<PAGE>
FIRST INVESTORS LIFE VARIABLE ANNUITY FUND C
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
OFFERED BY
FIRST INVESTORS LIFE INSURANCE COMPANY
95 Wall Street, New York, New York 10005/(212) 858-8200
This Prospectus describes the Variable Annuity Contracts (the "Contracts")
offered by First Investors Life Insurance Company ("First Investors Life") for
(a) nonqualified retirement programs and deferred compensation plans and (b) the
following retirement plans qualified for special tax treatment under the
Internal Revenue Code of 1986, as amended: (1) individual retirement annuities
and (2) qualified corporate employee pension and profit-sharing plans. The
Contracts offered are deferred annuity contracts under which annuity payments
will begin on a selected future date. A PENALTY MAY BE ASSESSED ON EARLY
WITHDRAWALS (SEE "FEDERAL INCOME TAX STATUS"). THE CONTRACTS CONTAIN A 10-DAY
REVOCATION RIGHT (SEE "VARIABLE ANNUITY CONTRACTS-TEN-DAY REVOCATION RIGHT").
The Contracts provide for the accumulation of values on a variable basis.
Payment of annuity benefits will be on a variable basis, unless a fixed basis or
a combination of variable and fixed bases is selected by the Contractowner.
Unless otherwise stated, this Prospectus describes only the variable aspects of
the Contracts. The Contracts contain information on the fixed aspects.
Contractowners' purchase payments less certain deductions ("net purchase
payments") are paid into a unit investment trust, First Investors Life Variable
Annuity Fund C ("Separate Account C"). A Contractowner elects to have his or
her net purchase payments paid into any one or more of the ten subaccounts of
Separate Account C (the "Subaccounts"). The assets of each Subaccount are
invested at net asset value in shares of the related series (the "Series") of
First Investors Life Series Fund (the "Fund"), an open-end, diversified
management investment company.
This Prospectus sets forth the information about Separate Account C that a
prospective investor should know before investing and should be kept for future
reference. A Statement of Additional Information, dated May 1, 1995, has been
filed with the Securities and Exchange Commission and is incorporated herein by
reference in its entirety. (See page 20 of this Prospectus for the Table of
Contents of the Statement of Additional Information.) The Statement of
Additional Information is available at no charge upon request to First Investors
Life at the address or telephone number indicated above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT
PROSPECTUS OF FIRST INVESTORS LIFE SERIES FUND.
The date of this Prospectus is May 1, 1995
<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 used to measure the value of a Contractowner's
interest in a Subaccount of Separate Account C prior to the Annuity Commencement
Date.
ADDITIONAL PAYMENT - A purchase payment made to First Investors Life after
issuance of a deferred annuity.
ANNUITANT - The person designated to receive or the person who is actually
receiving annuity payments under a Contract.
ANNUITY COMMENCEMENT DATE - The date on which annuity payments are to
commence.
ANNUITY UNIT - A unit used to determine the amount of each annuity payment
after the first.
BENEFICIARY - The person designated to receive any benefits under a Contract
upon the death of the Annuitant in accordance with the terms of the Contract.
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 which 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 (or other segregated investment accounts of
First Investors Life).
JOINT ANNUITANT - The designated second person under joint and survivor life
annuity.
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, as amended.
SINGLE PAYMENT - A one-time purchase payment made to First Investors Life to
purchase an annuity.
SUBACCOUNT - A segregated investment subaccount under Separate Account C
which corresponds to a Series of the Fund. The assets of the Subaccount are
invested in shares of the corresponding Series.
VALUATION DATE - Any date on which the New York Stock Exchange is open for
trading, and at such other times as the Directors of First Investors Life deem
necessary or when there is a sufficient degree of trading in the Subaccounts'
investments which may affect the Subaccounts' net asset value.
VALUATION PERIOD - The period beginning on the date after any Valuation Date
and ending on the next Valuation Date.
VARIABLE ANNUITY - An annuity with annuity payments varying in amount in
accordance with the net investment experience of the Subaccounts.
2
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FEE TABLE
The following table has been prepared to assist the investor in understanding
the various costs and expenses a Contractowner will directly or indirectly bear.
The table reflects expenses of Separate Account C as well as the Fund. The Fee
Table has been amended to reflect Fund expenses expected to be incurred in 1995.
CONTRACTOWNER TRANSACTION EXPENSES
Sales Load Imposed on Purchases (as a percentage of purchase payments)... 7.00%
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Fees............................ 1.00%
Total Separate Account Annual Expenses................................... 1.00%
<TABLE>
<CAPTION>
FUND ANNUAL EXPENSES
(as a percentage of Series average net assets)
TOTAL FUND
MANAGEMENT OTHER OPERATING
FEES(1) EXPENSES(2) EXPENSES(3)
---------- -------- ----------
<S> <C> <C> <C>
Blue Chip Series................................ 0.75% 0.13% 0.88%
Cash Management Series.......................... 0.35+/*/ 0.20+ 0.55+
Discovery Series................................ 0.75 0.13 0.88
Government Series............................... 0.75 0.15 0.90
Growth Series................................... 0.75 0.15 0.90
High Yield Series............................... 0.75 0.13 0.88
International Securities Series................. 0.75 0.20+ 0.95+
Investment Grade Series......................... 0.75 0.17 0.92
Target Maturity Series.......................... 0.75 0.20+ 0.95+
Utilities Income Series......................... 0.75 0.20 0.95
</TABLE>
+ Net of waiver and/or reimbursement
(1) Management Fees have been restated for CASH MANAGEMENT SERIES, GOVERNMENT
SERIES, INVESTMENT GRADE SERIES and UTILITIES INCOME SERIES. Otherwise, the
maximum Management Fees that may be incurred by those Series for the fiscal
year ending December 31, 1995 would be 0.75%. The Adviser will waive 0.40%
in Management Fees for CASH MANAGEMENT SERIES for a minimum period ending
December 31, 1995.
(2) Because of its limited operating history, Other Expenses have been estimated
for TARGET MATURITY SERIES. The Adviser will reimburse Other Expenses for
the TARGET MATURITY SERIES in excess of 0.20% for a minimum period ending
December 31, 1995. If not reimbursed, Other Expenses for the TARGET
MATURITY SERIES would be approximately 0.25%. Other Expenses have been
restated for the CASH MANAGEMENT SERIES and the INTERNATIONAL SECURITIES
SERIES. If not, Other Expenses would have been 0.29% for the CASH
MANAGEMENT SERIES and 0.28% for INTERNATIONAL SECURITIES SERIES.
(3) If certain Management Fees or Other Expenses were not waived or reimbursed,
Total Fund Operating Expenses would be 1.04% for CASH MANAGEMENT SERIES,
1.03% for INTERNATIONAL SECURITIES SERIES and approximately 1.00% for TARGET
MATURITY SERIES.
3
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For more complete descriptions of the various costs and expenses shown, please
refer to "Purchases, Deductions, Charges and Expenses." An administrative
charge may be deducted if the Accumulated Value of a Deferred Annuity Contract
is less than $1,500 (see "Administrative Charge"). In addition, premium taxes
may be applicable (see "Other Charges").
EXAMPLE
If you surrender your Contract at the end of the applicable time period:
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 Series................. $88 $125 $164 $275
Cash Management Series........... 85 116 149 242
Discovery Series................. 88 125 164 275
Government Series................ 88 126 165 277
Growth Series.................... 88 126 165 277
High Yield Series................ 88 125 164 275
International Securities Series.. 88 127 168 282
Investment Grade Series.......... 88 120 166 279
Target Maturity Series........... 88 127 N/A N/A
Utilities Income Series.......... 88 127 168 282
</TABLE>
THE EXPENSES IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES IN FUTURE YEARS MAY BE GREATER OR
LESS THAN THOSE SHOWN.
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
The following shows the accumulation unit values and the number of
accumulation units outstanding for each Subaccount of Separate Account C as of
the dates indicated from the dates when the accumulation unit value for each
Subaccount was initially set at $10.00*:
<TABLE>
<CAPTION>
NUMBER OF
ACCUMULATION ACCUMULATION
SUBACCOUNT AS OF 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
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
</TABLE>
4
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<TABLE>
<S> <C> <C> <C>
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
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
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
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
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
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
Utilities Income Subaccount.......... December 31, 1993 9.92774964 45,091.7
December 31, 1994 9.11659215 473,447.1
</TABLE>
* The accumulation unit value for each Subaccount, other than the Government
Subaccount, Investment Grade Subaccount and Utilities Income Subaccount, was
set on October 16, 1990. The accumulation unit value for the Government
Subaccount and Investment Grade Subaccount was set on January 7, 1992. The
accumulation unit value for Utilities Income Subaccount was set on November 16,
1993.
GENERAL DESCRIPTION
FIRST INVESTORS LIFE INSURANCE COMPANY. First Investors Life Insurance
Company, 95 Wall Street, New York, New York 10005 ("First Investors Life"), a
stock life insurance company incorporated under the laws of the State of New
York in 1962, writes life insurance, annuities and accident and health
insurance. First Investors Consolidated Corporation ("FICC") owns all of the
voting common stock of First Investors Management Company, Inc. ("FIMCO" or
"Adviser") and all of the outstanding stock of First Investors Corporation
("FIC" or "Underwriter") and the Transfer Agent. Mr. Glenn O. Head (and members
of his family) and Mrs. Julie W. Grayson (as executrix of
5
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the estate of her deceased husband, David D. Grayson) are controlling persons of
FICC and, therefore, jointly control the Adviser.
SEPARATE ACCOUNT C. First Investors Life Variable Annuity Fund C, also known
by its proprietary name, the "Tax Tamer" ("Separate Account C"), was
established on December 21, 1989 under the provisions of the New York Insurance
Law. The assets of Separate Account C are held separately from the assets of
First Investors Life and are not chargeable with liabilities arising out of any
other business of First Investors Life. Separate Account C is registered as a
unit investment trust under the Investment Company Act of 1940, as amended
("1940 Act"), but such registration does not involve any supervision of the
management or investment practices or policies of Separate Account C.
The assets of each Subaccount of Separate Account C are invested at net asset
value in shares of the corresponding series (the "Series") of First Investors
Life Series Fund (the "Fund"). For example, the Blue Chip Subaccount invests in
the Blue Chip Series, the Government Subaccount invests in the Government
Series, and so on. The Fund's Prospectus describes the risks attendant to an
investment in each Series of the Fund.
Income, gains and losses, whether or not realized, from assets allocated to
the Subaccounts of Separate Account C are, in accordance with the applicable
Contracts, credited to or charged against the Subaccounts of Separate Account C
without regard to other income, gains or losses of First Investors Life. The
obligations under the Contracts are obligations of First Investors Life.
Any and all distributions received from a Series will be paid in shares of the
distributing Series or if in cash, will be reinvested in shares of that Series
at net asset value for the corresponding Subaccount. Accordingly, no cash
distributions will be made to Contractowners. Deductions and redemptions from
any Subaccount of Separate Account C may be effected by redeeming the number of
applicable Series shares, at net asset value, necessary to satisfy the amount to
be deducted or redeemed. Shares of the Series in the Subaccounts will be valued
at their net asset values.
Separate Account C is divided into the following Subaccounts, each of which
corresponds to the following Series of the Fund:
<TABLE>
<CAPTION>
SEPARATE ACCOUNT C SUBACCOUNT FUND SERIES
- ----------------------------- -----------
<S> <C>
Blue Chip Subaccount Blue Chip Series
Cash Management Subaccount Cash Management Series
Discovery Subaccount Discovery Series
Government Subaccount Government Series
Growth Subaccount Growth Series
High Yield Subaccount High Yield Series
International Securities Subaccount International Securities Series
Investment Grade Subaccount Investment Grade Series
Target Maturity 2007 Subaccount Target Maturity 2007 Series
Utilities Income Subaccount Utilities Income Series
</TABLE>
Each Contractowner designates the Subaccount in which his or her purchase
payment (less deductions) will be invested. That Subaccount in turn invests in
the corresponding Series of the Fund as set forth above.
6
<PAGE>
First Investors Life reserves the right to invest the assets of Separate
Account C in the shares of other investment companies or any other investment
permitted by law. Such substitution would be made in accordance with the
provisions of the 1940 Act.
YOUR CHOICE OF INVESTMENT OBJECTIVE. When you purchase a Contract you decide
to place your purchase payment (less deductions) and any additional purchase
payments (less deductions) into at least one but not more than five of the
Subaccounts of Separate Account C, provided the allocation to any one Subaccount
is not less than 10% of the purchase payment (less deductions). Each Subaccount
corresponds to a Series of the Fund. The investment objectives of each Series
of the Fund is set forth below. There is no assurance that the investment
objective of any Series of the Fund will be realized. Because each Series of
the Fund is intended to serve a different investment objective, each is subject
to varying degrees of financial and market risks. Twice during any Contract
year, you may transfer part or all of your cash value from the Subaccounts you
are in to other Subaccounts provided the cash value is not allocated to more
than five of the Subaccounts, and provided the allocation to any one Subaccount
is not less than 10% of the cash value of the Contract. The cash value of the
Contract may increase or decrease depending on the investment performance of the
Subaccounts selected.
THE FUND. First Investors Life Series Fund is a diversified open-end
management investment company registered under the 1940 Act. The Fund consists
of nine separate Series. The shares of the Series are not sold directly to the
general public but are available only through the purchase of an annuity
contract or a variable life insurance policy issued by First Investors Life.
The investment objectives of each Series of the Fund are as follows:
BLUE CHIP SERIES. The investment objective of Blue Chip Series is to seek
high total investment return consistent with the preservation of capital. This
goal will be sought by investing, under normal market conditions, primarily in
equity securities of larger, well-capitalized companies with high potential
earnings growth that have shown a history of dividend payments, commonly known
as "Blue Chip" companies.
CASH MANAGEMENT SERIES. The objective of Cash Management Series is to seek to
earn a high rate of current income consistent with the preservation of capital
and maintenance of liquidity. The Cash Management Series will invest in money
market obligations, including high quality securities issued or guaranteed by
the U.S. Government or its agencies and instrumentalities, bank obligations and
high grade corporate instruments. An investment in the Series is neither
insured nor guaranteed by the U.S. Government. There can be no assurance that
the Series will be able to maintain a stable net asset value of $1.00 per share.
DISCOVERY SERIES. The investment objective of Discovery Series is to seek
long-term capital appreciation, without regard to dividend or interest income,
through investment in the common stock of companies with small to medium market
capitalization that the Adviser considers to be undervalued or less well known
in the current marketplace and to have the potential for capital growth.
GOVERNMENT SERIES. The investment objective of Government Series is to seek
to achieve a significant level of current income which is consistent with
security and liquidity of principal by investing, under normal market
conditions, primarily in obligations issued or guaranteed as to
7
<PAGE>
principal and interest by the U.S. Government, its agencies or
instrumentalities, including mortgage-related securities.
GROWTH SERIES. The investment objective of Growth Series is to seek long-term
capital appreciation. This goal will be sought by investing, under normal
market conditions, primarily in common stocks of companies and industries
selected for their growth potential.
HIGH YIELD SERIES. The primary objective of the High Yield Series is to seek
to earn a high level of current income. Consistent with that objective, the
Series will also seek growth of capital as a secondary objective. The High
Yield Series seeks to attain its objectives primarily through investments in
lower-grade, high-yielding, high risk debt securities. Investments in high
yield, high risk securities, commonly referred to as "junk bonds," may entail
risks that are different or more pronounced than those involved in higher-rated
securities. See "High Yield Securities-Risk Factors" in the Fund's Prospectus.
INTERNATIONAL SECURITIES SERIES. The primary objective of International
Securities Series is to seek long-term capital growth. As a secondary
objective, the Series seeks to earn a reasonable level of current income. These
objectives are sought, under normal market conditions, through investment in
common stocks, rights and warrants, preferred stocks, bonds and other debt
obligations issued by companies or governments of any nation, subject to certain
restrictions with respect to concentration and diversification.
INVESTMENT GRADE SERIES. The investment objective of the Investment Grade
Series is to seek a maximum level of income consistent with investment in
investment grade debt securities.
TARGET MATURITY 2007 SERIES. The investment objective of the Target Maturity
Series is to seek a predictable compounded investment return for investors who
hold their Series' shares until the Series' maturity, consistent with the
preservation of capital. The Series will seek its objective by investing, under
normal market conditions, in zero coupon securities which are issued by the U.S.
Government, its agencies or instrumentalities or created by third parties using
securities issued by the U.S. Government, its agencies or instrumentalities.
UTILITIES INCOME SERIES. The primary objective of the Utilities Income Series
is to seek high current income. Long-term capital appreciation is a secondary
objective. These objectives are sought, under normal market conditions, through
investment in equity and debt securities issued by companies primarily engaged
in the public utilities industry.
For more complete information about the Fund and each of the Series, including
management fees and other expenses, see the Fund's Prospectus, which is attached
to this Prospectus. It is important to read the Prospectus carefully before you
decide to invest. No offer will be made of a variable annuity contract funded
by the underlying mutual fund unless a current Fund Prospectus has been
delivered.
ADVISER. First Investors Management Company, Inc., an affiliate of First
Investors Life, supervises and manages each Series' investments, supervises all
aspects of each Series operations and, except for INTERNATIONAL SECURITIES
SERIES and GROWTH SERIES, determines each Series' portfolio transactions. The
Adviser is a New York corporation located at 95 Wall Street, New York, NY
10005.
8
<PAGE>
SUBADVISER. Wellington Management Company has been retained by the Adviser
and the Fund, on behalf of INTERNATIONAL SECURITIES SERIES and GROWTH SERIES, as
each of those Series' investment subadviser. The Adviser has delegated
discretionary trading authority to WMC with respect to all the assets of
INTERNATIONAL SECURITIES SERIES and GROWTH SERIES, subject to the continuing
oversight and supervision of the Adviser and the Board of Trustees. As
compensation for its services, WMC is paid by the Adviser, and not by either
Series, a fee which is computed daily and paid monthly.
