are
likely to fall, it will attempt to buy bonds with longer maturities or sell
bonds with shorter maturities. By contrast, if it believes interest rates are
likely to rise, it will attempt to buy bonds with shorter maturities or sell
bonds with longer maturities. The Fund also attempts to stay broadly
diversified, but it may emphasize certain industries within a sector based on
the outlook for interest rates, economic forecasts, and market conditions. The
Fund may buy or sell Treasury securities instead of investment grade corporate
bonds to adjust the Fund's average weighted maturity.
Although the Fund will consider ratings assigned by ratings services in
selecting investments, it relies principally on its own research and investment
analysis. The Fund considers, among other things, the issuer's earnings and cash
flow generating capabilities, asset quality, debt levels, and management
strength. The Fund will not necessarily sell an investment if its rating is
reduced. The Fund usually will sell a bond when it shows deteriorating
fundamentals or falls short of the portfolio manager's expectations. Information
on the Fund's recent strategies and holdings can be found in the most recent
annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of investing in the Investment Grade Fund:
CREDIT RISK: This is the risk that an issuer of bonds will be unable to pay
interest or principal when due. The prices of bonds are affected by the credit
quality of the issuer. Changes in the financial condition of an issuer, changes
in general economic conditions, and changes in specific economic conditions that
affect a particular type of issuer can impact the credit quality of an issuer.
Such changes may weaken an issuer's ability to make payments of principal or
interest, or cause an issuer of bonds to fail to make timely payments of
interest or principal. Lower quality bonds generally tend to be more sensitive
to these changes than higher quality bonds, but BBB-rated bonds may have
speculative characteristics as well. While credit ratings may be available to
assist in evaluating an issuer's credit quality, they may not accurately predict
an issuer's ability to make timely payment of principal and interest.
36
<PAGE>
INTEREST RATE RISK: The market value of a bond is affected by changes in
interest rates. When interest rates rise, the market value of a bond declines,
when interest rates decline, the market value of a bond increases. The price
volatility of a bond also depends on its maturity and duration. Generally, the
longer the maturity and duration of a bond, the greater its sensitivity to
interest rates. To compensate investors for this higher risk, bonds with longer
maturities and durations generally offer higher yields than bonds with shorter
maturities and durations.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
37
<PAGE>
TARGET MATURITY 2007 FUND
OVERVIEW
OBJECTIVE: The Fund seeks a predictable compounded investment return for
investments held until the Fund's maturity, consistent with
preservation of capital.
PRIMARY
INVESTMENT
STRATEGIES: The Fund primarily invests in non-callable zero coupon bonds
issued or guaranteed by the U.S. government, its agencies or
instrumentalities, that mature on or around the maturity date
of the Fund. The Fund will mature and terminate at the end of
the year 2007. The Fund generally follows a buy and hold
strategy, but may sell an investment when the Fund identifies
an opportunity to increase its yield or it needs cash to meet
redemptions.
PRIMARY
RISKS: If an investment in the Fund is sold prior to the Fund's
maturity, there is substantial interest rate risk. Like other
bonds, zero coupon bonds are sensitive to changes in interest
rates. When interest rates rise, they tend to decline in
price, and when interest rates fall, they tend to increase in
price. Zero coupon bonds are more interest rate sensitive than
other bonds because zero coupon bonds pay no interest to their
holders until their maturities. This means that the market
prices of zero coupon bonds will fluctuate far more than those
of bonds that pay interest periodically. Accordingly, the
value of an investment in the Fund will go up and down, which
means that you could lose money if you liquidate your
investment in the Fund prior to the Fund's maturity.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
How has the Target Maturity 2007 Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Fund's shares from year to
year over the life of the Fund. The bar chart does not reflect fees and expenses
that may be deducted by the variable annuity contract or variable life insurance
policy through which you invest. If they were included, the returns would be
less than those shown.
38
<PAGE>
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 9.99% (for the
quarter ended September 30, 1998), and the lowest quarterly return was -7.84%
(for the quarter ended March 31, 1996). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for the Target
Maturity 2007 Fund's shares compare to those of the Salomon Brothers Government
Index ("SB Government Index"). The SB Government Index is a market
capitalization-weighted index that consists of debt issued by the U.S. Treasury
and U.S. Government sponsored agencies. The SB Government Index does not take
into account fees and expenses that an investor would incur in holding the
securities in the SB Government Index. If it did so, the returns would be lower
than those shown.
Inception
1 Year* (4/26/95)
Target Maturity 2007 Fund 6.93% 10.70%
SB Government Index 9.84 9.22**
* The annual returns are based upon calendar years.
** The average annual total return shown is for the period 4/30/95 to 12/31/98.
THE FUND IN DETAIL
What are the Target Maturity 2007 Fund's objective, principal investment
strategies, and risks?
OBJECTIVE: The Fund seeks a predictable compounded investment return for
investments held until the Fund's maturity, consistent with
preservation of capital.