WMC, located at 75 State Street, Boston, MA 02109, is a Massachusetts general
partnership of which Robert W. Doran, Duncan M. McFarland and John B. Neff are
Managing Partners. WMC is a professional investment counseling firm which
provides investment services to investment companies, employee benefit plans,
endowment funds, foundations and other institutions and individuals. As of
December 31, 1994, WMC held discretionary investment authority with respect to
approximately $80.0 billion of assets. Of that amount, WMC acted as investment
adviser or subadviser to approximately 110 registered investment companies or
series of such companies, with net assets of approximately $58.3 billion as of
December 31, 1994. WMC is not affiliated with the Adviser or any of its
affiliates.
UNDERWRITER. First Investors Life and Separate Account C have entered into an
Underwriting Agreement with First Investors Corporation. FIC, 95 Wall Street,
New York, New York 10005, is an affiliate of First Investors Life and of the
Adviser. First Investors Life has reserved the right in the Underwriting
Agreement to sell the Contracts directly. The Contracts are sold by insurance
agents licensed to sell variable annuities, who are registered representatives
of the Underwriter or broker-dealers who have sales agreements with the
Underwriter.
VOTING RIGHTS. In accordance with its view of present applicable law, First
Investors Life will vote the Series shares held in the Subaccounts at any
Special Meeting of Shareholders of the Fund in accordance with instructions
received from persons having the voting interest in the Subaccount. However, if
the 1940 Act or any regulation thereunder should be amended or if the present
interpretation thereof should change, and as a result First Investors Life
determines that it is permitted to vote the Series shares in its own right, it
may elect to do so. The person having the voting interest shall be the
Contractowner.
Prior to the Annuity Commencement Date, the number of shares of each Series
held in the corresponding Subaccount which is attributable to each Contractowner
is determined by dividing the Subaccount Accumulated Value by the net asset
value of one share of the corresponding Series. After the Annuity Commencement
Date, the number of Series shares held in the corresponding Subaccount which is
attributable to each Contract is determined by dividing the reserve held in such
Subaccount for the variable annuity payment under such Contract by the net asset
value of one share of the corresponding Series. As this reserve fluctuates, the
number of votes fluctuates. The number of votes which a person has the right to
cast will be determined as of the record date established by the Fund. Voting
instructions will be solicited by written communication prior to the date of the
meeting at which votes are to be cast. Shares of the Series held in the
Subaccounts as to which no timely instructions are received or are not otherwise
attributable to Contractowners will be voted by First Investors Life in
proportion to the voting instructions which are received with respect to all
Contracts participating in such Subaccount. Each person having a voting
interest in Separate Account C will be sent reports and other materials relating
to the Fund.
9
<PAGE>
PURCHASES, DEDUCTIONS, CHARGES AND EXPENSES
PURCHASE PAYMENTS. Investors in Separate Account C will be purchasing
Accumulation Units of a particular Subaccount only and not shares of the Series
in which the Subaccount invests.
The minimum purchase payment is $2,000 for a Deferred Variable Annuity
Contract. Additional Payments under a Deferred Variable Annuity Contract in the
minimum amount of $200 may be made at any time after the issuance of the
Contract.
Purchase payments will be credited to a Contractowner's Account on the date of
receipt by First Investors Life of a completed application. In the event First
Investors Life receives an incomplete application, all required information
shall be provided not later than five business days following the receipt of
such application or the purchase payment will be returned to the applicant at
the end of such five-day period. Purchase payments, after deductions for sales
expenses and any applicable premium taxes (see "Deductions from Purchase
Payments"), will be allocated to the appropriate Subaccount or Subaccounts.
DEDUCTIONS FROM PURCHASE PAYMENTS. First Investors Life or FIC, as the
Underwriter, makes deductions, in accordance with the Deduction Table below,
from the purchase payment for expenses in connection with sales functions
relative to the Contracts. Reductions in sales charges are applicable to the
total amount of the purchase payment. In addition, any Additional Payment made
after the issuance of a Deferred Annuity Contract is subject to the sales charge
applicable to the total amount of all purchase payments previously made plus the
amount of the Additional Payment being made. The sales charge is intended to
cover expenses relating to the sale of the Contracts, including commissions paid
to persons distributing the Contracts and costs of preparation of sales
literature.
DEDUCTION TABLE
<TABLE>
<CAPTION>
SALES CHARGE AS % OF
------------------------ CONCESSION TO
OFFERING NET AMOUNT DEALERS AS % OF
AMOUNT OF INVESTMENT PRICE INVESTED OFFERING PRICE
- ------------------------------- ---------- ----------- ----------------
<S> <C> <C> <C>
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
- ---------------------
</TABLE>
* Assumes that no premium taxes have been deducted.
Contracts may be purchased without sales charge by officers and full-time
employees of First Investors Life or its affiliates, who have been employed for
at least one year, and its agents who have been under contract for at least one
year.
EXCHANGE PRIVILEGE. Contractowners of First Investors Life Variable Annuity
Fund A ("Separate Account A") may exchange their Separate Account A Contracts
for Separate Account C Contracts. The Accumulated Value of the Separate Account
A Contract will be invested at net asset value in one or more Subaccounts of
Separate Account C. Although there is no charge for this exchange,
10
<PAGE>
Contractowners will be required to execute a change of contract form which, in
part, states that First Investors Life deducts a daily charge equal to an annual
rate of 1.00% of the daily net asset value of the Subaccounts as a charge for
mortality and expense risk. This exchange privilege may be modified or
terminated at any time by First Investors Life.
MORTALITY AND EXPENSE RISK CHARGES. Although the amount of each variable
annuity payment made to an Annuitant will vary in accordance with the investment
performance of the Subaccounts, the amount will not be affected by the mortality
experience (death rate) of persons receiving such payments or of the general
population. First Investors Life assumes this "mortality risk" by virtue of
annuity rates incorporated in the Contracts which cannot be changed.
The mortality risk assumed by First Investors Life arises from its obligation
to continue to make fixed or variable annuity payments, determined in accordance
with the annuity tables and other provisions of the Contracts, to each Annuitant
regardless of how long that person lives and regardless of 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, and relieves the Annuitant of the risk that the Annuitant will outlive
the funds that the Annuitant has accumulated for retirement.
In addition, First Investors Life assumes the risk that the charges for sales
expenses may not be adequate to cover such expenses and assures that it will not
increase the amount charged for sales expenses. In consideration for its
assumption of these mortality and expense risks, First Investors Life deducts an
amount equal on an annual basis to 1.00% of the daily net asset value of the
Subaccounts. Of such charge, approximately 0.6% is for assuming the mortality
risk and 0.4% is for assuming the expense risk.
If the charge is insufficient to cover the actual cost of the mortality and
expense risks, the loss will fall on First Investors Life; conversely, if the
deduction proves more than sufficient, the excess will be a profit to First
Investors Life. Any profits resulting to First Investors Life for over-
estimates of the actual costs of the mortality and expense risks can be used by
First Investors Life for any business purpose and will not remain in Separate
Account C.
ADMINISTRATIVE CHARGE. An administrative charge of $7.50 may be deducted
annually by First Investors Life from the Accumulated Value of Deferred Annuity
Contracts which have an Accumulated Value of less than $1,500 due to partial
surrenders. These charges against Annuitant accounts are for the purpose of
compensating First Investors Life for expenses involved in administering small
dormant accounts. If the actual expenses exceed charges, First Investors Life
will bear the loss.
OTHER CHARGES. Some states assess premium taxes which presently range from 0%
to 2.35% at the time Purchase Payments are made; others assess premium taxes at
the time of surrender or when annuity payments begin. First Investors Life
currently advances any premium taxes due at the time Purchase Payments are made
and then deducts premium taxes from the Accumulated Value of the contract at the
time of surrender, upon death of the annuitant or when annuity payments begin.
First Investors Life, however, reserves the right to deduct premium taxes when
incurred. See Appendix I for premium tax table.
11
<PAGE>
EXPENSES. The total expenses of Separate Account C for the fiscal year ended
December 31, 1994 amounted to $1,077,119 or 1.02% of its average net assets.
There are deductions from and expenses paid out of the assets of the Series that
are described in the Fund's Prospectus.
VARIABLE ANNUITY CONTRACTS
This Prospectus offers Individual Deferred Variable Annuity Contracts under
which annuity payments will begin on a selected future date. The Individual
Variable Annuity Contracts offered by this Prospectus are designed to provide
lifetime annuity payments to Annuitants in accordance with the plan adopted by
the Contractowner. The amount of annuity payments will vary with the investment
performance of the Subaccounts. The Contracts obligate First Investors Life to
make payments for the lifetime of the Annuitant in accordance with the annuity
rates contained in the Contract, regardless of actual mortality experience (see
"Annuity Period"). Upon the death of the Annuitant under a Contract before the
Annuity Commencement Date, First Investors Life will pay a death benefit to the
beneficiary designated by the Annuitant. For a discussion of the amount and
manner of payment of this benefit, see "Death Benefit During the Accumulation
Period."
All or a portion of the Accumulated Value may be withdrawn during the
Accumulation Period. For a discussion on withdrawals during the Accumulation
Period, see "Surrender and Termination (Redemption) During the Accumulation
Period." For Federal income tax consequences of a withdrawal, see "Federal
Income Tax Status." The exercise of contract rights herein described, including
the right to make a withdrawal during the Accumulation Period, will be 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 plans.
First Investors Life reserves 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
First Investors Life Insurance Company at its Executive office, 95 Wall Street,
New York, New York 10005.
DEFERRED VARIABLE ANNUITIES-ACCUMULATION PERIOD
CREDITING ACCUMULATION UNITS. During the Accumulation Period, net purchase
payments on Deferred Annuity Contracts, after deductions for sales expenses and
any premium taxes, where applicable (see "Deductions from Purchase Payments"),
are credited to the Contractowner's Account in the form of Accumulation Units.
The number of Accumulation Units credited to a Contractowner for the Subaccounts
is determined by dividing the net purchase payment by the value of an
Accumulation Unit for the Subaccount for the Valuation Period during which the
purchase payment is received at the Executive Office of First Investors Life or
other designated office. The value of the Contractowner's Individual Account
varies with the value of the assets of the Subaccounts. There is no assurance
that the value of a Contractowner's Individual Account will equal or exceed
purchase payments. The value of a Contractowner's Individual Account for a
Valuation Period can be determined by multiplying the total number of
Accumulation Units credited to the account for the Subaccount by the value of an
Accumulation Unit for the Subaccount for the Valuation Period.
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ANNUITY PERIOD
COMMENCEMENT DATE. Annuity payments will begin on the Annuity Commencement
Date selected by the Contractowner. Not later than 30 days prior to the Annuity
Commencement Date, the Contractowner may elect in writing to advance or defer
the Annuity Commencement Date. The Annuity Commencement Date may not be
deferred beyond the first day of the calendar month following the Annuitant's
85th birthday. If no other date is elected, annuity payments will commence on
the first day of the calendar month following the Annuitant's 85th birthday.
If the Net Accumulated Value on the Annuity Commencement Date is less than
$2,000, First Investors Life may pay such value in one sum in lieu of annuity
payments. If the Net Accumulated Value is not less than $2,000 but the variable
annuity payments provided for would be or become less than $20, First Investors
Life may change the frequency of annuity payments to such intervals as will
result in payments of at least $20.
ASSUMED INVESTMENT RATE. A 3.5% assumed investment rate is built into the
Annuity Tables in the Contract. This is based on First Investors Life's opinion
that it is the average result to be expected from a diversified portfolio of
common stocks during a relatively stable economy. A higher assumption would
mean a higher initial payment but more slowly rising and more rapidly falling
subsequent variable annuity payments. A lower assumption would have the
opposite effect. If the actual net investment rate of the respective Subaccount
is at the annual rate of 3.5%, the variable annuity payments will be level.
ANNUITY OPTIONS. The Contractowner may, at any time at least 30 days prior to
the Annuity Commencement Date upon written notice to First Investors Life at its
Executive Office or other designated office, elect to have payments made under
any one of the Annuity Options provided in the Contract. If no election is in
effect on the Annuity Commencement Date, annuity payments will be made on a
variable basis only under Annuity Option 3 below, Life Annuity with 120 Monthly
Payments Guaranteed, which is the Basic Annuity.
On the Annuity Commencement Date, First Investors Life shall apply the
Accumulated Value, reduced by any applicable premium taxes not previously
deducted, to provide the Basic Annuity or, if an Annuity Option has been
elected, to provide one of the Annuity Options described 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 prior to the death of the
Annuitant. If this Option is elected, 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 prior to the death of the survivor.
Option 2b - JOINT AND TWO-THIRDS TO SURVIVOR LIFE ANNUITY - An annuity payable
monthly during the
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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 first payment due prior to 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 prior
to 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, upon the death of the Annuitant, payments have been made for less than
60, 120 or 240 monthly periods, as elected, payments will be made as follows:
1. Any guaranteed annuity payments will be continued during the remainder of
the selected period to the Beneficiary. The Beneficiary may, at any time,
elect to have the present value of the guaranteed number of annuity payments
computed in the manner specified in (2) below, paid in a lump sum.
2. If a Beneficiary receiving annuity payments under this Option dies after
the death of the Annuitant, the present value, computed as of the Valuation
Period in which notice of death of the Beneficiary is received by First
Investors Life at its Executive Office or other designated office, of the
guaranteed number of annuity payments remaining after receipt of such notice
and to which such deceased Beneficiary would have been entitled had the
Beneficiary not died, computed at the effective annual interest rate, assumed
in determining the Annuity Tables, shall be paid in a lump sum in accordance
with the Contract.
Option 4 - UNIT REFUND LIFE ANNUITY - An annuity payable monthly during the
lifetime of the Annuitant, terminating with the last payment due prior to the
death of the Annuitant. An additional annuity payment will be made to the
Beneficiary equal to the Annuity Unit Value of the Subaccount or Subaccounts as
of the date that notice of death in writing is received by First Investors Life
at its Executive Office or other designated office, multiplied by the excess, if
any, of (a) over (b) where (a) is the Net Accumulated Value allocated to each
Subaccount and applied under the option at the Annuity Commencement Date,
divided by the corresponding Annuity Unit Value as of the Annuity Commencement
Date, and (b) is the product of the number of Annuity Units applicable under the
Subaccount represented by each annuity payment and the number of annuity
payments made. (For an illustration of this calculation, see Appendix II,
Example A, in the Statement of Additional Information.)
ALLOCATION OF ANNUITY. The Contractowner 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, no transfers or redemptions are allowed. Such elections must
be made in writing to First Investors Life at its Executive Office or other
designated office, at least 30 days prior to the Annuity Commencement Date. In
the absence
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<PAGE>
of an election, annuity payments will be made on a variable basis only under
Annuity Option 3 above, Life Annuity with 120 monthly payments guaranteed, which
is the Basic Annuity.
DEATH BENEFIT DURING THE ACCUMULATION PERIOD
If the Annuitant dies prior to the Annuity Commencement Date, First Investors
Life will pay a Death Benefit to the Beneficiary designated by the Contractowner
upon receipt of a death certificate or similar proof of the death of the
Annuitant. The value of the Death Benefit will be determined as of the
Valuation Date on or next following the date on which written notice of death is
received by First Investors Life at its Executive Office or other designated
office.
If payment of the Death Benefit under one of the Annuity Options was not
elected by the Contractowner prior to the Annuitant's death, the Beneficiary may
elect to have the Death Benefit paid in a single sum or applied to provide an
annuity under one of the Annuity Options or as otherwise permitted by First
Investors Life. If a single sum settlement is requested, the proceeds will be
paid within seven days of receipt of such election and due proof of death. If
an Annuity Option is desired, election may be made by the Beneficiary during a
ninety-day period commencing with the date of receipt of notification of death.
If such an election is not made, a single sum settlement will be made to the
Beneficiary at the end of such ninety-day period. If any Annuity Option is
elected, the Annuity Commencement Date shall be the date specified in the
election but no later than ninety days after receipt by First Investors Life of
notification of death.
The amount of the Death Benefit will be the greater of (1) the gross purchase
payments (prior to any deductions or charges) made under an Individual Contract
less any amount of purchase payments surrendered, or (2) the Accumulated Value.
SURRENDER AND TERMINATION (REDEMPTION) DURING THE ACCUMULATION PERIOD
A Contractowner may elect, at any time before the earlier of the Annuity
Commencement Date or the death of the Annuitant, to surrender the Contract for
all or any part of the Contractowner's Individual Account. In the event of a
termination of the Contract, First Investors Life will, upon due surrender of
the Contract at the Executive Office of First Investors Life or other designated
office, pay to the Contractowner the Accumulated Value of the Contract. If only
a portion of the amount of the Contractowner's Individual Account is requested,
the amount so requested shall be deducted from the Subaccount resulting in a
corresponding reduction in the number of Accumulation Units credited to the
Contractowner in the Subaccount. All Accumulated Values described in this
section will be determined as of the end of the Valuation Period during which
the written request is received by First Investors Life at its Executive Office
or other designated office. First Investors Life may defer any such payment for
a period of not more than 7 days. However, First Investors Life may postpone
such payment during any period when (a) trading on the New York Stock Exchange
is restricted as determined by the Securities and Exchange Commission or such
Exchange is closed for other than weekends and holidays, (b) the Securities and
Exchange Commission has by order permitted such suspension or (c) an emergency,
as defined by the rules of the Securities and Exchange Commission, exists during
which time the sale of portfolio securities or calculation of securities is not
reasonably practicable. For information as to Federal tax consequences
resulting from surrenders, see "Federal Income Tax Status." For information as
to State premium tax consequences, see "Other Charges" and "Appendix I."
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<PAGE>
DEATH OF CONTRACTOWNER
If the Contractowner dies before the entire interest in the Contract has been
distributed, the value of the Contract must be distributed to the Beneficiary as
provided below so that the Contract qualifies as an annuity under Section 72(s)
of the Internal Revenue Code of 1986, as amended (the "Code").
If the death of the Contractowner occurs on or after the Annuity Commencement
Date, the entire interest in the Contract will be distributed at least as
rapidly as under the Annuity Option in effect on the date of death.