39
<PAGE>
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in zero coupon securities. The vast majority of the Fund's investments
consists of non-callable, zero coupon bonds issued or guaranteed by the U.S.
government, its agencies or instrumentalities that mature on or around the
maturity date of the Fund (December 31, 2007). Zero coupon securities are debt
obligations that do not entitle holders to any periodic payments of interest
prior to maturity and therefore are issued and traded at discounts from their
face values. Zero coupon securities may be created by separating the interest
and principal components of securities issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities, or issued by private
corporate issuers. The discounts from face values at which zero coupon
securities are purchased varies depending on the time remaining until maturity,
prevailing interest rates, and the liquidity of the security. Because the
discounts from face values are known at the time of investment, investors
intending to hold zero coupon securities until maturity know the value of their
investment return at the time of investment, assuming full payment is made by
the issuer upon maturity.
The Fund seeks zero coupon bonds that will mature on or about the Fund's
maturity date. As the Fund's zero coupon bonds mature, the proceeds will be
invested in short-term U.S. government securities. The Fund generally follows a
buy and hold strategy consistent with attempting to provide a predictable
compounded investment return for investors who hold their Fund shares until the
Fund's maturity.
Although the Fund generally follows a buy and hold strategy, the Fund may sell
an investment when the Fund identifies an opportunity to increase its yield or
it needs cash to meet redemptions. Information on the Fund's recent strategies
and holdings can be found in the most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of investing in the Target Maturity 2007 Fund:
INTEREST RATE RISK: The market value of a bond is affected by changes in
interest rates. When interest rates rise, the market value of a bond declines;
when interest rates decline, the market value of a bond increases. The price
volatility of a bond also depends on its maturity and duration. Generally, the
longer the maturity and duration of a bond, the greater its sensitivity to
interest rates.
The market prices of zero coupon securities are generally more volatile than the
market prices of securities paying interest periodically and, accordingly, will
fluctuate far more in response to changes in interest rates than those of
non-zero coupon securities having similar maturities and yields. As a result,
the net asset value of shares of the Fund may fluctuate over a greater range
than shares of other funds that invest in securities that have similar
maturities and yields but that make current distributions of interest.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
40
<PAGE>
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
41
<PAGE>
TARGET MATURITY 2010 FUND
OVERVIEW
OBJECTIVE: The Fund seeks a predictable compounded investment return for
investors who hold their Fund shares until the Fund's
maturity, consistent with preservation of capital.
PRIMARY
INVESTMENT
STRATEGIES: The Fund primarily invests in non-callable zero coupon bonds
that mature on or around the maturity date of the Fund and are
issued or guaranteed by the U.S. government, its agencies and
instrumentalities. The Fund will mature and terminate at the
end of the year 2010. The Fund generally follows a buy and
hold strategy, but may sell an investment when the Fund
identifies an opportunity to increase its yield or to meet
redemptions.
PRIMARY
RISKS: If an investment in the Fund is sold prior to the Fund's
maturity, there is substantial interest rate risk. Like other
bonds, zero coupon bonds are sensitive to changes in interest
rates. When interest rates rise, they tend to decline in
price, and when interest rates fall, they tend to increase in
price. Zero coupon bonds are more interest rate sensitive than
other bonds because zero coupon bonds pay no interest to their
holders until their maturities. This means that the market
prices of zero coupon bonds will fluctuate far more than those
of bonds that pay interest periodically. Accordingly, the
value of an investment in the Fund will go up and down, which
means that you could lose money if you liquidate your
investment in the Fund prior to the Fund's maturity.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
How has the Target Maturity 2010 Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Fund's shares from year to
year over the life of the Fund. The bar chart does not reflect fees and expenses
that may be deducted by the variable annuity contract or variable life insurance
policy through which you invest. If they were included, the returns would be
less than those shown.
42
<PAGE>
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 10.25% (for the
quarter ended September 30, 1998), and the lowest quarterly return was -7.84%
(for the quarter ended March 31, 1996). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for the Target
Maturity 2010 Fund's shares compare to those of the Salomon Brothers Government
Index ("SB Government Index"). The SB Government Index is a market
capitalization-weighted index that consists of debt issued by the U.S. Treasury
and U.S. Government sponsored agencies. The SB Government Index does not take
into account fees and expenses that an investor would incur in holding the
securities in the SB Government Index. If it did so, the returns would be lower
than those shown.
Inception
1 Year* (4/30/96)
Target Maturity 2010 Fund 6.32% 12.68%
SB Government Index 9.84 9.56**
* The annual returns are based upon calendar years.
** The average annual total return shown is for the period 4/30/96 to 12/31/98.
43
<PAGE>
THE FUND IN DETAIL
What are the Target Maturity 2010 Fund's objective, principal investment
strategies, and risks?
OBJECTIVE: The Fund seeks a predictable compounded investment return for
investors who hold their Fund shares until the Fund's maturity,
consistent with preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in zero coupon securities. The vast majority of the Fund's investments
consists of non-callable, zero coupon bonds that mature on or around the
maturity date of the Fund and are direct obligations of the U.S. Treasury. Zero
coupon securities are debt obligations that do not entitle holders to any
periodic payments of interest prior to maturity and therefore are issued and
traded at discounts from their face values. Zero coupon securities may be
created by separating the interest and principal components of securities issued
or guaranteed by the U.S. government or one of its agencies or
instrumentalities, or issued by private corporate issuers. The discounts from
face values at which zero coupon securities are purchased varies depending on
the time remaining until maturity, prevailing interest rates, and the liquidity
of the security. Because the discounts from face values are known at the time of
investment, investors intending to hold zero coupon securities until maturity
know the value of their investment return at the time of investment, assuming
full payment is made by the issuer upon maturity.
The Fund seeks zero coupon bonds that will mature on or about the Fund's
maturity date. As the Fund's zero coupon bonds mature, the proceeds will be
invested in short term U.S. government securities. The Fund generally follows a
buy and hold strategy consistent with attempting to provide a predictable
compounded investment return for investors who hold their Fund shares until the
Fund's maturity.
Although the Fund generally follows a buy and hold strategy, the Fund may sell
an investment when the Fund identifies an opportunity to increase its yield or
it needs cash to meet redemptions. Information on the Fund's recent strategies
and holdings can be found in the most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of investing in the Target Maturity 2010 Fund:
INTEREST RATE RISK: The market value of a bond is affected by changes in
interest rates. When interest rates rise, the market value of a bond declines;
when interest rates decline, the market value of a bond increases. The price
volatility of a bond also depends on its maturity and duration. Generally, the
longer the maturity and duration of a bond, the greater its sensitivity to
interest rates.
The market prices of zero coupon securities are generally more volatile than the
market prices of securities paying interest periodically and, accordingly, will
fluctuate far more in response to changes in interest rates than those of
non-zero coupon securities having similar maturities and yields. As a result,
44
<PAGE>
the net asset value of shares of the Fund may fluctuate over a greater range
than shares of other funds that invest in securities that have similar
maturities and yields but that make current distributions of interest.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
45
<PAGE>
UTILITIES INCOME FUND
OVERVIEW
OBJECTIVES: The Fund primarily seeks high current income and secondarily
long-term capital appreciation.
PRIMARY
INVESTMENT
STRATEGIES: The Fund concentrates its investments in stocks of public
utilities companies ("utilities stocks"). The Fund attempts to
diversify across all sectors of the utilities industry (i.e.,
electric, gas, telecommunications and water), but from time to
time it will emphasize one or more sectors based on the
outlook for the various sectors. While the Fund emphasizes
investments in U.S. companies, it may invest in stocks of
foreign utilities companies.
PRIMARY
RISKS: While utilities stocks tend to be regarded as less volatile
than other stocks, like all stocks they fluctuate in value in
response to movements in the overall securities markets,
general economic conditions, and changes in interest rates or
investor sentiment. Because the Fund concentrates its
investments in public utilities stocks, the value of its
shares will be particularly affected by events that impact on
the utilities industry, such as changes in public utilities
regulation, changes in weather, and changes in interest rates.
Stocks of foreign utilities companies carry additional risks
including political instability, government regulation and
differences in financial reporting standards. An investment in
the Fund could decline in value even if the market as a whole
does well. Accordingly, the value of an investment in the Fund
will go up and down, which means that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
How has the Utilities Income Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Utilities Income Fund's
shares from year to year over the life of the Fund. The bar chart does not
reflect fees and expenses that may be deducted by the variable annuity contract
or variable life insurance policy through which you invest. If they were
included, the returns would be less than those shown.
46
<PAGE>
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 11.73% (for the
quarter ended December 31, 1997), and the lowest quarterly return was -6.74%
(for the quarter ended March 31, 1994). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for the Utilities
Income Fund's shares compare to those of the Standard & Poor's 500 Composite
Stock Price Index ("S&P 500 Index") and the Standard and Poor's Utilities Index
("S&P Utilities Index"). The S&P 500 Index is an unmanaged index generally
representative of the market for the stocks of large-sized U.S. companies. The
S&P Utilities Index is a capitalization-weighted index of 37 stocks designed to
measure the performance of the utilities sector of the S&P 500 Index. The
indices do not take into account fees and expenses that an investor would incur
in holding the securities in the indices. If they did so, the returns would be
lower than those shown.
Inception
1 Year* 5 Years* (11/15/93)
Utilities Income
Fund 4.66% 11.63% 11.20%
S&P 500 Index 28.34 24.55 20.45
S&P Utilities Index** 14.36 13.50 11.37
*The annual returns are based upon calendar years.