If the death of the Contractowner occurs prior to the Annuity Commencement
Date, the entire interest in the Contract will be (1) distributed to the
Beneficiary within five years, or (2) distributed under an Annuity Option
beginning within one year which provides that annuity payments will be made 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, no distributions will be required and the Contract may be continued with
the surviving spouse as the new Contractowner. If the Contractowner is also the
Annuitant, such spouse shall have 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 shall have the right to become
the Contractowner and the Annuitant.
TEN-DAY REVOCATION RIGHT
A Contractowner may, within ten days from the date the Contract is delivered
to the Contractowner, elect to cancel the Contract. First Investors Life will,
upon surrender of the Contract, together with a written request for
cancellation, at the Executive Office of First Investors Life or other
designated office, pay to the Contractowner an amount equal to the Accumulated
Value of the Contract on the date of surrender plus the amount of any sales
charges deducted from the initial purchase payment. The amount refunded to
Contractowners may be more or less than their initial purchase payment depending
on the investment results of the designated Subaccount(s).
FEDERAL INCOME TAX STATUS
The Contracts are designed for use (a) by individuals in retirement plans
which will not be qualified plans under the provisions of the Code; and (b) in
the following retirement plans qualified for special tax treatment under the
Code (1) individual retirement annuities and (2) qualified corporate employee
pension and profit-sharing plans. In general, a Contract acquired by a person
who is not an individual will be treated as one which is not an annuity to the
extent of contributions made after February 28, 1986, and any income received by
such person under the Contract will accordingly, be includable in gross income
on a current basis in accordance with that person's method of accounting. The
preceding sentence will not apply to any annuity contract that is (i) acquired
by a decedent's estate by reason of the decedent's death, (ii) held under a
qualified pension, profit-sharing or stock bonus plan described under Section
401(a) of the Code or an employee annuity program described under Section 403(a)
of the Code (or that is purchased by an employer upon the termination of such
plan or program and that is held by the employer until all amounts under a
Contract are distributed to the employee for whom the Contract was purchased or
the employee's beneficiary), (iii) held under an individual retirement plan or
an employee annuity program described
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under Section 403(b) of the Code, or (iv) an immediate annuity (as defined in
Section 72(u)(4) of the Code).
The ultimate effect of Federal income taxes on Accumulated Values, on annuity
payments and on the economic benefit to the Contractowner, Annuitant or
Beneficiary depends on the tax status of both First Investors Life and the
individual concerned. The discussion contained herein is general in nature and
is not intended as tax advice. No attempt is made to consider any applicable
state or other tax laws. Moreover, the discussion herein is based upon First
Investors Life's understanding of Federal income tax laws as they are currently
interpreted. No representation is made regarding the likelihood of continuation
of current Federal income tax laws or the current interpretations of the
Internal Revenue Service. Prospective Contractowners should consult their tax
advisors as to the tax consequences of purchasing Contracts.
First Investors Life is taxed as a life insurance company under the Code.
Since Separate Account C is not a separate entity from First Investors Life and
its operation forms part of First Investors Life, it will not be taxed
separately as a "regulated investment company" under Subchapter M of the Code.
Under existing Federal income tax law, investment income of the Subaccounts of
Separate Account C, to the extent that it is applied (after taking into account
the mortality risk and expense risk charges) to increase reserves under the
Contract, is not taxed and may be compounded through reinvestment without
additional tax to First Investors Life to the extent income is so applied.
Thus, the Series may realize net investment income and pay dividends and the
Subaccounts of Separate Account C may receive and reinvest them on behalf of
Contractowners, all without Federal income tax consequences for Separate Account
C or the Contractowner.
Under current interpretations of the Code, the Contractowner is not subject to
income tax on increases in the value of the Contractowner's Individual Account
until payments are received by the Contractowner under the Contract. Annuity
payments received after the Annuity Commencement Date will be taxed to the
Contractowner as ordinary income in accordance with Section 72 of the Code.
However, that portion of each payment which represents the Contractowner's
investment in the Contract, as defined in Section 72, will be excluded from
gross income. The investment in the Contract, which is ordinarily the amount of
purchase payments made under the Contract with certain adjustments, is divided
by the Contractowner's life expectancy or other period for which annuity
payments are expected to be made to determine the annual exclusion. Annuity
payments received each year in excess of this annual exclusion are taxable as
ordinary income as provided in Section 72 of the Code.
In order that the Contracts be treated as annuities for Federal income tax
purposes, Separate Account C must satisfy certain diversification requirements
that are generally applicable to regulated investment companies under Subchapter
M of the Code. Ownership by the Subaccounts of shares of the Series will not
fail the diversification requirements provided that the Series meet such
requirements, and all shares of the Series are owned only by the Subaccounts
(and similar accounts of First Investors Life or other insurance companies), and
access to the Series is available exclusively through the purchase of Contracts
(and additional variable annuity or life insurance products of First Investors
Life or other insurance companies). Series shares also may be held by the
Adviser provided such shares are being held in connection with the creation or
management of the Series. The Adviser does not intend to sell any Series shares
it owns to the general public. It is expected that the Adviser will cause the
assets of the Series to be invested in a manner that complies with the asset
diversification requirements.
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With respect to withdrawals before the start of annuity payments, the Code
currently provides that: (i) withdrawals from an annuity contract are taxable as
ordinary income in the year of receipt to the extent that income from investment
has been earned, (ii) a loan under, or an assignment or pledge of an annuity
contract is treated as a distribution, and (iii) a 10 percent penalty will be
assessed on the taxable portion of withdrawals made prior to the taxpayer's
attainment of age 59 1/2.
In determining the amount of any distribution that is includable in gross
income, all annuity contracts issued by the same company to the same
Contractowner during any 12-month period will be treated as one annuity
contract. Contractowners should consult their tax advisors before purchasing
more than one Contract during any 12-month period.
Under the Code, income tax must generally be withheld from all "designated
distributions." A designated distribution includes the taxable portion of any
distribution or payment from an annuity. A partial surrender of an annuity
contract is considered a distribution subject to withholding.
The amount of withholding depends on the type of payment: "periodic" or "non-
periodic." For a periodic payment (e.g., an annuity payment), unless the
recipient files an appropriate withholding certificate, the tax withheld from
the taxable portion of the payment is based on a payroll withholding schedule
which assumes a married recipient claiming three withholding exemptions. For a
non-periodic payment distribution (e.g., a partial surrender of an annuity
contract), the tax withheld will generally be 10 percent of the taxable portion
of the payment.
A recipient may elect not to have the withholding rules apply. For periodic
payments, an election is effective for the calendar year for which it is made
and for each necessary year until amended or modified. For non-periodic
distributions, an election is effective only for the distribution for which it
is made. Payors must notify recipients of their right to elect to have taxes
withheld.
Insurers are required to report all designated distribution payments to the
Internal Revenue Service.
With respect to the Contracts issued in connection with retirement or deferred
compensation plans which do not meet the requirements applicable to tax
qualified plans, the tax status of the Annuitant is determined by the provisions
of the plan. In general, the Annuitant is not taxed until the Annuitant
receives annuity payments. The rules for taxation of payments under non-
qualified plans are, in general, similar to those for taxation of payments under
a qualified plan; however, the special income averaging treatment available for
certain lump sum payments under qualified plans is not available for similar
payments under non-qualified plans.
The Contracts may be purchased in connection with the following types of tax-
favored retirement plans: (1) individual retirement annuities and (2) pension
and profit-sharing plans of corporations qualified under Section 401(a) or
employee annuity programs described in Section 403(a) of the Code. The tax
rules applicable to these plans, including restrictions on contributions and
benefits, taxation of distribution and any tax penalties, vary according to the
type of plan and its terms and conditions. Participants under such plans, as
well as Contractowners, Annuitants and Beneficiaries, should be aware that the
rights of any person to any benefits under such plans may be subject to the
terms and conditions of the plans themselves, regardless of the terms and
conditions of the Contracts. Purchasers of Contracts for use with any qualified
plan, as well as plan participants and
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Beneficiaries, should consult counsel and other competent advisors as to the
suitability of the Contracts to their special needs, and as to applicable Code
limitations and tax consequences.
It should be noted that the laws and regulations with respect to the foregoing
tax matters are subject to change at any time by Congress and the Treasury
Department, respectively, and that the interpretations of such laws and
regulations now in effect are subject to change by judicial decision or by the
Treasury Department.
PERFORMANCE INFORMATION
From time to time, Separate Account C may advertise several types of
performance information for the Subaccounts. All Subaccounts may advertise
"average annual total return" and "total return," except "average annual total
return" is not shown for the Cash Management Subaccount. The High Yield
Subaccount, Investment Grade Subaccount and Government Subaccount may also
advertise "yield." The Cash Management Subaccount may advertise "yield" and
"effective yield." Each of these figures is based upon historical earnings and
is not necessarily representative of the future performance of a Subaccount.
The yield and effective yield figures include the payment of the Mortality and
Expense Risk fee of 1.00% but do not include the maximum sales charge of 7.00%.
Average annual total return and total return calculations measure the net
income of a Subaccount plus the effect of any realized or unrealized
appreciation or depreciation of the underlying investments in a Subaccount for
the period in question. Average annual total return will be quoted for one,
five and ten year periods, or for shorter time periods depending upon the length
of time during which the Subaccount has operated. Average annual total return
figures are annualized and, therefore, represent the average annual percentage
change in the value of an investment in a Subaccount over the period in
question. Total return figures are not annualized and represent the actual
percentage change over the period in question. Average annual total return and
total return figures will include the deduction of all expenses and fees,
including the payment of the maximum sales charge of 7.00% and the payment of
the Mortality and Expense Risk fee of 1.00%.
Yield is a measure of the net dividend and interest income earned over a
specific one month or 30-day period (seven-day period for the Cash Management
Subaccount) expressed as a percentage of the value of the Subaccount's
Accumulation Units. Yield is an annualized figure, which means that it is
assumed that the Subaccount generates the same level of net income over a one-
year period which is compounded on a semi-annual basis. The effective yield for
the Cash Management Subaccount is calculated similarly but includes the effect
of assumed compounding calculated under rules prescribed by the Securities and
Exchange Commission. The Cash Management Subaccount's effective yield will be
slightly higher than its yield due to this compounding effect.
For further information on performance calculations, see "Performance
Information" in the Statement of Additional Information.
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TABLE OF CONTENTS
OF THE STATEMENT OF ADDITIONAL
INFORMATION
<TABLE>
<CAPTION>
Item Page
- -------- ----
<S> <C>
General Description...................................................... 2
Services................................................................. 2
Purchase of Securities................................................... 4
Deduction Table.......................................................... 4
Annuity Payments......................................................... 5
Other Information........................................................ 6
Performance Information.................................................. 6
Relevance of Financial Statements........................................ 10
Appendices............................................................... 11
Financial Statements..................................................... 16
</TABLE>
APPENDIX I
STATE AND LOCAL TAXES*
<TABLE>
<S> <C>
Alabama.......................... 1.00%
Alaska........................... -
Arizona.......................... -
Arkansas......................... -
California....................... 2.35
Colorado......................... -
Connecticut...................... -
Delaware......................... -
District of Columbia............. 2.25
Florida.......................... -
Georgia.......................... -
Illinois......................... -
Indiana.......................... -
Iowa............................. -
Kentucky......................... 2.00
Louisiana........................ -
Maryland......................... -
Massachusetts.................... -
Michigan......................... -
Minnesota........................ -
</TABLE>
<TABLE>
<S> <C>
Mississippi...................... 2.00%
Missouri......................... -
Nebraska......................... -
New Jersey....................... -
New Mexico....................... -
New York......................... -
North Carolina................... 1.875
Ohio............................. -
Oklahoma......................... -
Oregon........................... -
Pennsylvania..................... 2.00
Rhode Island..................... -
South Carolina................... -
Tennessee........................ -
Texas............................ -
Utah............................. -
Virginia......................... -
Washington....................... -
West Virginia.................... 1.00
Wyoming.......................... 1.00
</TABLE>
- ------------------
Note: The foregoing rates are subject to amendment by legislation and the
applicability of the stated rates may be subject to administrative
interpretation.
* Includes local annuity premium taxation.
20
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TABLE OF CONTENTS
- -----------------
<TABLE>
<S> <C>
Glossary of Special Terms.................... 2
Fee Table.................................... 3
Condensed Financial Information.............. 4
General Description.......................... 5
Purchases, Deductions, Charges and Expenses.. 10
Variable Annuity Contracts................... 12
Federal Income Tax Status.................... 16
Performance Information...................... 19
Table of Contents of the
Statement of Additional Information....... 20
Appendix I - State and Local Taxes........... 20
</TABLE>
Life 327
FIRST INVESTORS LIFE
VARIABLE ANNUITY
FUND C
- ---------------------------
Individual Variable
Annuity Contracts
- ---------------------------
Prospectus
- ----------------------------
May 1, 1995
First Investors Logo
Logo is described as follows: the arabic numeral one separated into seven
vertical segments followed by the words "First Investors."
Vertical line from top to bottom in center of the page about l/2 inch in
thickness.
<PAGE>
FIRST INVESTORS LIFE SERIES FUND
95 Wall Street, New York, New York 10005/(212) 858-8200
This is a Prospectus for FIRST INVESTORS LIFE SERIES FUND ("Fund"), an
open-end, diversified management investment company. The Fund offers ten
separate investment series, each of which has different investment objectives
and policies: BLUE CHIP SERIES, CASH MANAGEMENT SERIES, DISCOVERY SERIES,
GOVERNMENT SERIES, GROWTH SERIES, HIGH YIELD SERIES, INTERNATIONAL SECURITIES
SERIES, INVESTMENT GRADE SERIES, TARGET MATURITY 2007 SERIES and UTILITIES
INCOME SERIES (collectively, "Series"). Each Series' investment objectives are
listed on the inside cover.
Investments in a Series are made through purchases of the Level
Premium Variable Life Insurance Policies ("Policies") or the Individual Variable
Annuity Contracts ("Contracts") offered by First Investors Life Insurance
Company ("First Investors Life"). Policy premiums, net of certain expenses, are
paid into a unit investment trust, First Investors Life Insurance Company
Separate Account B ("Separate Account B"). Purchase payments for the Contracts,
net of certain expenses, are also paid into a unit investment trust, First
Investors Life Variable Annuity Fund C ("Separate Account C"). Separate Account
B and Separate Account C ("Separate Accounts") pool these proceeds to purchase
shares of a Series designated by purchasers of the Policies or Contracts.
Investments in the Series are used to fund benefits under the Policies and
Contracts. TARGET MATURITY 2007 SERIES is only offered to Contractowners of
Separate Account C.
AN INVESTMENT IN THE FUND, INCLUDING CASH MANAGEMENT SERIES, IS
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE
THAT THE CASH MANAGEMENT SERIES WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE. INVESTMENTS BY THE HIGH YIELD SERIES IN HIGH-YIELD,
HIGH RISK SECURITIES, COMMONLY REFERRED TO AS "JUNK BONDS," MAY ENTAIL RISKS
THAT ARE DIFFERENT OR MORE PRONOUNCED THAN THOSE THAT WOULD RESULT FROM
INVESTMENT IN HIGHER-RATED SECURITIES. SEE "HIGH YIELD SECURITIES--RISK
FACTORS."
This Prospectus sets forth concisely the information about the Series
that a prospective investor should know before investing and should be retained
for future reference. First Investors Management Company, Inc. ("FIMCO" or
"Adviser") serves as investment adviser to the Series. A Statement of
Additional Information ("SAI"), dated May 1, 1995 (which is incorporated by
reference herein), has been filed with the Securities and Exchange Commission.
The SAI is available at no charge upon request to the Fund at the address or
telephone number indicated above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
An investment in these securities is not a deposit or obligation of,
or guaranteed or endorsed by, any bank and is not federally insured or protected
by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any
other governmental agency.
The date of this Prospectus is May 1, 1995
<PAGE>
The investment objectives of each Series of the Fund offered by this
Prospectus are as follows:
BLUE CHIP SERIES. The investment objective of BLUE CHIP SERIES is to
seek high total investment return consistent with the preservation of capital.
This goal will be sought by investing, under normal market conditions, primarily
in equity securities of larger, well-capitalized companies with high potential
earnings growth that have shown a history of dividend payments, commonly known
as "Blue Chip" companies.
CASH MANAGEMENT SERIES. The objective of CASH MANAGEMENT SERIES is to
seek to earn a high rate of current income consistent with the preservation of
capital and maintenance of liquidity. The CASH MANAGEMENT SERIES will invest in
money market obligations, including high quality securities issued or guaranteed
by the U.S. Government or its agencies and instrumentalities, bank obligations
and high grade corporate instruments.
DISCOVERY SERIES. The investment objective of DISCOVERY SERIES is to
seek long-term capital appreciation, without regard to dividend or interest
income, through investment in the common stock of companies with small to medium
market capitalization that the Adviser considers to be undervalued or less well
known in the current marketplace and to have the potential for capital growth.
GOVERNMENT SERIES. The investment objective of GOVERNMENT SERIES is
to seek to achieve a significant level of current income which is consistent
with security and liquidity of principal by investing, under normal market
conditions, primarily in obligations issued or guaranteed as to principal and
interest by the U.S. Government, its agencies or instrumentalities, including
mortgage-related securities.
GROWTH SERIES. The investment objective of GROWTH SERIES is to seek
long-term capital appreciation. This goal will be sought by investing, under
normal market conditions, primarily in common stocks of companies and industries
selected for their growth potential.
HIGH YIELD SERIES. The primary objective of HIGH YIELD SERIES is to
seek to earn a high level of current income. The Series actively seeks to
achieve its secondary objective of capital appreciation to the extent consistent
with its primary objective. The Series seeks to attain its objectives primarily
through investments in lower-grade, high-yielding, high risk debt securities,
commonly referred to as "junk bonds" ("High Yield Securities").
INTERNATIONAL SECURITIES SERIES. The primary objective of
INTERNATIONAL SECURITIES SERIES is to seek long-term capital growth. As a
secondary objective, the Series seeks to earn a reasonable level of current
income. These objectives are sought, under normal market conditions, through
investment in common stocks, rights and warrants, preferred stocks, bonds and
other debt obligations issued by companies or governments of any nation, subject
to certain restrictions with respect to concentration and diversification.