**This Index is used to show how the Fund's performance compares with the
returns of an index of stocks in market sectors in which the Fund may invest.
47
<PAGE>
THE FUND IN DETAIL
What are the Utilities Income Fund's objectives, principal investment
strategies, and risks?
OBJECTIVES: The Fund primarily seeks high current income and secondarily
long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in stocks (including not only common stocks, but also preferred stocks
and securities convertible into common or preferred stocks) of companies in the
utilities industry. These are securities of companies which are primarily
engaged in owning or operating facilities used to provide electricity, gas,
water or telecommunications (including telephone, telegraph and satellite, but
not public broadcasting or cable television). While the Fund emphasizes
investments in U.S. companies, it may invest in stocks of foreign utilities
companies. The Fund's investments in foreign utilities companies are generally
limited to stocks that are dollar-denominated and traded in the U.S.
While the Fund attempts to diversify across all utilities sectors, it may
emphasize a particular sector based on that sector's yield, price to earnings
ratio, economic trends, and the regulatory environment. The Fund uses a
"top-down" approach to selecting investments. This means that it first decides
on how much of its assets to allocate to each sector of the utilities market and
then identifies potential investments for each sector through fundamental
research and analysis.
In selecting securities, the Fund will consider a stock's dividend potential,
its price to earnings ratio, the company's management, the company's ratio of
international to domestic earnings, the company's future strategies, and
external factors such as demographics and mergers and acquisitions prospects.
The Fund typically sells a security when its issuer shows deteriorating
fundamentals, it falls short of the manager's expectations or there is a change
in economic trends. Information on the Fund's recent strategies and holdings can
be found in the most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of the investment, the greater the risk. Here
are the principal risks of investing in the Utilities Income Fund:
MARKET RISK: Because this Fund invests in stocks, it is subject to stock market
risk. Stock prices in general may decline over short or even extended periods
not only because of company-specific developments, but also due to an economic
downturn, a change in interest rates, or a change in investor sentiment,
regardless of the success or failure of an individual company's operations.
Stock markets tend to run in cycles with periods when prices generally go up,
known as "bull" markets, and periods when stock prices generally go down,
referred to as "bear" markets. While utilities stocks have long been thought of
as being less volatile than other stocks, like all stocks they fluctuate in
value. As the utilities industry has begun to deregulate and earnings have
become less predictable, utilities stocks have begun to have price fluctuations
which are more like other stocks. Stocks of foreign utilities companies carry
additional risks including political instability, government regulation and
differences in financial reporting standards.
48
<PAGE>
INDUSTRY CONCENTRATION RISK: Because the Fund concentrates its investments in
public utilities companies, the value of its shares will be especially affected
by events that are peculiar to or have a greater impact on the utilities
industry. Utilities companies, especially electric and gas and other
energy-related utilities companies, have historically been subject to the risk
of increases in fuel and other operating costs, changes in weather patterns,
changes in interest rates, changes in applicable laws and regulations, and costs
and operating constraints associated with compliance with environmental
regulations. Utilities stocks therefore may decline in value even if the overall
market is doing well.
SECTOR CONCENTRATION RISK: Because the Fund may concentrate its portfolio in one
sector of the utilities industry, its share value could decline if one sector of
the utilities industry does poorly even if the industry does well as a whole.
DEREGULATION/COMPETITION: Regulatory changes in the United States have
increasingly allowed utilities companies to provide services and products
outside their traditional geographical areas and lines of business, creating
competitors and new areas of competition. As a result, certain utilities
companies earn more than their traditional, regulated rates of return, while
others are forced to defend their core business from competition and are less
profitable. Some utilities companies may not be able to recover the costs of
facilities built or acquired prior to the date of deregulation. This is known as
the "stranded assets" problem.
INTEREST RATE RISK: Utilities stocks tend to be more interest rate sensitive
than other stocks. As interest rates increase, utilities stocks tend to decline
in value.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
OTHER RISKS: Changes in weather patterns or regional weather circumstances may
affect the ability of the utilities industry, a sector of the industry, or
certain utilities companies to meet supply and demand.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses by
investing up to 100% of its assets in short-term money market instruments. If
the Fund does so, it may not achieve its investment objective.
49
<PAGE>
FUND MANAGEMENT
First Investors Management Company, Inc. ("FIMCO") is the investment adviser to
each of the Funds in the Life Series Fund. Its address is 95 Wall Street, New
York, NY 10005. It currently is investment adviser to 51 mutual funds or series
of funds with total net assets of approximately $5 billion. Except as noted
below, FIMCO supervises all aspects of each Fund's operations and determines
each Fund's portfolio transactions. For the fiscal year ended December 31, 1998,
FIMCO received advisory fees as follows: 0.75% of average daily net assets for
Blue Chip Fund; 0.60% of average daily net assets, net of waiver, for Cash
Management Fund; 0.75% of average daily net assets for Discovery Fund; 0.60% of
average daily net assets, net of waiver, for Government Fund; 0.75% of average
daily net assets for Growth Fund; 0.75% of average daily net assets for High
Yield Fund; 0.75% of average daily net assets for International Securities Fund;
0.60% of average daily net assets, net of waiver, for Investment Grade Fund;
0.60% of average daily net assets, net of waiver, for Target Maturity 2007 Fund;
0.60% of average daily net assets, net of waiver, for Target Maturity 2010 Fund;
and 0.60% of average daily net assets, net of waiver, for Utilities Income Fund.
The gross advisory fees (fees before any applicable waivers) are set forth in
the Separate Account prospectus which is attached to this prospectus.
Dennis T. Fitzpatrick serves as Portfolio Manager of the Blue Chip Fund. Mr.
Fitzpatrick also serves as Portfolio Manager to certain other First Investors
Funds. Mr. Fitzpatrick has been a member of FIMCO's investment management team
since 1995. During 1995, Mr. Fitzpatrick was a Regional Surety Manager at United
States Fidelity & Guaranty Co. From 1988 to 1995, he was Northeast Surety
Manager at American International Group.
Clark D. Wagner serves as Portfolio Manager of Government Fund, Target Maturity
2007 Fund, and Target Maturity 2010 Fund, and Co-Portfolio Manager of Investment
Grade Fund. Mr. Wagner also serves as Portfolio Manager of certain other First
Investors Funds. Mr. Wagner has been Chief Investment Officer of FIMCO since
1992.
Patricia D. Poitra, Director of Equities, and David A. Hanover serve as
Co-Portfolio Managers of the Discovery Fund. Ms. Poitra and Mr. Hanover also
serve as Portfolio Managers of certain other First Investors Funds. Ms. Poitra
joined FIMCO in 1985 as a Senior Equity Analyst. From 1997 to August 1998, Mr.
Hanover was a Portfolio Manager and Analyst at Heritage Investors Management
Corporation. From 1994 to 1996, Mr. Hanover was Co-Portfolio Manager and Analyst
at Psagot Mutual Funds and in 1993 he was an International Equity Investments
Summer Associate at Howard Hughes Medical Institute.
George V. Ganter serves as Portfolio Manager of the High Yield Fund. Mr. Ganter
also serves as Portfolio Manager of certain other First Investors Funds. Mr.
Ganter joined FIMCO in 1985 as a Senior Investment Analyst.
Nancy W. Jones serves as Co-Portfolio Manager of the Investment Grade Fund. Ms.
Jones also serves as Portfolio Manager of certain other First Investors Funds.
Ms. Jones joined FIMCO in 1983 as Director of Research in the High Yield
Department.
Matthew S. Wright serves as Portfolio Manager of the Utilities Income Fund. Mr.
Wright also serves as Portfolio Manager of certain other First Investors Funds.
Mr. Wright joined FIMCO in February 1996 as an Equity Analyst. From May 1995 to
50
<PAGE>
January 1996, Mr. Wright was an Analyst at Fuji Bank. From June 1994 to April
1995, he was Market Editor of BLOOMBERG MAGAZINE and from September 1991 to June
1994, he was Editor/Reporter for BLOOMBERG BUSINESS NEWS.
FIMCO and Life Series Fund have retained Wellington Management Company, LLP
("WMC") as investment subadviser to the Growth Fund and the International
Securities Fund. Subject to continuing oversight and supervision by FIMCO and
the Board of Directors, WMC has discretionary trading authority over all of the
assets of the Growth Fund and the International Securities Fund. WMC is located
at 75 State Street, Boston, MA 02109. 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, 1998, WMC held investment management authority
with respect to $211 billion of assets. Of that amount, WMC acted as investment
adviser or subadviser to approximately 146 investment companies or series of
such companies, with net assets of approximately $147 billion as of December 31,
1998. The Growth Fund is managed by WMC's Growth Investment Team, a group of
equity portfolio managers and senior investment professionals. The International
Securities Fund is managed by Trond Skramstad, Senior Vice President of WMC and
Chairman of the firm's Global Equity Strategy Group. Mr. Skramstad joined WMC in
1993.
In addition to the investment risks of the Year 2000 which are disclosed above,
the ability of FIMCO, WMC and their affiliates to price the Funds' shares,
process purchase and redemption orders, and render other services could be
adversely affected if the computers or other systems on which they rely are not
properly programmed to operate after January 1, 2000. Additionally, because the
services provided by FIMCO, WMC and their affiliates depend on the interaction
of their computer systems with the computer systems of brokers, information
services and other parties, any failure on the part of such third party computer
systems to deal with the Year 2000 may have a negative effect on the services
provided to the Funds. FIMCO, WMC and their affiliates are taking steps that
they believe are reasonably designed to address the Year 2000 problem for
computer and other systems used by them and are obtaining assurances that
comparable steps are being taken by the Funds' other service providers. However,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact on the Funds. Nor can the Funds estimate the extent of any
impact.