INVESTMENT GRADE SERIES. The investment objective of INVESTMENT GRADE
SERIES is to seek a maximum level of income consistent with investment in
investment grade debt securities.
TARGET MATURITY 2007 SERIES. The investment objective of TARGET
MATURITY 2007 SERIES is to seek a predictable compounded investment return for
investors who hold their Series' shares until the Series' maturity, consistent
with preservation of capital. The Series will seek its objective by investing,
under normal market conditions, at least 65% of its total assets in zero coupon
securities which are issued by the U.S. Government, its agencies or
instrumentalities or created by third parties using securities issued by the
U.S. Government, its agencies or instrumentalities. The Series intends to
2
<PAGE>
terminate in the year 2007. AS A RESULT OF THE VOLATILE NATURE OF THE MARKET
FOR ZERO COUPON SECURITIES, THE VALUE OF SERIES' SHARES PRIOR TO THE SERIES'
MATURITY MAY FLUCTUATE SIGNIFICANTLY IN PRICE. THUS, TO ACHIEVE A PREDICTABLE
RETURN, INVESTORS MUST HOLD THEIR INVESTMENTS IN THE SERIES UNTIL THE SERIES
LIQUIDATES SINCE THE SERIES' VALUE CHANGES DAILY WITH MARKET CONDITIONS.
ACCORDINGLY, ANY INVESTOR WHO REDEEMS HIS OR HER SHARES PRIOR TO THE SERIES'
MATURITY IS LIKELY TO ACHIEVE A DIFFERENT INVESTMENT RESULT THAN THE RETURN THAT
WAS PREDICTED ON THE DATE THE INVESTMENT WAS MADE, AND MAY EVEN SUFFER A
SIGNIFICANT LOSS. There can be no assurance that the objective of the Series
will be realized.
UTILITIES INCOME SERIES. The primary investment objective of
UTILITIES INCOME SERIES is to seek high current income. Long-term capital
appreciation is a secondary objective. These objectives are sought, under
normal market conditions, through investment in equity and debt securities
issued by companies primarily engaged in the public utilities industry.
There can be no assurance that any Series will achieve its investment
objectives. See "Investment Objectives and Policies" for a detailed description
of each Series' investment objectives and policies.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following table sets forth the per share operating performance data for a
share of beneficial interest outstanding, total return, ratios to average net
assets and other supplemental data for each period indicated. Financial
highlights are not presented for TARGET MATURITY 2007 SERIES since this Series
did not commence operations until May 1995. The table below has been derived
from financial statements which have been examined by Tait, Weller & Baker,
independent certified public accountants, whose report thereon appears in the
Statement of Additional Information ("SAI"). This information should be read in
conjunction with the Financial Statements and Notes thereto, which also appear
in the SAI, available at no charge upon request to the Fund.
<TABLE>
<CAPTION>
PER SHARE DATA
---------------------------------------------------------------------------------------------------------
Income from Investment Operations Less Distributions from
--------------------------------------- -----------------------
Net
Asset
Net Asset Value Net Realized Value
--------------- Net and Unrealized Total from Net Net --------
Beginning of Investment Gain (Loss) Investment Investment Realized Total End of
Period Income on Investments Operations Income Gains Distributions Period
--------------- ---------- -------------- ---------- --------- -------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BLUE CHIP
- ---------
3/8/90* to 12/31/90 $10.00 $ .07 $ (.02) $ .05 $ -- $ -- $ -- $10.05
1991 10.05 .12 2.50 2.62 .05 -- .05 12.62
1992 12.62 .16 .67 .83 .21 -- .21 13.24
1993 13.24 .15 .97 1.12 .15 -- .15 14.21
1994 14.21 .18 (.39) (.21) .08 .17 .25 13.75
CASH MANAGEMENT
- ---------------------------
11/9/87* to 12/31/87 1.00 .002 -- .002 .002 -- .002 1.00
1988 1.00 .048 -- .048 .048 -- .048 1.00
1989 1.00 .075 -- .075 .075 -- .075 1.00
1990 1.00 .072 -- .072 .072 -- .072 1.00
1991 1.00 .054 -- .054 .054 -- .054 1.00
1992 1.00 .029 -- .029 .029 -- .029 1.00
1993 1.00 .027 -- .027 .027 -- .027 1.00
1994 1.00 .037 -- .037 .037 -- .037 1.00
DISCOVERY
- ---------------------------
11/9/87 to 12/31/87 10.00 .02 -- .02 -- -- -- 10.02
1988 10.02 .26 .10 .36 -- -- -- 10.38
1989 10.38 .19 2.19 2.38 .27 .09 .36 12.40
1990 12.40 .14 (.78) (.64) .15 .90 1.05 10.71
1991 10.71 .07 5.42 5.49 .18 -- .18 16.02
1992 16.02 -- 2.51 2.51 .03 .15 .18 18.35
1993 18.35 -- 3.92 3.92 -- .91 .91 21.36
1994 21.36 .06 (.62) (.56) -- .94 .94 19.86
GOVERNMENT
- ---------------------------
1/7/92* to 12/31/92 10.00 .47 .51 .98 .33 -- .33 10.65
1993 10.65 .64 (.02) .66 .70 .19 .89 10.42
1994 10.42 .79 (1.21) (.42) .25 .05 .30 9.70
- ------------------------------------------------------------------------------------------------------------------------------------
* Commencement of operations
** Adjusted to reflect ten-for-one stock split on May 1, 1991
+ Some or all expenses have been waived or assumed by the investment adviser
from commencement of operations through December 31, 1994.
++ The effect of fees and charges incurred at the separate account level are
not reflected in these performance figures.
(a) Annualized
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
RATIOS / SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets Ratio to Average Net Assets Portfolio
Total End of Period Ratio to Average Net Assets Before Expenses Waived or Assumed Turnover
--------------------------------- -----------------------------------------
Return++(%) (in thousands) Expenses(%) Net Income(%) Expenses(%) Net Investment Income(%) Rate(%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
.61(a) $ 3,656 -- 2.95(a) 1.92(a) 1.03(a) 15
26.17 13,142 1.00 1.88 1.55 1.34 21
6.67 23,765 .79 1.66 .86 1.60 40
8.51 34,030 .88 1.27 N/A N/A 37
(1.45) 41,424 .88 1.49 N/A N/A 82
5.05(a) 17 -- -- -- -- N/A
4.94 33 -- 4.99 7.68 (2.69) N/A
7.79 2,210 -- 7.84 1.35 6.49 N/A
7.49 8,203 .39 6.90 1.15 6.15 N/A
5.71 9,719 .57 5.39 .93 5.03 N/A
3.02 8,341 .79 2.99 .98 2.81 N/A
2.70 4,243 .60 2.67 1.05 2.22 N/A
3.77 3,929 .60 3.69 1.04 3.25 N/A
1.38(a) 18 -- -- -- -- 0
3.59 125 -- 3.80 3.10 .70 158
23.62 283 -- 2.43 4.78 (2.35) 231
(5.47) 960 -- 2.97 2.68 .28 104
51.73 4,661 .70 .48 1.49 (.31) 93
15.74 10,527 .91 .02 1.05 (.12) 91
22.20 21,221 .87 (.03) N/A N/A 69
(2.53) 30,244 .88 .36 N/A N/A 53
9.95(a) 5,064 .03(a) 6.64(a) .89(a) 5.79(a) 301
6.35 8,234 .35 6.60 .84 6.11 525
(4.10) 7,878 .35 6.74 .90 6.19 457
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PER SHARE DATA
---------------------------------------------------------------------------------------------------------
Income from Investment Operations Less Distributions from
---------------------------------------- -----------------------
Net
Net Asset Asset
Value Net Realized Value
------------- Net and Unrealized Total from Net Net ---------
Beginning of Investment Gain (Loss) on Investment Investment Realized Total End of
Period Income Investments Operations Income Gains Distributions Period
------------- ---------- -------------- ---------- ---------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GROWTH
- ------
11/9/87* to 12/31/87 $10.00 $ .02 $ -- $ .02 $ -- $ -- $ -- $10.02
1988 10.02 .26 .51 .77 -- -- -- 10.79
1989 10.79 .02 2.51 2.53 .18 .12 .30 13.02
1990 13.02 .16 (.55) (.39) .06 -- .06 12.57
1991 12.57 .17 4.15 4.32 .18 -- .18 16.71
1992 16.71 .08 1.41 1.49 .18 1.38 1.56 16.64
1993 16.64 .07 .93 1.00 .09 .10 .19 17.45
1994 17.45 .09 (.60) (.51) -- .21 .21 16.73
HIGH YIELD
- ---------------------------
11/9/87* to 12/31/87 10.00 -- -- -- -- -- -- 10.00
1988 10.00 .74 .82 1.56 -- -- -- 11.56
1989 11.56 .74 (.92) (.18) .56 .11 .67 10.71
1990 10.71 1.08 (1.79) (.71) .83 -- .83 9.17
1991 9.17 1.16 1.66 2.82 1.18 -- 1.18 10.81
1992 10.81 1.11 .21 1.32 1.69 -- 1.69 10.44
1993 10.44 .96 .88 1.84 1.12 -- 1.12 11.16
1994 11.16 .87 (1.14) (.27) .31 -- .31 10.58
INTERNATIONAL SECURITIES
- ---------------------------
4/16/90* to 12/31/90 10.00 .03 .34 .37 -- -- -- 10.37
1991 10.37 .09 1.49 1.58 .03 .05 .08 11.87
1992 11.87 .15 (.28) (.13) .15 .22 .37 11.37
1993 11.37 .10 2.41 2.51 .14 -- .14 13.74
1994 13.74 .14 (.32) (.18) .05 -- .05 13.51
INVESTMENT GRADE
- ---------------------------
1/7/92* to 12/31/92 10.00 .43 .44 .87 .34 -- .34 10.53
1993 10.53 .65 .49 1.14 .71 .01 .72 10.95
1994 10.95 .67 (1.06) (.39) .16 .09 .25 10.31
UTILITIES INCOME
- ---------------------------
11/15/93* to 12/31/93 10.00 .01 (.07) (.06) -- -- -- 9.94
1994 9.94 .24 (.96) (.72) .03 -- .03 9.19
- ------------------------------------------------------------------------------------------------------------------------------------
* Commencement of operations
+ Some or all expenses have been waived or assumed by the investment adviser
from commencement of operations through December 31, 1994.
++ The effect of fees and charges incurred at the separate account level are
not reflected in these performance figures.
(a) Annualized
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
RATIOS / SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to
Average Net Assets
Net Assets Before Expenses Portfolio
Total End of Period Ratio to Average Net Assets Waived or Assumed Turnover
--------------------------------- ----------------------------------------
Return++(%) (in thousands) Expenses(%) Net Income(%) Expenses(%) Net Investment Income(%) Rate(%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1.38(a) $ 18 -- -- -- -- 0
7.68 38 -- 3.20 8.70 (5.50) 31
24.00 570 -- 2.91 5.21 (2.30) 24
(2.99) 2,366 -- 3.03 1.64 1.40 28
34.68 7,743 .69 1.21 1.34 .55 148
9.78 16,385 .76 .75 1.20 .30 45
6.00 25,658 .91 .43 N/A N/A 51
(2.87) 32,797 .90 .60 N/A N/A 40
0 88 -- -- -- -- 0
15.60 4,564 -- 13.22 1.32 11.90 46
(1.76) 14,354 -- 12.05 .88 11.17 22
(5.77) 18,331 -- 13.21 .91 12.30 35
33.96 23,634 .53 11.95 .89 11.60 40
13.15 24,540 .91 10.48 .96 10.43 84
18.16 30,593 .91 9.49 N/A N/A 96
(1.56) 32,285 .88 9.43 N/A N/A 50
5.21(a) 3,946 -- .99(a) 3.43(a) (2.43)(a) 29
15.24 8,653 1.70 .75 2.27 .18 70
(1.13) 12,246 1.03 1.55 1.38 1.20 36
22.17 21,009 1.14 .97 N/A N/A 37
(1.29) 31,308 1.03 1.22 N/A N/A 36
8.91(a) 4,707 .23(a) 6.16(a) .93(a) 5.46(a) 72
10.93 10,210 .35 6.32 .85 5.82 64
(3.53) 11,602 .37 6.61 .92 6.06 15
(4.66)(a) 494 -- 1.46(a) 3.99(a) (2.52)(a) 0
(7.24) 4,720 .17 4.13 .95 3.35 31
</TABLE>
7
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
BLUE CHIP SERIES
BLUE CHIP SERIES seeks to provide investors with high total investment return
consistent with the preservation of capital. The Series seeks to achieve its
objective by investing, under normal market conditions, at least 65% of its
total assets in securities of "Blue Chip" companies, including common and
preferred stocks and securities convertible into common stock, that the Adviser
believes have potential earnings growth that is greater than the average company
included in the Standard & Poor's 500 Composite Stock Price Index ("S&P 500").
The Series also may invest up to 35% of its total assets in the equity
securities of non-Blue Chip companies that the Adviser believes have significant
potential for growth of capital or future income consistent with the
preservation of capital. When market conditions warrant, or when the Adviser
believes it is necessary to achieve the Series' objective, the Series may invest
up to 25% of its total assets in fixed income securities.
The Series defines Blue Chip companies as those companies that have a market
capitalization of at least $300 million, are dividend paying and are included in
the S&P 500. Market capitalization is the total market value of a company's
outstanding common stock. Blue Chip companies are considered to be of
relatively high quality and generally exhibit superior fundamental
characteristics, which may include: potential for consistent earnings growth, a
history of profitability and payment of dividends, leadership position in their
industries and markets, proprietary products or services, experienced
management, high return on equity and a strong balance sheet. Blue Chip
companies usually exhibit less investment risk and share price volatility than
smaller, less established companies. Examples of Blue Chip companies are
American Telephone & Telegraph, General Electric, Pepsico Inc. and Bristol-Myers
Squibb.
The fixed income securities in which the Series may invest include money
market instruments (including prime commercial paper, certificates of deposit of
domestic branches of U.S. banks and bankers' acceptances), obligations issued or
guaranteed as to principal and interest by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), including mortgage-related
securities, and corporate debt securities. However, no more than 5% of the
Series' net assets may be invested in corporate debt securities rated below Baa
by Moody's Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's
Ratings Group ("S&P"). The Series may borrow money for temporary or emergency
purposes in amounts not exceeding 5% of its total assets. The Series may also
invest up to 5% of its net assets in American Depository Receipts ("ADRs"),
enter into repurchase agreements and make loans of portfolio securities. See
the SAI for additional information concerning these securities.
CASH MANAGEMENT SERIES
CASH MANAGEMENT SERIES seeks to earn a high rate of current income consistent
with the preservation of capital and maintenance of liquidity. The Series
generally can invest only in securities that mature within 397 days from the
date of purchase. In addition, the Series maintains a dollar-weighted average
portfolio maturity of 90 days or less.
CASH MANAGEMENT SERIES invests primarily in (1) high quality marketable
securities issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities, (2) bank certificates of deposit,
bankers' acceptances, time deposits and other short-term obligations
8
<PAGE>
issued by banks and (3) prime commercial paper and high quality, U.S. dollar
denominated short-term corporate bonds and notes. The U.S. Government securities
in which the Series may invest include a variety of U.S. Treasury securities
that differ in their interest rates, maturities and dates of issue. Securities
issued or guaranteed by agencies or instrumentalities of the U.S. Government may
be supported by the full faith and credit of the United States or by the right
of the issuer to borrow from the U.S. Treasury. See the SAI for additional
information on U.S. Government securities. The Series may invest in domestic
bank certificates of deposit (insured up to $100,000) and bankers' acceptances
(not insured) issued by domestic banks and savings institutions which are
insured by the Federal Deposit Insurance Corporation ("FDIC") and that have
total assets exceeding $500 million. The Series also may invest in certificates
of deposit issued by London branches of domestic or foreign banks ("Eurodollar
CDs"). The Series may invest in time deposits and other short-term obligations,
including uninsured, direct obligations bearing fixed, floating or variable
interest rates, issued by domestic banks, foreign branches of domestic banks,
foreign subsidiaries of domestic banks and domestic and foreign branches of
foreign banks. See Appendix A to the SAI for a description of commercial paper
ratings and Appendix B to the SAI for a description of municipal note ratings.
The Series also may invest in repurchase agreements with banks that are members
of the Federal Reserve System or securities dealers that are members of a
national securities exchange or are market makers in U.S. Government securities,
and, in either case, only where the debt instrument subject to the repurchase
agreement is a U.S. Treasury or agency obligation.
CASH MANAGEMENT SERIES also may purchase high quality, U.S. dollar
denominated short-term bonds and notes, including variable rate and master
demand notes issued by domestic and foreign corporations (including banks).
Floating and variable rate demand notes and bonds permit the Series, as the
holder, to demand payment of principal at any time, or at specified intervals
not exceeding 397 days, in each case upon not more than 30 days' notice. The
Series may borrow money for temporary or emergency purposes in amounts not
exceeding 5% of its total assets and make loans of portfolio securities. See
"Description of Certain Securities, Other Investment Policies and Risk Factors"
for additional information concerning these securities.
CASH MANAGEMENT SERIES may purchase only obligations that (1) the Adviser
determines present minimal credit risks based on procedures adopted by the
Fund's Board of Trustees, and (2) are either (a) rated in one of the top two
rating categories by at least two nationally recognized statistical ratings
organizations ("NRSROs") (or one, if only one rated the security) or (b) unrated
securities that the Adviser determines are of comparable quality. Securities
qualify as being in the top rating category ("First Tier Securities") if at
least two NRSROs (or one, if only one rated the security) have given it the
highest rating. If only one NRSRO has rated a security, or it is unrated, the
acquisition of that security must be approved or ratified by the Fund's Board of
Trustees. The Series' purchases of commercial paper are limited to First Tier
Securities. The Series may not invest more than 5% of its total assets in
securities rated in the second highest rating category ("Second Tier
Securities"). Investments in Second Tier Securities of any one issuer are
limited to the greater of 1% of the Series' total assets or $1 million. The
Series generally may invest no more than 5% of its total assets in the
securities of a single issuer (other than securities issued by the U.S.
Government, its agencies or instrumentalities).
9
<PAGE>
DISCOVERY SERIES
DISCOVERY SERIES seeks long-term capital appreciation, without regard to
dividend or interest income. The Series seeks to achieve its objective by
investing in the common stock of companies with small to medium market
capitalization that the Adviser considers to be undervalued or less well known
in the current marketplace and to have potential for capital growth.
The Series seeks to invest in the common stock of companies that are
undervalued in the current market in relation to fundamental economic values
such as earnings, sales, cash flow and tangible book value; that are early in
their corporate development (i.e., before they become widely recognized and well
known and while their reputations and track records are still emerging); or that
offer the possibility of greater earnings because of revitalized management, new
products or structural changes in the economy. Such companies primarily are
those with small to medium market capitalization, which the Series considers to
be market capitalization of up to $1 billion. The Adviser believes that, over
time, these securities are more likely to appreciate in price than securities
whose market prices have already reached their perceived economic value. In
addition, the Series intends to diversify its holdings among as many companies
and industries as the Adviser deems appropriate.
Companies that are early in their corporate development may be dependent on
relatively few products or services, may lack adequate capital reserves, may be
dependent on one or two management individuals and may have less of a track
record or historical pattern of performance. In addition, there may be less
information available as to the issuers and their securities may not be well
known to the general public and may not yet have wide institutional ownership.
Thus, the investment risk is higher than that normally associated with larger,
older or better-known companies.
Investments in securities of companies with small to medium market
capitalization are generally considered to offer greater opportunity for
appreciation and to involve greater risk of depreciation than securities of
companies with larger market capitalization. Because the securities of most
companies with small to medium market capitalization are not as broadly traded
as those of companies with larger market capitalization, these securities are
often subject to wider and more abrupt fluctuations in market price. In the
past, there have been prolonged periods when these securities have substantially
underperformed or outperformed the securities of larger capitalization
companies. In addition, smaller capitalization companies generally have fewer
assets available to cushion an unforeseen adverse occurrence and thus such an
occurrence may have a disproportionately negative impact on these companies.
The Series may invest up to 10% of its total assets in common stocks issued
by foreign companies which are traded on a recognized domestic or foreign
securities exchange. In addition to the fundamental analysis of companies and
their industries which it performs for U.S. issuers, the Adviser evaluates the
economic and political climate of the country in which the company is located
and the principal securities markets in which such securities are traded.
Although the foreign stocks in which the Series invests are primarily
denominated in foreign currencies, the Series also may invest in ADRs. The
Adviser does not attempt to time actively either short-term market trends or
short-term currency trends in any market. See "Foreign Securities--Risk
Factors" and "American Depository Receipts and Global Depository Receipts."
10
<PAGE>
The Series may borrow money for temporary or emergency purposes in amounts
not exceeding 5% of its total assets. The Series also may enter into repurchase
agreements and may make loans of portfolio securities. For temporary defensive
purposes, the Series may invest all of its assets in U.S. Government
Obligations, prime commercial paper, certificates of deposit and bankers'
acceptances. See the SAI for more information regarding these securities.
GOVERNMENT SERIES
GOVERNMENT SERIES seeks to achieve a significant level of current income
which is consistent with security and liquidity of principal by investing, under
normal market conditions, at least 65% of its assets in U.S. Government
Obligations, including mortgage-related securities. Securities issued or
guaranteed as to principal and interest by the U.S. Government include a variety
of Treasury securities, which differ only in their interest rates, maturities
and times of issuance. Although the payment of interest and principal on a
portfolio security may be guaranteed by the U.S. Government or one of its
agencies or instrumentalities, shares of the Series are not insured or
guaranteed by the U.S. Government or any agency or instrumentality. The net
asset value of shares of the Series generally will fluctuate in response to
interest rate levels. When interest rates rise, prices of fixed income
securities generally decline; when interest rates decline, prices of fixed
income securities generally rise. See "U.S. Government Obligations" and "Debt
Securities-Risk Factors," below.
The Series may invest in mortgage-related securities, including those
involving Government National Mortgage Association ("GNMA") certificates,
Federal National Mortgage Association ("FNMA") certificates and Federal Home
Loan Mortgage Corporation ("FHLMC") certificates. The Series also may invest in
securities issued or guaranteed by other U.S. Government agencies or
instrumentalities, including: the Federal Farm Credit System and the Federal
Home Loan Bank (each of which may not borrow from the U.S. Treasury and the
securities of which are not guaranteed by the U.S. Government); the Tennessee
Valley Authority, and the U.S. Postal Service (each of which may borrow from the
U.S. Treasury to meet its obligations); the Farmers Home Administration and the
Export-Import Bank (the securities of which are backed by the full faith and
credit of the United States). The Series normally reinvests principal payments
(whether regular or pre-paid) in additional mortgage-related securities. See
"Mortgage-Related Securities," below.
The Series may invest up to 35% of its assets in securities other than U.S.
Government Obligations and mortgage-related securities. These may include:
prime commercial paper, certificates of deposit of domestic branches of U.S.
banks, bankers' acceptances, repurchase agreements (applicable to U.S.
Government Obligations), insured certificates of deposit and certificates
representing accrual on U.S. Treasury securities. The Series also may make
loans of portfolio securities and invest in zero coupon securities. The Series
may borrow money for temporary or emergency purposes in amounts not exceeding 5%
of its total assets. See the SAI for a further discussion of these securities.
For temporary defensive purposes, the Series may invest all of its assets in
cash, cash equivalents and money market instruments, including bank certificates
of deposit, bankers' acceptances and commercial paper issued by domestic
corporations, short-term fixed income securities or U.S. Government Obligations.
See the SAI for a description of these securities.
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<PAGE>
GROWTH SERIES
The investment objective of GROWTH SERIES is long-term capital appreciation.
Current income through the receipt of interest or dividends from investments
will merely be incidental to the Series' efforts in pursuing its goal. It is
the policy of the Series to invest, under normal market conditions, primarily in
common stocks and it is anticipated that the Series will usually be so invested.
It also may invest to a limited degree in convertible securities and preferred
stocks. At least 75% of the value of the Series' total assets (excluding
securities held for defensive purposes) shall be invested in securities of
companies in industries in which the Adviser, or the Series' investment
subadviser, Wellington Management Company ("Subadviser" or "WMC"), believes
opportunities for capital growth exist. The Series does not intend to
concentrate its investments in a particular industry, but it may invest up to
25% of the value of its assets in a particular industry. The Series may also
invest in ADRs, purchase securities on a when-issued or delayed delivery basis
and make loans of portfolio securities. The Series may borrow money for
temporary or emergency purposes in amounts not exceeding 5% of its total assets.
For temporary defensive purposes, the Series may invest all of its assets in
U.S. Government Obligations, investment grade bonds, prime commercial paper,
certificates of deposit, bankers' acceptances, repurchase agreements and
participation interests. See the SAI for a description of these securities.
HIGH YIELD SERIES
HIGH YIELD SERIES primarily seeks high current income and secondarily seeks
growth of capital. The Series actively seeks to achieve its secondary objective
to the extent consistent with its primary objective. The Series seeks to
achieve its objectives by investing, under normal market conditions, at least
65% of its total assets in high risk, high yield securities, commonly referred
to as "junk bonds" ("High Yield Securities"). High Yield Securities include the
following instruments: fixed, variable or floating rate debt obligations
(including bonds, debentures and notes) which are rated below Baa by Moody's or
below BBB by S&P, or, if unrated, are deemed to be of comparable quality by the
Adviser; preferred stocks and dividend-paying common stocks that have yields
comparable to those of high yielding debt securities; any of the foregoing
securities of companies that are financially troubled, in default or undergoing
bankruptcy or reorganization ("Deep Discount Securities"); and any securities
convertible into any of the foregoing. See "High Yield Securities--Risk
Factors" and "Deep Discount Securities."
The Series may invest up to 5% of its total assets in foreign debt securities
issued by foreign governments and companies located outside the United States
and denominated in foreign currency. The Series may borrow money for temporary
or emergency purposes in amounts not exceeding 5% of its total assets, make
loans of portfolio securities, enter into repurchase agreements and invest in
zero coupon and pay-in-kind securities. The Series may also invest in
securities on a "when issued" or delayed delivery basis. See the SAI for more
information concerning these securities.
The Series may invest up to 35% of its total assets in securities other than
High Yield Securities, including: dividend-paying common stocks; securities
convertible into, or exchangeable for, common stock; debt obligations of all
types (including bonds, debentures and notes) rated A or better by Moody's or
S&P; U.S. Government Obligations; warrants and money market instruments
consisting of prime commercial paper, certificates of deposit of domestic
branches of U.S. banks, bankers' acceptances and repurchase agreements.
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<PAGE>
In any period of market weakness or of uncertain market or economic
conditions, the Series may establish a temporary defensive position to preserve
capital by having all or part of its assets invested in investment grade debt
securities or retained in cash or cash equivalents, including bank certificates
of deposit, bankers' acceptances, U.S. Government Obligations and commercial
paper issued by domestic corporations. See the SAI for more information
concerning these securities.
The medium- to lower-rated, and certain of the unrated securities in which
the Series invests tend to offer higher yields than higher-rated securities with
the same maturities because the historical financial condition of the issuers of
such securities may not be as strong as that of other issuers. Debt obligations
rated lower than Baa or BBB by Moody's or S&P, respectively, are speculative and
generally involve more risk of loss of principal and income than higher-rated
securities. Also, their yields and market value tend to fluctuate more than
higher quality securities. The greater risks and fluctuations in yield and
value occur because investors generally perceive issuers of lower-rated and
unrated securities to be less creditworthy. These risks cannot be eliminated,
but may be reduced by diversifying holdings to minimize the portfolio impact of
any single investment. In addition, fluctuations in market value does not
affect the cash income from the securities, but are reflected in the Series' net
asset value. When interest rates rise, the net asset value of the Series tends
to decrease. When interest rates decline, the net asset value of the Series
tends to increase.
Variable or floating rate debt obligations in which the Series may invest
periodically adjust their interest rates to reflect changing economic
conditions. Thus, changing economic conditions specified by the terms of the
security would serve to change the interest rate and the return offered to the
investor. This reduces the effect of changing market conditions on the
security's underlying market value.
A High Yield Security may itself be convertible into or exchangeable for
equity securities, or may carry with it the right to acquire equity securities
evidenced by warrants attached to the security or acquired as part of a unit
with the security. Although the Series invests primarily in High Yield
Securities, securities received upon conversion or exercise of warrants and
securities remaining upon the break-up of units or detachment of warrants may be
retained to permit orderly disposition, to establish a long-term holding basis
for Federal income tax purposes or to seek capital appreciation.
Because of the greater number of investment considerations involved in
investing in High Yield Securities, the achievement of the Series' investment
objectives depends more on the Adviser's research abilities than would be the
case if the Series were investing primarily in securities in the higher rated
categories. Because medium- to lower-rated securities generally involve greater
risks of loss of income and principal than higher-rated securities, investors
should consider carefully the relative risks associated with investments in
securities that carry medium to lower ratings or, if unrated, deemed to be of
comparable quality by the Adviser. See "High Yield Securities--Risk Factors"
and Appendix A for a description of corporate bond ratings.
The dollar weighted average of credit ratings of all bonds held by the Series
during the 1994 fiscal year, computed on a monthly basis, is set forth below.
This information reflects the average composition of the Series' assets during
the 1994 fiscal year and is not necessarily representative of the Series as of
the end of its 1994 fiscal year, the current fiscal year or at any other time in
the future.
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<TABLE>
<CAPTION>
COMPARABLE QUALITY OF
UNRATED SECURITIES TO
RATED BY MOODY'S BONDS RATED BY MOODY'S
----------------- -----------------------
<S> <C> <C>
Baa 1.07% 0%
Ba 12.74 1.72
B 67.88 2.31
Caa 4.82 0.98
Ca 0.10 0
----- ----
Total 86.61% 5.01%
</TABLE>
INTERNATIONAL SECURITIES SERIES
INTERNATIONAL SECURITIES SERIES primarily seeks long-term capital growth and
secondarily seeks to earn a reasonable level of current income. The Series may
invest in all types of securities issued by companies and government
instrumentalities of any nation, subject only to industry concentration and
issuer diversification restrictions described below and in the SAI. This
investment flexibility permits the Series to react to rapidly changing economic
conditions among countries which cause the relative attractiveness of
investments within national markets to be subject to frequent reappraisal. It
is a fundamental policy of the Series that no more than 35% of its total assets
will be invested in securities issued by U.S. companies and U.S. Government
Obligations or cash and cash equivalents denominated in U.S. currency. In
addition, the Series presently does not intend to invest more than 35% of its
total assets in any one particular country. Further, except for temporary
defensive purposes, the Series' assets will be invested in securities of at
least three different countries outside the United States. For defensive
purposes, the Series may temporarily invest in securities issued by U.S.
companies and the U.S. Government and its agencies and instrumentalities, or
cash equivalents denominated in U.S. currency, without limitation as to amount.
See "Foreign Securities--Risk Factors".
The Series may purchase securities traded on any foreign stock exchange. The
Series may also purchase American Depository Receipts ("ADRs") and Global
Depository Receipts ("GDRs"). See "American Depository Receipts and Global
Depository Receipts," below. The Series also may invest up to 25% of its total
assets in unlisted securities of foreign issuers; provided, however, that no
more than 15% of the value of its net assets may be invested in unlisted
securities with a limited trading market and other illiquid investments. The
investment standards for the selection of unlisted securities are the same as
those used in the purchase of securities traded on a stock exchange.
The Series may invest in warrants, which may or may not be listed on a
recognized United States or foreign exchange. The Series also may enter into
repurchase agreements, purchase securities on a when-issued or delayed delivery
basis and make loans of portfolio securities. The Series also may borrow money
for temporary or emergency purposes in amounts not exceeding 5% of its total
assets. See the SAI for further information concerning these securities.
INVESTMENT GRADE SERIES
INVESTMENT GRADE SERIES seeks to generate a maximum level of income
consistent with investment in investment grade debt securities. The Series
seeks to achieve its objective by investing, under normal market conditions, at
least 65% of its total assets in debt securities of U.S. issuers that are rated
in the four highest rated categories by Moody's or S&P, or in unrated
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<PAGE>
securities that are deemed to be of comparable quality by the Adviser
("investment grade securities"). The Series may invest up to 35% of its total
assets in U.S. Government Obligations, including mortgage-related securities,
dividend-paying common and preferred stocks, obligations convertible into common
stocks, repurchase agreements, debt securities rated below investment grade and
money market instruments. The Series may invest up to 5% of its net assets in
corporate or government debt securities of foreign issuers which are U.S. dollar
denominated and traded in U.S. markets. The Series may also borrow money for
temporary or emergency purposes in amounts not exceeding 5% of its total assets.
The Series may purchase securities on a when-issued basis, make loans of
portfolio securities and invest in zero coupon or pay-in-kind securities. See
"Description of Certain Securities, Other Investment Policies and Risk Factors,"
below, and the SAI for additional information concerning these securities.
The published reports of rating services are considered by the Adviser in
selecting rated securities for the Series' portfolio. The Adviser also relies,
among other things, on its own credit analysis, which includes a study of the
existing debt's capital structure, the issuer's ability to service debt (or to
pay dividends, if investing in common or preferred stock) and the current trend
of earnings for the issuer. Although up to 100% of the Series' total assets can
be invested in debt securities rated at least Baa by Moody's or at least BBB by
S&P, or unrated debt securities deemed to be of comparable quality by the
Adviser, no more than 5% of the Series' net assets may be invested in debt
securities rated lower than Baa by Moody's or BBB by S&P (including securities
that have been downgraded), or, if unrated, deemed to be of comparable quality
by the Adviser, or in any equity securities of any issuer if a majority of the
debt securities of such issuer are rated lower than Baa by Moody's or BBB by
S&P. Securities rated BBB or Baa by S&P or Moody's, respectively, are
considered to be speculative with respect to the issuer's ability to make
principal and interest payments. The Adviser continually monitors the
investments in the Series' portfolio and carefully evaluates on a case-by-case
basis whether to dispose of or retain a debt security which has been downgraded
to a rating lower than investment grade. See "Debt Securities--Risk Factors"
and Appendix A for a description of corporate bond ratings.
For temporary defensive purposes, the Series may invest all of its assets in
money market instruments, short-term fixed income securities or U.S. Government
Obligations. See the SAI for additional information concerning these
securities.
TARGET MATURITY 2007 SERIES
TARGET MATURITY 2007 SERIES seeks to provide a predictable compounded
investment for investors who hold their Series shares until the Series'
maturity, consistent with preservation of capital. The Series will seek its
objective by investing, under normal market conditions, at least 65% of its
total assets in zero coupon securities which are issued by the U.S. Government
and its agencies and instrumentalities or created by third parties using
securities issued by the U.S. Government and its agencies and instrumentalities.
These investments will mature no later than December 31, , 2007 (the "Maturity
Date"). On the Maturity Date, the Series will be converted to cash and
distributed or reinvested in another series of the Fund at the investor's
choice.
The Series seeks to provide investors with a positive total return at the
Maturity Date which, together with the reinvestment of all dividends and
distributions, exceeds their original investment in the Series by a relatively
predictable amount. While the risk of fluctuation in the values of zero coupon
securities is greater when the period to maturity is longer, that risk tends to
diminish as the
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<PAGE>
Maturity Date approaches. Although an investor can redeem shares at the current
net asset value at any time, any investor who redeems his or her shares prior to
the Maturity Date is likely to achieve a different investment result than the
return that was predicted on the date the investment was made, and may even
suffer a significant loss.
Zero coupon securities are debt obligations that do not entitle the holder to
any periodic payment of interest prior to maturity or a specified date when the
securities begin paying current interest. They are issued and traded at a
discount from their face amount or par value, which discount varies depending on
the time remaining until maturity, prevailing interest rates, liquidity of the
security and the perceived credit quality of the issuer. When held to maturity,
their entire return, which consists of the accretion of the discount, comes from
the difference between their issue price and their maturity value. This
difference is known at the time of purchase, so investors holding zero coupon
securities until maturity know the amount of their investment return at the time
of their investment. The market values are subject to greater market
fluctuations from changing interest rates prior to maturity than the values of
debt obligations of comparable maturities that bear interest currently. See
"Zero Coupon Securities-Risk Factors."