BUYING AND SELLING SHARES
How and when do the Funds price their shares?
The share price (which is called "net asset value" or "NAV" per share) for each
Fund is calculated once each day as of 4 p.m., Eastern Time ("ET"), on each day
the New York Stock Exchange ("NYSE") is open for regular trading. In the event
that the NYSE closes early, the share price will be determined as of the time of
the closing.
To calculate the NAV, each Fund's assets are valued and totaled, liabilities are
subtracted, and the balance, called net assets, is divided by the number of
shares outstanding.
In valuing its assets, each Fund other than Cash Management Fund uses the market
value of securities for which market quotations or last sale prices are readily
available. If there are no readily available quotations or last sale prices for
51
<PAGE>
an investment or the available quotations are considered to be unreliable, the
securities will be valued at their fair value as determined in good faith
pursuant to procedures adopted by the Board of Directors of the Funds. The Cash
Management Fund values its assets using the amortized cost method which is
intended to permit the Fund to maintain a stable $1.00 per share. Because the
International Securities Fund invests in securities that are primarily listed on
foreign exchanges that trade on days when the Fund is not open, the NAV of the
Fund's shares may change on days on which you are not able to purchase or redeem
the Fund's shares.
How do I buy and sell shares?
Investments in each of the Funds may only be made through purchases of variable
annuity contracts or variable life insurance policies offered by FIL. Purchase
payments for variable annuity contracts, less applicable charges or expenses,
are paid into specified unit investment trusts, Separate Account C or Separate
Account D. Variable life insurance policy premiums, less certain expenses, are
paid into a unit investment trust, Separate Account B. The Separate Accounts
pool these proceeds to purchase shares of a Fund designated by purchases of the
variable annuity contracts or variable life insurance policies.
For information about how to buy or sell the variable annuity contracts and
variable life insurance policies, see the Separate Account prospectus which is
attached to this prospectus. It will describe not only the process for buying
and selling contracts and policies but also the fees and charges involved. This
prospectus is not valid unless a Separate Account prospectus is attached hereto.
ACCOUNT POLICIES
What about dividends and capital gain distributions?
The Separate Accounts which own the shares of the Funds' will receive all
dividends and distributions. As described in the attached Separate Account
prospectus, all dividends and distributions are then reinvested by the
appropriate Separate Account in additional shares of the Fund.
Except for Cash Management Fund, to the extent that they have net investment
income, each Fund will declare and pay, on an annual basis, dividends from net
investment income. To the extent that the Cash Management Fund has net
investment income, the Fund will declare daily and pay monthly dividends from
net investment income. Each Fund will declare and distribute any net realized
capital gains, on an annual basis, usually after the end of each Fund's fiscal
year. Each Fund may make an additional distribution in any year if necessary to
avoid a Federal excise tax on certain undistributed income and capital gain.
What about taxes?
You will not be subject to taxes as the result of purchases or sales of Fund
shares by the Separate Account, or Fund dividends, or distributions to the
Separate Accounts. There are tax consequences associated with investing in the
variable annuity contracts and variable life insurance policies. These are
discussed on the attached Separate Account prospectus.
52
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance of each Fund for the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the tables
represent the rate that an investor would have earned (or lost) on an investment
in each Fund (assuming reinvestment of all dividends and distributions). The
information has been audited by Tait, Weller & Baker, whose report, along with
the Funds' financial statements, are included in the SAI, which is available
upon request.
53
<PAGE>
<TABLE>
<CAPTION>
- -------------------- ------------------------------------------------------------------------------------------------
PER SHARE DATA
------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS FROM
--------------------------------- -----------------------
NET
NET ASSET REALIZED AND
VALUE NET UNREALIZED TOTAL FROM NET NET
YEAR ENDED BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENTS REALIZED TOTAL
DECEMBER 31 OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAINS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------------------------------
BLUE CHIP
- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1994.............. $14.21 $.18 $(.39) $(.39) $.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
1997.............. 19.77 .19 4.88 5.07 .22 .91 1.13
1998.............. 23.71 .17 4.05 4.22 .19 1.49 1.68
CASH MANAGEMENT
- ---------------
1994.............. $1.00 $.037 $ -- $.037 $.037 $-- $.037
1995.............. 1.00 .054 -- .054 .054 -- .054
1996.............. 1.00 .049 -- .049 .049 -- .049
1997.............. 1.00 .050 -- .050 .050 -- .050
1998.............. 1.00 .049 -- .049 .049 -- .049
DISCOVERY
- ---------
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
1997.............. 25.06 .08 3.93 4.01 .14 1.16 1.30
1998.............. 27.77 .09 .79 .88 .08 1.83 1.91
(a) Annualized.
* Commencement of operations.
** Based on average shares outstanding during the year.
+ Some or all expenses have been waived or assumed by the investment adviser from commencement of operations
through December 31, 1998.