A portion of the total realized return from conventional interest-paying
bonds comes from the reinvestment of periodic interest. Since the rate to be
earned on these reinvestments may be higher or lower than the rate quoted on the
interest-paying bonds at the time of the original purchase, the total return of
interest-paying bonds is uncertain even for investors holding the security to
its maturity. This uncertainty is commonly referred to as reinvestment risk and
can have a significant impact on total realized investment return. With zero
coupon securities, however, there are no cash distributions to reinvest, so
investors bear no reinvestment risk if they hold the zero coupon securities to
maturity.
The Series will primarily purchase three types of zero coupon securities:
(1) U.S. Treasury STRIPS (Separate Trading of Registered Interest and Principal
Securities) which are created when the coupon payments and the principal payment
are stripped from an outstanding Treasury security by the Federal Reserve Bank.
Bonds issued by the Resolution Funding Corporation (REFCORP) can also be
stripped in this fashion. (2) STRIPS which are created when a dealer deposits
a Treasury security or a Federal agency security with a custodian for
safekeeping and then sells the coupon payments and principal payment that will
be generated by this security. Bonds issued by the Financing Corporation (FICO)
can be stripped in this fashion. (3) Zero coupon securities of Federal agencies
and instrumentalities either issued directly by an agency in the form of a zero
coupon bond or created by stripping an outstanding bond.
The Series may invest up to 35% of its total assets in the following
instruments: interest- bearing obligations issued by the U.S. Government and
its agencies and instrumentalities (see "U.S. Government Obligations");
corporate debt securities, including corporate zero coupon securities;
repurchase agreements; and money market instruments consisting of prime
commercial paper, certificates of deposit of domestic branches of U.S. banks and
bankers' acceptances. The TARGET MATURITY 2007 SERIES may only invest in debt
securities rated A or better by Moody's or S&P or in unrated securities that are
deemed to be of comparable quality by the Adviser. Debt obligations rated A or
better by Moody's or S&P comprise what are known as high-grade bonds and are
regarded as having a strong capacity to pay principal and interest. See
Appendix A for a description of corporate bond ratings. The Series may also
invest in restricted and illiquid securities, make loans
16
<PAGE>
of portfolio securities and purchase securities on a when-issued basis. See the
SAI for more information regarding these types of investments.
UTILITIES INCOME SERIES
The primary investment objective of UTILITIES INCOME SERIES is to seek high
current income. Long-term capital appreciation is a secondary objective. The
Series seeks its objectives by investing, under normal market conditions, at
least 65% of its total assets in equity and debt securities issued by companies
primarily engaged in the public utilities industry. Equity securities in which
the Series may invest include common stocks, preferred stocks, securities
convertible into common stocks or preferred stocks, and warrants to purchase
common or preferred stocks. Debt securities in which the Series may invest will
be rated at the time of investment at least A by Moody's or S&P or, if unrated,
will be deemed to be of comparable quality as determined by the Adviser. Debt
securities rated A or higher by Moody's or S&P or, if unrated, deemed to be of
comparable quality by the Adviser, are regarded as having a strong capacity to
pay principal and interest. The Series' policy is to attempt to sell, within a
reasonable time period, a debt security in its portfolio which has been
downgraded below A, provided that such disposition is in the best interests of
the Series and its shareholders. See Appendix A for a description of corporate
bond ratings. The portion of the Series' assets invested in equity securities
and in debt securities will vary from time to time due to changes in interest
rates and economic and other factors.
The utility companies in which the Series will invest include companies
primarily engaged in the ownership or operation of facilities used to provide
electricity, gas, water or telecommunications (including telephone, telegraph
and satellite, but not companies engaged in public broadcasting or cable
television). For these purposes, "primarily engaged" mean that (1) more than
50% of the company's assets are devoted to the ownership or operation of one or
more facilities as described above, or (2) more than 50% of the company's
operating revenues are derived from the business or combination of any of the
businesses described above. It should be noted that based on this definition,
the Series may invest in companies which are also involved to a significant
degree in non-public utilities activities.
Utility stocks generally offer dividend yields that exceed those of
industrial companies and their prices tend to be less volatile than stocks of
industrial companies. However, utility stocks can still be affected by the
risks of the stock of industrial companies. Because the Series concentrates its
investments in public utilities companies, the value of its shares will be
especially affected by factors peculiar to the utilities industry, and may
fluctuate more widely than the value of shares of a fund that invests in a
broader range of industries. See "Utilities Industries--Risk Factors."
The Series may invest up to 35% of its total assets in the following
instruments: debt securities (rated at least A by Moody's or S&P) and common and
preferred stocks of non-utility companies; U.S. Government Obligations;
mortgage-related securities; cash; and money market instruments consisting of
prime commercial paper, bankers' acceptances, certificates of deposit and
repurchase agreements. The Series may invest in securities on a "when-issued"
or delayed delivery basis and make loans of portfolio securities. The Series
may invest up to 5% of its net assets in ADRs. The Series may borrow money for
temporary or emergency purposes in amounts not exceeding 5% of its net assets.
The Series also may invest in zero coupon and pay-in-kind securities. In
addition, in any period of market weakness or of uncertain market or economic
conditions, the Series may establish a temporary defensive position to preserve
capital by having all of its assets invested in short-term
17
<PAGE>
fixed income securities or retained in cash or cash equivalents. See the SAI for
a description of these securities.
GENERAL. Each Series' net asset value fluctuates based mainly upon changes
in the value of its portfolio securities. Each Series' investment objectives
and certain investment limitations set forth in the SAI are fundamental policies
that may not be changed without shareholder approval. There can be no assurance
that any Series will achieve its investment objectives.
DESCRIPTION OF CERTAIN SECURITIES, OTHER INVESTMENT POLICIES AND RISK FACTORS
AMERICAN DEPOSITORY RECEIPTS AND GLOBAL DEPOSITORY RECEIPTS. INTERNATIONAL
SECURITIES SERIES, GROWTH SERIES and DISCOVERY SERIES may invest in sponsored
and unsponsored ADRs. ADRs are receipts typically issued by a U.S. bank or
trust company evidencing ownership of the underlying securities of foreign
issuers, and other forms of depository receipts for securities of foreign
issuers. Generally, ADRs, in registered form, are denominated in U.S. dollars
and are designed for use in the U.S. securities markets. Thus, these securities
are not denominated in the same currency as the securities into which they may
be converted. In addition, the issuers of the securities underlying unsponsored
ADRs are not obligated to disclose material information in the United States
and, therefore, there may be less information available regarding such issuers
and there may not be a correlation between such information and the market value
to the ADRs. INTERNATIONAL SECURITIES SERIES may also invest in GDRs. GDRs
are issued globally and evidence a similar ownership arrangement. Generally,
GDRs are designed for trading in non-U.S. securities markets. ADRs and GDRs are
considered to be foreign securities by INTERNATIONAL SECURITIES SERIES, GROWTH
SERIES and DISCOVERY SERIES, as appropriate. See "Foreign Securities--Risk
Factors."
BANKERS' ACCEPTANCES. Each Series may invest in bankers' acceptances.
Bankers' acceptances are short-term credit instruments used to finance
commercial transactions. Generally, an acceptance is a time draft drawn on a
bank by an exporter or importer to obtain a stated amount of funds to pay for
specific merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
asset or it may be sold in the secondary market at the going rate of interest
for a specific maturity. Although maturities for acceptances can be as long as
270 days, most acceptances have maturities of six months or less.
CERTIFICATES OF DEPOSIT. Each Series may invest in bank certificates of
deposit ("CDs"). The FDIC is an agency of the U.S. Government which insures the
deposits of certain banks and savings and loan associations up to $100,000 per
deposit. The interest on such deposits may not be insured if this limit is
exceeded. Current Federal regulations also permit such institutions to issue
insured negotiable CDs in amounts of $100,000 or more, without regard to the
interest rate ceilings on other deposits. To remain fully insured, these
investments currently must be limited to $100,000 per insured bank or savings
and loan association.
COMMERCIAL PAPER. Commercial paper is a promissory note issued by a
corporation to finance short-term credit needs which may either be unsecured or
backed by a letter of credit. Commercial paper includes notes, drafts or
similar instruments payable on demand or having a maturity at the time of
issuance not exceeding nine months, exclusive of days of grace or any renewal
thereof. See Appendix A to the SAI for a description of commercial paper
ratings.
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<PAGE>
CONVERTIBLE SECURITIES. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or
dividends paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Convertible securities have unique investment
characteristics in that they generally (1) have higher yields than common
stocks, but lower yields than comparable non-convertible securities, (2) are
less subject to fluctuation in value than the underlying stock because they have
fixed income characteristics, and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases. See
the SAI for more information on convertible securities.
DEBT SECURITIES--RISK FACTORS. The market value of debt securities is
influenced primarily by changes in the level of interest rates. Generally, as
interest rates rise, the market value of debt securities decreases. Conversely,
as interest rates fall, the market value of debt securities increases. Factors
which could result in a rise in interest rates, and a decrease in the market
value of debt securities, include an increase in inflation or inflation
expectations, an increase in the rate of U.S. economic growth, an expansion in
the Federal budget deficit or an increase in the price of commodities such as
oil. In addition, the market value of debt securities is influenced by
perceptions of the credit risks associated with such securities. Sale of debt
securities prior to maturity may result in a loss and the inability to replace
the sold securities with debt securities with a similar yield. Debt obligations
rated lower than Baa by Moody's or BBB by S&P, commonly referred to as "junk
bonds" are speculative and generally involve a higher risk of loss of principal
and income than higher-rated securities. See "High Yield Securities--Risk
Factors" and Appendix A for a description of corporate bond ratings.
DEEP DISCOUNT SECURITIES. HIGH YIELD SERIES may invest up to 15% of its
total assets in securities of companies that are financially troubled, in
default or undergoing bankruptcy or reorganization. Such securities are usually
available at a deep discount from the face value of the instrument. The Series
will invest in Deep Discount Securities when the Adviser believes that there
exist factors that are likely to restore the company to a healthy financial
condition. Such factors include a restructuring of debt, management changes,
existence of adequate assets or other unusual circumstances. Debt instruments
purchased at deep discounts may pay very high effective yields. In addition, if
the financial condition of the issuer improves, the underlying value of the
security may increase, resulting in a capital gain. If the company defaults on
its obligations or remains in default, or if the plan of reorganization is
insufficient for debtholders, the Deep Discount Securities may stop paying
interest and lose value or become worthless. The Adviser will balance the
benefits of Deep Discount Securities with their risks. While a diversified
portfolio may reduce the overall impact of a Deep Discount Security that is in
default or loses its value, the risk cannot be eliminated. See "High Yield
Securities--Risk Factors."
EURODOLLAR CERTIFICATES OF DEPOSIT. CASH MANAGEMENT SERIES may invest in
Eurodollar CDs, which are issued by London branches of domestic or foreign
banks. Such securities involve risks that differ from certificates of deposit
issued by domestic branches of U.S. banks. These risks include future political
and economic developments, the possible imposition of United Kingdom withholding
taxes on interest income payable on the securities, the possible establishment
of exchange controls, the possible seizure or nationalization of foreign
deposits or the adoption of other foreign governmental restrictions that might
adversely affect the payment of principal and interest on such securities.
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<PAGE>
FOREIGN SECURITIES--RISK FACTORS. INTERNATIONAL SECURITIES SERIES, GROWTH
SERIES and DISCOVERY SERIES may sell a security denominated in a foreign
currency and retain the proceeds in that foreign currency to use at a future
date (to purchase other securities denominated in that currency) or the Series
may buy foreign currency outright to purchase securities denominated in that
foreign currency at a future date. Because the Series do not intend to hedge
their foreign investments, each Series will be affected by changes in exchange
control regulations and fluctuations in the relative rates of exchange between
the currencies of different nations, as well as by economic and political
developments. Other risks involved in foreign securities include the following:
there may be less publicly available information about foreign companies
comparable to the reports and ratings that are published about companies in the
United States; foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies; some foreign stock markets
have substantially less volume than U.S. markets, and securities of some foreign
companies are less liquid and more volatile than securities of comparable U.S.
companies; there may be less government supervision and regulation of foreign
stock exchanges, brokers and listed companies than exist in the United States;
and there may be the possibility of expropriation or confiscatory taxation,
political or social instability or diplomatic developments which could affect
assets of the INTERNATIONAL SECURITIES SERIES, GROWTH SERIES or DISCOVERY SERIES
held in foreign countries.
INTERNATIONAL SECURITIES SERIES' and DISCOVERY SERIES' investments in
emerging markets include investments in countries whose economies or securities
markets are not yet highly developed. Special considerations associated with
these investments (in addition to the considerations regarding foreign
investments generally) may include, among others, greater political
uncertainties, an economy's dependence on revenues from particular commodities
or on international aid or development assistance, currency transfer
restrictions, a limited number of potential buyers for such securities and
delays and disruptions in securities settlement procedures.
HIGH YIELD SECURITIES--RISK FACTORS. High Yield Securities are subject to
certain risks that may not be present with investments in higher grade
securities.
EFFECT OF INTEREST RATE AND ECONOMIC CHANGES. High Yield Securities rated
lower than Baa by Moody's or BBB by S&P, commonly referred to as "junk bonds"
are speculative and generally involve a higher risk or loss of principal and
income than higher-rated securities. The prices of High Yield Securities tend to
be less sensitive to interest rate changes than higher-rated investments, but
may be more sensitive to adverse economic changes or individual corporate
developments. Periods of economic uncertainty and changes generally result in
increased volatility in the market prices and yields of High Yield Securities
and thus in a Series' net asset value. A strong economic downturn or a
substantial period of rising interest rates could severely affect the market for
High Yield Securities. In these circumstances, highly leveraged companies might
have greater difficulty in making principal and interest payments, meeting
projected business goals, and obtaining additional financing. Thus, there could
be a higher incidence of default. This would affect the value of such
securities and thus a Series' net asset value. Further, if the issuer of a
security owned by a Series defaults, that Series might incur additional expenses
to seek recovery.
Generally, when interest rates rise, the value of fixed rate debt
obligations, including High Yield Securities, tends to decrease; when interest
rates fall, the value of fixed rate debt obligations tends to increase. If an
issuer of a High Yield Security containing a redemption or call provision
exercises either provision in a declining interest rate market, a Series would
have to replace the security,
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which could result in a decreased return for shareholders. Conversely, if a
Series experiences unexpected net redemptions in a rising interest rate market,
it might be forced to sell certain securities, regardless of investment merit.
This could result in decreasing the assets to which Series expenses could be
allocated and in a reduced rate of return for that Series. While it is
impossible to protect entirely against this risk, diversification of a Series'
portfolio and the Adviser's careful analysis of prospective portfolio securities
should minimize the impact of a decrease in value of a particular security or
group of securities in a Series' portfolio.
THE HIGH YIELD SECURITIES MARKET. The market for below investment grade
bonds expanded rapidly in the 1980's, and its growth paralleled a long economic
expansion. During that period, the yields on below investment grade bonds rose
dramatically. Such higher yields did not reflect the value of the income stream
that holders of such bonds expected, but rather the risk that holders of such
bonds could lose a substantial portion of their value as a result of the
issuers' financial restructuring or default. In fact, from 1989 to 1991 during
a period of economic recession, the percentage of lower quality securities that
defaulted rose significantly, although the default rate decreased in subsequent
years. There can be no assurance that such declines in the below investment
grade market will not reoccur. The market for below investment grade bonds
generally is thinner and less active than that for higher quality bonds, which
may limit a Fund's ability to sell such securities at fair value in response to
changes in the economy or the financial markets. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may also decrease the
values and liquidity of lower rated securities, especially in a thinly traded
market.
CREDIT RATINGS. The credit ratings issued by credit rating services may
not fully reflect the true risks of an investment. For example, credit ratings
typically evaluate the safety of principal and interest payments, not market
value risk, of High Yield Securities. Also, credit rating agencies may fail to
change on a timely basis a credit rating to reflect changes in economic or
company conditions that affect a security's market value. Although the Adviser
considers ratings of recognized rating services such as Moody's and S&P, the
Adviser primarily relies on its own credit analysis, which includes a study of
existing debt, capital structure, ability to service debt and to pay dividends,
the issuer's sensitivity to economic conditions, its operating history and the
current trend of earnings. HIGH YIELD SERIES may invest in securities rated D
by S&P or C by Moody's or, if unrated, deemed to be of comparable quality by the
Adviser. Debt obligations with these ratings either have defaulted or in great
danger of defaulting and are considered to be highly speculative. See "Deep
Discount Securities." The Adviser continually monitors the investments in a
Series' portfolio and carefully evaluates whether to dispose of or retain High
Yield Securities whose credit ratings have changed. See Appendix A for a
description of corporate bond ratings.
LIQUIDITY AND VALUATION. Lower-rated bonds are typically traded among a
smaller number of broker-dealers than in a broad secondary market. Purchasers
of High Yield Securities tend to be institutions, rather than individuals, which
is a factor that further limits the secondary market. To the extent that no
established retail secondary market exists, many High Yield Securities may not
be as liquid as higher-grade bonds. A less active and thinner market for High
Yield Securities than that available for higher quality securities may result in
more volatile valuations of a Series' holdings and more difficulty in executing
trades at favorable prices during unsettled market conditions.
The ability of a Series to value or sell High Yield Securities will be
adversely affected to the extent that such securities are thinly traded or
illiquid. During such periods, there may be less
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reliable objective information available and thus the responsibility of the
Fund's Board of Trustees to value High Yield Securities becomes more difficult,
with judgment playing a greater role. Further, adverse publicity about the
economy or a particular issuer may adversely affect the public's perception of
the value, and thus liquidity, of a High Yield Security, whether or not such
perceptions are based on a fundamental analysis.
LEGISLATION. Provisions of the Revenue Reconciliation Act of 1989 limit a
corporate issuer's deduction for a portion of the original issue discount on
"high yield discount" obligations (including certain pay-in-kind securities).
This limitation could have a materially adverse impact on the market for certain
High Yield Securities. From time to time, legislators and regulators have
proposed other legislation that would limit the use of high yield debt
securities in leveraged buyouts, mergers and acquisitions. It is not certain
whether such proposals, which also could adversely affect High Yield Securities,
will be enacted into law.
MORTGAGE-RELATED SECURITIES
Mortgage loans made by banks, savings and loan institutions and other
lenders are often assembled into pools, the interests in which are issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself. Interests in such pools are referred
to herein as "mortgage-related securities." The market value of these
securities will fluctuate as interest rates and market conditions change. In
addition, prepayment of principal by the mortgagees, which often occurs with
mortgage-related securities when interest rates decline, can significantly
change the realized yield of these securities.
GNMA certificates are backed as to the timely payment of principal and
interest by the full faith and credit of the U.S. Government. Payments of
principal and interest on FNMA certificates are guaranteed only by FNMA itself,
not by the full faith and credit of the U.S. Government. FHLMC certificates
represent mortgages for which FHLMC has guaranteed the timely payment of
principal and interest but, like a FNMA certificate, they are not guaranteed by
the full faith and credit of the U.S. Government.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH
SECURITIES. Collateralized mortgage obligations ("CMOs") are debt obligations
collateralized by mortgage loans or mortgage pass-through securities.
Typically, CMOs are collateralized by GNMA certificates or other government
mortgage-backed securities (such collateral collectively hereinafter referred to
as "Mortgage Assets"). Multiclass pass-through securities are interests in
trusts that are comprised of Mortgage Assets. Unless the context indicates
otherwise, references herein to CMOs include Multiclass pass-through securities.
Payments of principal of, and interest on, the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or to make scheduled distributions on the multiclass pass-through securities.
CMOs in which GOVERNMENT SERIES may invest are issued or guaranteed by U.S.
Government agencies or instrumentalities, such as FNMA and FHLMC. See the SAI
for more information on CMOs.
STRIPPED MORTGAGE-BACKED SECURITIES. GOVERNMENT SERIES may invest in
stripped mortgage-backed securities ("SMBS"), which are derivative multiclass
mortgage securities. SMBS are usually structured with two classes that receive
different proportions of the interest and principal distributions from a pool of
mortgage assets. A common type of SMBS will have one class receiving most of
the interest and the remainder of the principal. In the most extreme case, one
class will
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receive all of the interest while the other class will receive all of the
principal. If the underlying Mortgage Assets experience greater than anticipated
prepayments of principal, the Series may fail to fully recoup its initial
investment in these securities. The market value of the class consisting
primarily or entirely of principal payments generally is unusually volatile in
response to changes in interest rates.
RISKS OF MORTGAGE-RELATED SECURITIES. Investments in mortgage-related
securities entail both market and prepayment risk. Fixed-rate mortgage-related
securities are priced to reflect, among other things, current and perceived
interest rate conditions. As conditions change, market values will fluctuate.
In addition, the mortgages underlying mortgage-related securities generally may
be prepaid in whole or in part at the option of the individual buyer.
Prepayments of the underlying mortgages can affect the yield to maturity on
mortgage-related securities and, if interest rates decline, the prepayment may
only be invested at the then prevailing lower interest rate. Changes in market
conditions, particularly during periods of rapid or unanticipated changes in
market interest rates, may result in volatility and reduced liquidity of the
market value of certain mortgage-related securities. CMOs and SMBS involve
similar risks, although they may be more volatile. In addition, because SMBS
were only recently introduced, established trading markets for these securities
have not yet developed, although the securities are traded among institutional
investors and investment banking firms.
PORTFOLIO TURNOVER. The decline in interest rates in 1993 and 1994 had an
impact on the mortgage-related securities market, where a large volume of
prepayments of mortgages occurred. As a result of these prepayments, among
other things, GOVERNMENT SERIES liquidated many of its positions in premium
mortgage-backed securities. This resulted in a portfolio turnover rate of 457%
for the fiscal year ended 1994. A high rate of portfolio turnover generally
leads to increased transaction costs and may result in a greater number of
taxable transactions. See "Allocation of Portfolio Brokerage" in the SAI. The
TARGET MATURITY 2007 SERIES currently does not expect its annual rate of
portfolio turnover to exceed 100%. See the SAI for the other Series' portfolio
turnover rate and for more information on portfolio turnover.
PREFERRED STOCK. A preferred stock is a blend of the characteristics of a
bond and common stock. It can offer the higher yield of a bond and has priority
over common stock in equity ownership, but does not have the seniority of a bond
and, unlike common stock, its participation in the issuer's growth may be
limited. Preferred stock has preference over common stock in the receipt of
dividends and in any residual assets after payment to creditors should the
issuer be dissolved. Although the dividend is set at a fixed annual rate, in
some circumstances it can be changed or omitted by the issuer.
RESTRICTED AND ILLIQUID SECURITIES. Each Series, other than CASH MANAGEMENT
SERIES, may invest up to 15% of its net assets in illiquid securities. CASH
MANAGEMENT SERIES may invest up to 10% of its net assets in illiquid securities.
These securities include (1) securities that are illiquid due to the absence of
a readily available market or due to legal or contractual restrictions on resale
and (2) repurchase agreements maturing in more than seven days. However,
illiquid securities for purposes of this limitation do not include securities
eligible for resale to qualified institutional buyers pursuant to Rule 144A
under the Securities Act of 1933, as amended (the "1933 Act"), which the Fund's
Board of Trustees or the Adviser or, for GROWTH SERIES and INTERNATIONAL
SECURITIES SERIES, their Subadviser, has determined are liquid under Board-
approved guidelines. See the SAI for more information regarding restricted and
illiquid securities.
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Under current guidelines of the staff of the SEC, interest-only and
principal-only classes of fixed-rate mortgage-related securities in which
GOVERNMENT FUND may invest are considered illiquid. However, such securities
issued by the U.S. Government or one of its agencies or instrumentalities will
not be considered illiquid if the Adviser has determined that they are liquid
pursuant to guidelines established by the GOVERNMENT FUND's Board of Directors.
The GOVERNMENT FUND may not be able to sell illiquid securities when the Adviser
considers it desirable to do so or may have to sell such securities at a price
lower than could be obtained if they were more liquid. Also the sale of
illiquid securities may require more time and may result in higher dealer
discounts and other selling expenses than does the sale of securities that are
not illiquid. Illiquid securities may be more difficult to value due to the
unavailability of reliable market quotations for such securities, and investment
in illiquid securities may have an adverse impact on net asset value.
TIME DEPOSITS. CASH MANAGEMENT SERIES may invest in time deposits. Time
deposits are non-negotiable deposits maintained in a banking institution for a
specified period of time at a stated interest rate. For the most part, time
deposits which may be held by the Series would not benefit from insurance from
the Bank Insurance Fund or the Savings Association Insurance Fund administered
by the FDIC.
U.S. GOVERNMENT OBLIGATIONS. Securities issued or guaranteed as to principal
and interest by the U.S. Government include (1) U.S. Treasury obligations which
differ only in their interest rates, maturities and times of issuance as
follows: U.S. Treasury bills (maturities of one year or less), U.S. Treasury
notes (maturities of one to ten years), and U.S. Treasury bonds (generally
maturities of greater than ten years); and (2) obligations issued or guaranteed
by U.S. Government agencies and instrumentalities that are backed by the full
faith and credit of the United States, such as securities issued by the Federal
Housing Administration, GNMA, the Department of Housing and Urban Development,
the Export-Import Bank, the General Services Administration and the Maritime
Administration and certain securities issued by the Farmers Home Administration
and the Small Business Administration. The range of maturities of U.S.
Government Obligations is usually three months to thirty years.
UTILITIES INDUSTRY-RISK FACTORS. Stocks of utilities companies generally
offer dividend yields that exceed those of industrial companies and their prices
tend to be less volatile than stocks of industrial companies. However, utility
stocks can still be affected by the risks of the stock market in general, as
well as factors specific to public utilities companies.
Many utility companies, especially electric and gas and other energy-related
utility companies, have historically been subject to the risk of increases in
fuel and other operating costs, changes in interest rates on borrowing for
capital improvement programs, changes in applicable laws and regulations, and
costs and operating constraints associated with compliance with environmental
regulations. In particular, regulatory changes with respect to nuclear and
conventionally-fueled power generating facilities could increase costs or impair
the ability of utility companies to operate such facilities or obtain adequate
return on invested capital.
Certain utilities, especially gas and telephone utilities, have in recent
years been affected by increased competition, which could adversely affect the
profitability of such utility companies. In addition, expansion by companies
engaged in telephone communication services of their non-regulated activities
into other businesses (such as cellular telephone services, data processing,
equipment retailing, computer services and financial services) has provided the
opportunity for
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increases in earnings and dividends at faster rates than have been allowed in
traditional regulated businesses. However, technological innovations and other
structural changes also could adversely affect the profitability of such
companies in competition with utilities companies.
Because securities issued by utility companies are particularly sensitive to
movements in interest rates, the equity securities of such companies are more
affected by movements in interest rates than are the equity securities of other
companies.
Each of these risks could adversely affect the ability and inclination of
public utilities companies to declare or pay dividends and the ability of
holders of common stock, such as the UTILITIES INCOME SERIES, to realize any
value from the assets of the company upon liquidation or bankruptcy.
VARIABLE RATE AND FLOATING RATE NOTES. CASH MANAGEMENT SERIES may invest in
variable rate and floating rate notes. Issuers of such notes include
corporations, banks, broker-dealers and finance companies. Variable rate notes
include master demand notes which are obligations permitting the holder to
invest fluctuating amounts, which may change daily without penalty, pursuant to
direct arrangements between the Series, as lender, and the borrower. The
interest rates on these notes fluctuate from time to time. The issuer of such
obligations normally has a corresponding right, after a given period, to prepay
in its discretion the outstanding principal amount of the obligations plus
accrued interest upon a specified number of days' notice to the holders of such
obligations. See the SAI for more information on these securities.
ZERO COUPON AND PAY-IN-KIND SECURITIES. Zero coupon securities are debt
obligations that do not entitle the holder to any periodic payment of interest
prior to maturity or a specified date when the securities begin paying current
interest. They are issued and traded at a discount from their face amount or
par value, which discount varies depending on the time remaining until cash
payments begin, prevailing interest rates, liquidity of the security and the
perceived credit quality of the issuer. Pay-in-kind securities are those that
pay interest through the issuance of additional securities. The market prices
of zero coupon and pay-in-kind securities generally are more volatile than the
prices of securities that pay interest periodically and in cash and are likely
to respond to changes in interest rates to a greater degree than do other types
of debt securities having similar maturities and credit quality. Original issue
discount earned on zero coupon securities and the "interest" on pay-in-kind
securities must be included in a Series' income. Thus, to continue to qualify
for tax treatment as a regulated investment company and to avoid a certain
excise tax on undistributed income, a Series may be required to distribute as a
dividend an amount that is greater than the total amount of cash it actually
receives. See "Taxes" in the SAI. These distributions must be made from a
Series' cash assets or, if necessary, from the proceeds of sales of portfolio
securities. A Series will not be able to purchase additional income-producing
securities with cash used to make such distributions, and its current income
ultimately could be reduced as a result.
ZERO COUPON SECURITIES-RISK FACTORS. Zero coupon securities are debt
securities and thus are subject to the same risk factors as all debt securities.
See "Debt Securities-Risk Factors." The market prices of zero coupon
securities, however, generally are more volatile than the prices of securities
that pay interest periodically and in cash and are likely to respond to changes
in interest rates to a greater degree than do other types of debt securities
having similar maturities and credit quality. As a result, the net asset value
of shares of the TARGET MATURITY 2007 SERIES may fluctuate over a greater range
than shares of the other Series or mutual funds that invest in debt obligations
having similar maturities but that make current distributions of interest.
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Zero coupon securities can be sold prior to their due date in the secondary
market at their then prevailing market value, which depends primarily on the
time remaining to maturity, prevailing levels of interest rates and the
perceived credit quality of the issuer. The prevailing market value may be more
or less than the securities' value at the time of purchase. While the objective
of the TARGET MATURITY 2007 SERIES is to seek a predictable compounded
investment return for investors who hold their Series shares until the Series'
maturity, the Series cannot assure that it will be able to achieve a certain
level of return due to the possible necessity of having to sell certain zero
coupon securities to pay expenses, dividends or meet redemptions at times and at
prices that might be disadvantageous or, alternatively, the need to invest
assets received from new purchases at prevailing interest rates, which would
expose the Series to reinvestment risk. In addition, no assurance can be given
as to the liquidity of the market for certain of these securities.
Determination as to the liquidity of such securities will be made in accordance
with guidelines established by the Fund's Board of Trustees. In accordance with
such guidelines, the Adviser will monitor the Series' investments in such
securities with particular regard to trading activity, availability of reliable
price information and other relevant information.
HOW TO BUY SHARES
Investments in a Series are made through purchases of the Policies or the
Contracts offered by First Investors Life. Policy premiums, net of certain
expenses, are paid into a unit investment trust, Separate Account B. Purchase
payments for the Contracts, net of certain expenses, are also paid into a unit
investment trust, Separate Account C. The Separate Accounts pool these proceeds
to purchase shares of a Series designated by purchasers of the Policies or
Contracts. Orders for the purchase of Series shares received prior to the close
of regular trading on the New York Stock Exchange ("NYSE"), generally 4:00 P.M.
(New York City time), on any business day the NYSE is open for trading, will be
processed and shares will be purchased at the net asset value determined at the
close of regular trading on the NYSE on that day. Orders received after the
close of regular trading on the NYSE will be processed at the net asset value
determined at the close of regular trading on the NYSE on the next trading day.
See "Determination of Net Asset Value."
HOW TO REDEEM SHARES
Shares of a Series may be redeemed at the direction of Policyowners or
Contractowners, in accordance with the terms of the Policies or Contracts.
Redemptions will be made at the next determined net asset value of the
respective Series upon receipt of a proper request for redemption or repurchase.
Payment will be made by check as soon as possible but within seven days after
presentation. However, the Fund's Board of Trustees may suspend the right of
redemption or postpone the date of payment during any period when (a) trading on
the NYSE is restricted as determined by the Securities and Exchange Commission
("SEC") or the NYSE is closed for other than weekends and holidays, (b) the SEC
has by order permitted such suspension, or (c) an emergency, as defined by rules
of the SEC, exists during which time the sale or valuation of portfolio
securities held by a Series is not reasonably practicable.
MANAGEMENT
BOARD OF TRUSTEES. The Fund's Board of Trustees, as part of its overall
management responsibility, oversees various organizations responsible for each
Series' day-to-day management.
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ADVISER. First Investors Management Company, Inc. supervises and manages
each Series' investments, supervises all aspects of each Series' operations and,
except for INTERNATIONAL SECURITIES SERIES and GROWTH SERIES, determines each
Series' portfolio transactions. The Adviser is a New York corporation located
at 95 Wall Street, New York, NY 10005. First Investors Consolidated
Corporation ("FICC") owns all of the voting common stock of the Adviser and all
of the outstanding stock of First Investors Corporation and the Transfer Agent.
Mr. Glenn O. Head (or members of his family) and Mrs. Julie W. Grayson (as
executrix of the estate of her deceased husband, David D. Grayson) each control
more than 25% of the voting stock of FICC and, therefore, jointly control the
Adviser.
As compensation for its services, the Adviser receives an annual fee from
each Series, which is payable monthly. For the fiscal year ended December 31,
1994, the advisory fees were 0.75% of average daily net assets for each of BLUE
CHIP SERIES, DISCOVERY SERIES, GROWTH SERIES, HIGH YIELD SERIES and
INTERNATIONAL SECURITIES SERIES, 0.35% of average daily net assets, net of
waiver, for each of GOVERNMENT SERIES and INVESTMENT GRADE SERIES, 0.31% of
average daily net assets, net of waiver, for CASH MANAGEMENT SERIES and 0.17%
average daily net assets, net of waiver, for UTILITIES INCOME SERIES. As
compensation for its services, the Adviser receives a fee from TARGET MATURITY
2007 SERIES at the rate of 0.75% of the average daily net assets of that Series.
Each Series bears all expenses of its operations other than those incurred by
the Adviser under the terms of its advisory agreement. Series expenses include,
but are not limited to: the advisory fee; shareholder servicing fees and
expenses; custodian fees and expenses; legal and auditing fees; expenses of
communicating to existing shareholders, including preparing, printing and
mailing prospectuses and shareholder reports to such shareholders; and proxy and
shareholder meeting expenses.
SUBADVISER. Wellington Management Company has been retained by the Adviser
and the Fund, on behalf of INTERNATIONAL SECURITIES SERIES and GROWTH SERIES, as
each of those Series' investment subadviser. The Adviser has delegated
discretionary trading authority to WMC with respect to all the assets of
INTERNATIONAL SECURITIES SERIES and GROWTH SERIES, subject to the continuing
oversight and supervision of the Adviser and the Board of Trustees. As
compensation for its services, WMC is paid by the Adviser, and not by either
Series, a fee which is computed daily and paid monthly.
WMC, located at 75 State Street, Boston, MA 02109, is a Massachusetts general
partnership of which Robert W. Doran, Duncan M. McFarland and John B. Neff are
Managing Partners. WMC is a professional investment counseling firm which
provides investment services to investment companies, employee benefit plans,
endowment funds, foundations and other institutions and individuals. As of
December 31, 1994, WMC held discretionary investment authority with respect to
approximately $80.0 billion of assets. Of that amount, WMC acted as investment
adviser or subadviser to approximately 110 registered investment companies or
series of such companies, with net assets of approximately $58.3 billion as of
December 31, 1994. WMC is not affiliated with the Adviser or any of its
affiliates.
PORTFOLIO MANAGERS. Patricia D. Poitra, Director of Equities, has been
primarily responsible for the day-to-day management of the BLUE CHIP SERIES
since October 1994 and DISCOVERY SERIES since 1988. Ms. Poitra is assisted by a
team of portfolio analysts. Ms. Poitra has been responsible
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for the management of the Special Situations Series, the Blue Chip Series and
the small capitalization equity portion of Total Return Series, all series of
First Investors Series Fund. Ms. Poitra also is responsible for the management
of the Blue Chip Fund of Executive Investors Trust and the Made In The U.S.A.