++ The effect of fees and charges incurred at the separate account level are not reflected in these performance
figures.
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET
RATIO TO AVERAGE ASSETS BEFORE EXPENSES
NET ASSETS + WAIVED OR ASSUMED
---------------- ----------------------
NET ASSET NET ASSETS
VALUE TOTAL END OF NET NET PORTFOLIO
END OF RETURN ++ PERIOD INVESTMENT INVESTMENT TURNOVER
PERIOD (%) (IN MILLIONS) EXPENSES(%) INCOME (%) EXPENSES(%) INCOME (%) RATE (%)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$13.75 (1.45) $41 .88 1.49 N/A N/A 82
16.98 34.00 67 .86 1.91 N/A N/A 26
19.77 21.52 100 .84 1.39 N/A N/A 45
23.71 26.72 154 .81 .99 N/A N/A 63
26.25 18.66 205 .82 .79 N/A N/A 91
$1.00 3.77 $4 .60 3.69 1.04 3.25 N/A
1.00 5.51 4 .60 5.36 1.10 4.87 N/A
1.00 5.00 4 .60 4.89 1.11 4.38 N/A
1.00 5.08 5 .70 4.97 1.06 4.61 N/A
1.00 5.02 7 .70 4.89 .99 4.60 N/A
$19.86 (2.53) $30 .88 .36 N/A N/A 53
23.27 25.23 51 .87 .63 N/A N/A 78
25.06 12.48 71 .85 .63 N/A N/A 98
27.77 16.84 100 .82 .34 N/A N/A 85
26.74 3.05 114 .83 .36 N/A N/A 121
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
- -------------------- ------------------------------------------------------------------------------------------------
PER SHARE DATA
------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS FROM
--------------------------------- -----------------------
NET
NET ASSET REALIZED AND
VALUE NET UNREALIZED TOTAL FROM NET NET
YEAR ENDED BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENTS REALIZED TOTAL
DECEMBER 31 OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAINS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------------------------------
GOVERNMENT
<S> <C> <C> <C> <C> <C> <C> <C>
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
1997............. 10.19 .72 .11 .83 .69 -- .69
1998............. 10.33 .66** .08** .74** .66 -- .66
GROWTH
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
1997............. 24.56 .15 6.57 6.72 .18 1.86 2.04
1998............. .24 .10 7.69 7.79 .15 1.10 1.25
HIGH YIELD
1994............. $11.16 $.87 $(1.14) $(.27) $.31 $-- $.31
1995............. 10.58 1.00 .95 1.95 .96 -- .96
1996............. 11.57 1.02 .35 1.37 1.01 -- 1.01
1997............. 11.93 .98 .41 1.39 1.02 -- 1.02
1998............. 12.30 1.00 (.62) .38 .98 -- .98
(a) Annualized.
* Commencement of operations.
** Based on average shares outstanding during the year.
+ Some or all expenses have been waived or assumed by the investment adviser from commencement of
operations through December 31, 1998.
++ The effect of fees and charges incurred at the separate account level are not reflected in these
performance figures.
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET
RATIO TO AVERAGE ASSETS BEFORE EXPENSES
NET ASSETS + WAIVED OR ASSUMED
---------------- ----------------------
NET ASSET NET ASSETS
VALUE TOTAL END OF NET NET PORTFOLIO
END OF RETURN ++ PERIOD INVESTMENT INVESTMENT TURNOVER
PERIOD (%) (IN MILLIONS) EXPENSES(%) INCOME (%) EXPENSES(%) INCOME (%) RATE (%)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$9.70 (4.10) $8 .35 6.74 .90 6.19 457
10.52 15.63 10 .40 6.79 .93 6.26 198
10.19 3.59 9 .60 6.75 .94 6.41 199
10.33 8.61 9 .60 6.95 .92 6.63 134
10.41 7.54 11 .70 6.59 .87 6.42 107
$16.73 (2.87) $33 .90 .60 N/A N/A 40
20.47 25.12 51 .88 1.11 N/A N/A 64
24.56 24.45 79 .85 .92 N/A N/A 49
29.24 29.28 128 .82 .64 N/A N/A 27
35.78 27.35 187 .82 .34 N/A N/A 26
$10.58 (1.56) $32 .88 9.43 N/A N/A 50
11.57 19.82 42 .87 9.86 N/A N/A 57
11.93 12.56 49 .85 9.43 N/A N/A 34
12.30 12.47 60 .83 8.88 N/A N/A 40
11.70 3.15 65 .83 8.93 N/A N/A 42
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
- -------------------- ------------------------------------------------------------------------------------------------
PER SHARE DATA
------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS FROM
--------------------------------- -----------------------
NET
NET ASSET REALIZED AND
VALUE NET UNREALIZED TOTAL FROM NET NET
YEAR ENDED BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENTS REALIZED TOTAL
DECEMBER 31 OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAINS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------------------------------
INTERNATIONAL SECURITIES
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
1997................ 17.19 .18 1.26 1.44 .20 1.52 1.72
1998................ 16.91 .12 2.87 2.99 .16 .86 1.02
INVESTMENT GRADE
- ----------------
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
1997................ 11.36 .74 .31 1.05 .74 -- .74
1998................ 11.67 .68** .33** 1.01** .71 -- .71
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
1997................ 11.71 .59 .90 1.49 .57 -- .57
1998................ 12.63 .61 1.20 1.81 .61 -- .61
TARGET MATURITY 2010
- --------------------
4/30/96* to 12/31/96 $10.00 $ .26 $ .90 $1.16 $-- $-- --
1997................ 11.16 .45 1.29 1.74 .20 -- .20
1998................ 12.70 .51 1.25 1.76 .48 .01 .49
UTILITIES INCOME
- ----------------
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
1997................ 12.57 .37 2.64 3.01 .36 .27 .63
1998................ 14.95 .32 1.46 1.78 .35 .55 .90
(a) Annualized.
* Commencement of operations.
** Based on average shares outstanding during the year.
+ Some or all expenses have been waived or assumed by the investment adviser from commencement of operations
through December 31, 1998.
++ The effect of fees and charges incurred at the separate account level are not reflected in these performance
figures.
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET
RATIO TO AVERAGE ASSETS BEFORE EXPENSES
NET ASSETS + WAIVED OR ASSUMED
---------------- ----------------------
NET ASSET NET ASSETS
VALUE TOTAL END OF NET NET PORTFOLIO
END OF RETURN ++ PERIOD INVESTMENT INVESTMENT TURNOVER
PERIOD (%) (IN MILLIONS) EXPENSES(%) INCOME (%) EXPENSES(%) INCOME (%) RATE (%)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$13.51 (1.29) $31 1.03 1.22 N/A N/A 36
15.58 18.70 41 1.02 1.42 N/A N/A 45
17.19 15.23 58 1.12 1.25 N/A N/A 67
16.91 9.09 74 1.13 1.15 N/A N/A 71
18.88 18.18 92 1.15 .75 N/A N/A 109
$10.31 (3.53) $12 .37 6.61 .92 6.06 15
11.73 19.69 16 .51 6.80 .91 6.40 26
11.36 2.84 16 .60 6.47 .88 6.19 19
11.67 9.81 17 .60 6.54 .87 6.27 41
11.97 9.15 22 .68 5.97 .84 5.81 60
$12.26 22.60 $10 .04(a) 6.25(a) .87(a) 5.42(a) 28
11.71 (2.16) 15 .60 6.05 .82 5.83 13
12.63 13.38 20 .60 5.91 .82 5.69 1
13.83 14.97 26 .67 5.18 .83 5.02 1
$11.16 11.60 $2 .60(a) 6.05(a) .98(a) 5.67(a) 0
12.70 15.86 5 .60 5.88 .87 5.61 13
13.97 14.36 9 .67 4.90 .82 4.75 0
$9.19 (7.24) $5 .17 4.13 .95 3.35 31
11.74 30.26 15 .41 4.23 .91 3.73 17
12.57 9.57 24 .60 3.48 .86 3.22 45
14.95 25.07 34 .67 3.12 .85 2.94 64
15.83 12.58 50 .73 2.61 .85 2.49 105
</TABLE>
59
<PAGE>
[FIRST INVESTORS LOGO]
LIFE SERIES FUND
BLUE CHIP
CASH MANAGEMENT
DISCOVERY
GOVERNMENT
GROWTH
HIGH YIELD
INTERNATIONAL SECURITIES
INVESTMENT GRADE
TARGET MATURITY 2007
TARGET MATURITY 2010
UTILITIES INCOME
For investors who want more information about the Funds, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS: Additional information about each Fund's investments
is available in the Funds' annual and semi-annual reports to shareholders. In
the Funds' annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected each Fund's performance
during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Funds and is incorporated by reference into this
prospectus.
You can get free copies of reports and the SAI, request other information and
discuss your questions about the Funds by contacting the Funds at:
Administrative Data Management Corp.
581 Main Street
Woodbridge, NJ 07095-1198
Telephone: 1-800-423-4026
You can review and copy information about the Funds (including the Funds'
reports and SAI) at the Public Reference Room of the Securities and Exchange
Commission ("SEC") in Washington, D.C. You can also send your request for copies
and a duplicating fee to the Public Reference Room of the SEC, Washington, DC
20549-6009. You can obtain information on the operation of the Public Reference
Room by calling 1-800-SEC-0330. Text-only versions of Fund documents can be
viewed online or downloaded from the SEC's Internet website at
http://www.sec.gov.
(Investment Company Act File No. 811-4325 First
First Investors Life Series Fund)