Fund of First Investors Series Fund II, Inc. Ms. Poitra joined FIMCO in 1985 as
a Senior Equity Analyst.
George V. Ganter has been Portfolio Manager for HIGH YIELD SERIES since 1989.
Mr. Ganter joined FIMCO in 1985 as an Analyst. In 1986, he was made Portfolio
Manager for First Investors Special Bond Fund, Inc. In 1989, he was made
Portfolio Manager for First Investors High Yield Fund, Inc. and Executive
Investors High Yield Fund.
Margaret R. Haggerty is Portfolio Manager for UTILITIES INCOME SERIES. Ms.
Haggerty joined FIMCO in 1990 as an analyst for several First Investors equity
funds. In addition, she monitored the management of several First Investors
funds for which WMC was the subadviser. In early 1993, she was made Portfolio
Manager for First Investors Utilities Income Series of First Investors Series
Fund II, Inc.
Nancy Jones has been Portfolio Manager for INVESTMENT GRADE SERIES since its
inception in 1992 and CASH MANAGEMENT SERIES since 1989. Ms. Jones joined FIMCO
in 1983 as Director of Research in the High Yield Department. In 1989, she
became Portfolio Manager for First Investors Fund For Income, Inc. Ms. Jones
has been Portfolio Manager for Investment Grade Series of First Investors Series
Fund since its inception in 1991 and has managed the fixed income corporate
securities portion of Total Return Series of First Investors Series Fund since
1992.
Matthew E. Magargel, Vice President of WMC, has been Portfolio Manager for
GROWTH SERIES since 1992. He joined WMC in 1983 as a research analyst and took
on additional responsibilities as a portfolio manager in 1988. In 1991, Mr.
Magargel became solely a portfolio manager with WMC.
Since April 1995, John Tomasulo has been primarily responsible for the day-
to-day management of the GOVERNMENT SERIES and the TARGET MATURITY 2007 SERIES.
Mr. Tomasulo is also responsible for the management of the Government Fund and
for the U.S. Government and mortgage-backed securities portion of the Total
Return Series of First Investors Series Fund. Prior to joining FIMCO, Mr.
Tomasulo was affiliated with Seligman & Co. since 1987 where he assisted in the
management of a U.S. government fund and individual accounts and had primary
responsibility for three money market funds.
As of April 1, 1994, INTERNATIONAL SECURITIES SERIES is managed by WMC's
Global Equity Strategy Group, a group of global portfolio managers and senior
investment professionals headed by Trond Skramstad. Prior to joining WMC as a
portfolio manager in 1993, Mr. Skramstad was a global portfolio manager at
Scudder, Stevens & Clark since 1990.
DETERMINATION OF NET ASSET VALUE
The net asset value of shares of each Series is determined as of the close of
regular trading on the NYSE (generally 4:00 P.M., New York City time) on each
day the NYSE is open for trading, and at such other times as the Fund's Board of
Trustees deems necessary by dividing the value of the securities held by the
Series, plus any cash and other assets, less all liabilities, by the number of
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shares outstanding. If there is no available market value, securities will be
valued at their fair value as determined in good faith pursuant to procedures
adopted by the Board of Trustees. The NYSE currently observes the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The investments in CASH MANAGEMENT SERIES, when purchased at a discount, are
valued at amortized cost and when purchased at face value, are valued at cost
plus accrued interest.
DIVIDENDS AND OTHER DISTRIBUTIONS
For the purposes of determining dividends, the net investment income of each
Series, other than CASH MANAGEMENT SERIES, consists of interest and dividends,
earned discount and other income earned on portfolio securities less expenses.
Net investment income of CASH MANAGEMENT SERIES consists of (i) accrued
interest, plus or minus (ii) all realized and unrealized gains and losses on the
Series' securities, less (iii) accrued expenses. Dividends from net investment
income are generally declared and paid annually by each Series, other than CASH
MANAGEMENT SERIES. Dividends from net investment income are generally declared
daily and paid monthly by CASH MANAGEMENT SERIES. Distributions of a Series'
net capital gain (the excess of net long-term capital gain over net short-term
capital loss), if any, after deducting any available capital loss carryovers,
are declared and paid annually by each Series, other than CASH MANAGEMENT
SERIES, which does not anticipate realizing any such gain. INTERNATIONAL
SECURITIES SERIES, DISCOVERY SERIES and HIGH YIELD SERIES also distribute any
net realized gains from foreign currency transactions with their annual
distribution. All dividends and other distributions are paid in shares of the
distributing Series at net asset value (without sales charge), generally
determined as of the close of business on the business day immediately following
the record date of such distribution.
TAXES
Each Series has qualified and intends to continue to qualify, for treatment
as a regulated investment company ("RIC") under Subchapter M of the Internal
Revenue Code of 1986, as amended ("Code"), so that it will be relieved of
Federal income tax on that part of its investment company taxable income
(consisting generally of net investment income, net short-term capital gain and,
for INTERNATIONAL SECURITIES SERIES, HIGH YIELD SERIES and DISCOVERY SERIES, net
gains from certain foreign currency transactions) and net capital gain that is
distributed to its shareholders.
Shares of the Series are offered only to the Separate Accounts, which are
insurance company separate accounts that fund variable annuity and variable life
insurance contracts. Under the Code, no tax is imposed on an insurance company
with respect to income of a qualifying separate account that is properly
allocable to the value of eligible variable annuity (or variable life insurance)
contracts. Please refer to "Federal Income Tax Status" in the Prospectuses of
Separate Accounts B and C for information as to the tax status of those accounts
and the holders of the Contracts or Policies.
Each Series intends to comply with the diversification requirements imposed
by section 817(h) of the Code and the regulations thereunder. These
requirements, which are in addition to the diversification requirements imposed
on the Series by the 1940 Act and Subchapter M of the Code, place certain
limitations on the assets of Separate Accounts B and C -- and of the Series,
because section 817(h) and those regulations treat the assets of the Series as
assets of Separate Accounts B
29
<PAGE>
and C -- that may be invested in securities of a single issuer. Specifically,
the regulations provide that, except as permitted by the "safe harbor" described
below, as of the end of each calendar quarter (or within 30 days thereafter) no
more than 55% of a Series' total assets may be represented by any one
investment, no more than 70% by any two investments, no more than 80% by any
three investments and no more than 90% by any four investments. For this
purpose, all securities of the same issuer are considered a single investment,
and while each U.S. Government agency and instrumentality is considered a
separate issuer, a particular foreign government and its agencies,
instrumentalities and political subdivisions are considered the same issuer.
Section 817(h) provides, as a safe harbor, that a separate account will be
treated as being adequately diversified if the diversification requirements
under Subchapter M are satisfied and no more than 55% of the value of the
account's total assets are cash and cash items, government securities and
securities of other RICs. Failure of a Series to satisfy the section 817(h)
requirements would result in taxation of First Investors Life and treatment of
the Contract holders and Policyowners other than as described in the
Prospectuses of Separate Accounts B and C.
The foregoing is only a summary of some of the important Federal income tax
considerations generally affecting each Series and its shareholders; see the SAI
for a more detailed discussion. Shareholders are urged to consult their tax
advisers.
GENERAL INFORMATION
ORGANIZATION. The Fund is a Massachusetts business trust organized on June
12, 1985. The Board of Trustees of the Fund has authority to issue an unlimited
number of shares of beneficial interest of separate series, no par value, of the
Fund. The shares of beneficial interest of the Fund are presently divided into
ten separate and distinct series. The Fund does not hold annual shareholder
meetings. If requested to do so by the holders of at least 10% of the Fund's
outstanding shares, the Board of Trustees will call a special meeting of
shareholders for any purpose, including the removal of Trustees.
CUSTODIAN. The Bank of New York, 48 Wall Street, New York, NY 10286, is
custodian of the securities and cash of each Series, except the INTERNATIONAL
SECURITIES SERIES. Brown Brothers Harriman & Co., 40 Water Street, Boston, MA
02109, is custodian of the securities and cash of the INTERNATIONAL SECURITIES
SERIES and employs foreign sub-custodians to provide custody of the Series'
foreign assets.
TRANSFER AGENT. Administrative Data Management Corp., 10 Woodbridge Center
Drive, Woodbridge, NJ 07095-1198, an affiliate of FIMCO and FIC, acts as
transfer agent for each Series and as redemption agent for regular redemptions.
PERFORMANCE. Performance information is contained in the Fund's Annual
Report which may be obtained without charge by contacting First Investors Life
at 212-858-8200.
SHAREHOLDER INQUIRIES. Shareholder inquiries can be made by calling First
Investors Life at 212-858-8200.
ANNUAL AND SEMI-ANNUAL REPORTS TO SHAREHOLDERS. It is the Fund's practice to
mail only one copy of its annual and semi-annual reports to any address at which
more than one shareholder with the same last name has indicated that mail is to
be delivered. Additional copies of the reports
30
<PAGE>
will be mailed if requested in writing or by telephone by any shareholder. The
Fund will ensure that an additional copy of such reports are sent to any
shareholder who subsequently changes his or her mailing address.
APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS
STANDARD & POOR'S RATINGS GROUP
- -------------------------------
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
any audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default-capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization, or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.
AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C Debt rated "BB," "B," "CCC," "CC" and "C" is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal. "BB" indicates the least degree of speculation and "C" the
highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
31
<PAGE>
BB Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
CCC Debt rated "CCC" has a currently identifiable vulnerability to default
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
CC The rating "CC" typically is applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.
C The rating "C" typically is applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
CI The rating "CI" is reserved for income bonds on which no interest is
being paid.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The "D" rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
MOODY'S INVESTORS SERVICE, INC.
- -------------------------------
Aaa Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities,
32
<PAGE>
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risk appear somewhat greater
than the Aaa securities.
A Bonds which are rated "A" possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa Bonds which are rated "Baa" are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba Bonds which are rated "Ba" are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa Bonds which are rated "Caa" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca Bonds which are rated "Ca" represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated "C" are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
33
<PAGE>
In the printed version of the document this is a blank page.
<PAGE>
In the printed version of the document this is a blank page.
<PAGE>
In the printed version of the document this is a blank page.
<PAGE>
TABLE OF CONTENTS
-----------------
Financial Highlights................ 4
Investment Objectives and Policies.. 8
How to Buy Shares................... 26
How to Redeem Shares................ 26
Management.......................... 26
Determination of Net Asset Value.... 28
Dividends and Other Distributions... 29
Taxes............................... 29
General Information................. 30
Appendix A.......................... 31
INVESTMENT ADVISER CUSTODIANS
First Investors Management The Bank of New York
Company, Inc. 48 Wall Street
95 Wall Street New York, NY 10286
New York, NY 10005
Brown Brothers
SUBADVISER Harriman & Co.
Wellington Management 40 Water Street
Company Boston, MA 02109
75 State Street
Boston, MA 02109 AUDITORS
Tait, Weller & Baker
TRANSFER AGENT Two Penn Center Plaza
Administrative Data Philadelphia, PA 19102-1707
Management Corp.
10 Woodbridge Center Drive LEGAL COUNSEL
Woodbridge, NJ 07095-1198 Kirkpatrick & Lockhart
1800 M Street, N.W.
Washington, D.C. 20036
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus or the Statement of Additional Information, and if given or made,
such information and representation must not be relied upon as having been
authorized by the Fund or any affiliate thereof. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any of the
shares offered hereby in any state to any person to whom it is unlawful to make
such offer in such state.
<PAGE>
First Investors
Life Series Fund
- ------------------------------------
Blue Chip Series
Cash Management Series
Discovery Series
Government Series
Growth Series
High Yield Series
International Securities Series
Investment Grade Series
Target Maturity 2007 Series
Utilities Income Series
- ------------------------------------
Prospectus
- ------------------------------------
May 1, 1995
First Investors Logo
Logo is described as follows: the arabic numeral one separated into seven
vertical segments followed by the words "First Investors."
Vertical line from top to bottom in center of page about 1/2 inch in thickness.
The following language appears to the left of the above language in the printed
piece:
The words "BULK RATE U.S. POSTAGE PAID PERMIT NO. 1796" in a box to the right of
a circle containing the words "MAILED FROM ZIP CODE 17604" appears on the
righthand side.
The following language appears on the lefthand side:
FIRST INVESTORS LIFE SERIES FUND
95 WALL STREET
NEW YORK, NY 10005
First Investors Logo (as described above)
A MEMBER OF THE
FIRST INVESTORS
FINANCIAL NETWORK
LIFE325
<PAGE>
FIRST INVESTORS LIFE VARIABLE ANNUITY FUND C
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
OFFERED BY
FIRST INVESTORS LIFE INSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1995
This Statement of Additional Information is not a Prospectus and should be
read in conjunction with the Prospectus for First Investors Life Variable
Annuity Fund C, dated May 1, 1995, which may be obtained at no cost by writing
to First Investors Life Insurance Company, 95 Wall Street, New York, New York
10005, or by telephoning (212) 858-8200.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
General Description................ 2
Services........................... 2
Purchase of Securities............. 4
Deduction Table.................... 5
Annuity Payments................... 5
Other Information.................. 6
Performance Information............ 7
Relevance of Financial Statements.. 11
Appendices......................... 12
Financial Statements............... 17
</TABLE>
1
<PAGE>
GENERAL DESCRIPTION
FIRST INVESTORS LIFE INSURANCE COMPANY. First Investors Life Insurance
Company, 95 Wall Street, New York, New York 10005 ("First Investors Life"), a
stock life insurance company incorporated under the laws of the State of New
York in 1962, writes life insurance, annuities and accident and health
insurance. First Investors Consolidated Corporation ("FICC") owns all of the
voting common stock of First Investors Management Company, Inc. ("FIMCO" or
"Adviser") and all of the outstanding stock of First Investors Corporation
("FIC" or "Underwriter") and the Transfer Agent. Mr. Glenn O. Head (and members
of his family) and Mrs. Julie W. Grayson (as executrix of the estate of her
deceased husband, David D. Grayson) are controlling persons of FICC and,
therefore, jointly control the Adviser.
SEPARATE ACCOUNT C. First Investors Life Variable Annuity Fund C
("Separate Account C") was established on December 21, 1989 under the provisions
of the New York Insurance Law. The assets of Separate Account C are held
separately from the assets of First Investors Life and are not chargeable with
liabilities arising out of any other business of First Investors Life. Separate
Account C is registered as a unit investment trust under the Investment Company
Act of 1940, as amended (the "1940 Act"), but such registration does not involve
any supervision of the management or investment practices or policies of
Separate Account C.
The assets of each Subaccount of Separate Account C are invested at net
asset value in shares of the corresponding Series (the "Series") of First
Investors Life Series Fund (the "Fund"). For example, the Blue Chip Subaccount
invests in the Blue Chip Series, the Government Subaccount invests in the
Government Series, and so on. The Fund's Prospectus describes the risks
attendant to an investment in each Series of the Fund.
SERVICES
CUSTODIAN. First Investors Life, subject to applicable laws and
regulations, is the custodian of the securities of the Subaccounts of Separate
Account C. The assets of the Subaccounts of Separate Account C are held by
United States Trust Company of New York, 114 W. 47th Street, New York, New York
10036 under a safekeeping arrangement. Under the terms of a Safekeeping
Agreement dated December 13, 1979 between First Investors Life and United States
Trust Company of New York, securities and similar investments of the Subaccounts
of Separate Account C shall be deposited in the safekeeping of United States
Trust Company of New York. First Investors Life is responsible for the payment
of all expenses of, and compensation to, United States Trust Company of New York
in such amounts as may be agreed upon from time to time.
INDEPENDENT PUBLIC ACCOUNTANTS. Tait, Weller & Baker, Two Penn Center
Plaza, Philadelphia, PA 19102, independent certified public accountants, has
been selected as the independent accountants for Separate Account C.
ADVISER. Investment advisory services to each Series are provided by First
Investors Management Company, Inc., 95 Wall Street, New York, NY 10005 pursuant
to an Investment Advisory Agreement dated June 13, 1994 (the "Advisory
Agreement"). The Advisory Agreement was approved, with respect to each Series,
by the Fund's Board of Trustees, including a majority of the Trustees who are
not parties
2
<PAGE>
to the Advisory Agreement or "interested persons" (as defined in the 1940 Act)
of any such party, in person at a meeting called for such purpose and by the
shareholders of each Series.
Pursuant to the Advisory Agreement, FIMCO shall supervise and manage each
Series' investments, determine each Series' portfolio transactions and supervise
all aspects of each Series' operations, subject to review by the Fund's
Trustees. The Advisory Agreement also provides that FIMCO shall provide the
Fund and each Series with certain executive, administrative and clerical
personnel, office facilities and supplies, conduct the business and details of
the operation of each Series and assume certain expenses thereof, other than
obligations or liabilities of a Series, such as shareholder servicing fees and
expenses; custodian fees and expenses; legal and auditing fees; expenses of
communicating to existing shareholders, including preparing, printing and
mailing prospectuses and shareholder reports to such shareholders; and proxy and
shareholder meeting expenses.
Under the Advisory Agreement, the Fund pays the Adviser an annual fee, paid
monthly, according to the following schedule:
<TABLE>
<CAPTION>
Annual
Average Daily Net Assets Rate
- ------------------------ ------
<S> <C>
Up to $250 million............................ 0.75%
In excess of $250 million up to $500 million.. 0.72
In excess of $500 million up to $750 million.. 0.69
Over $750 million............................. 0.66
</TABLE>
This fee is calculated separately for each Series.
SUBADVISER. Investment subadvisory services are provided to GROWTH SERIES
and INTERNATIONAL SECURITIES SERIES by Wellington Management Company ("WMC" or
"Subadviser") pursuant to a Subadvisory Agreement dated June 13, 1994 (the
"Subadvisory Agreement"). The Subadvisory Agreement was approved, with respect
to each Series, by the Fund's Board of Trustees, including a majority of the
Trustees who are not parties to the Subadvisory Agreement or "interested
persons" (as defined in the 1940 Act) of any such party, in person at a meeting
called for such purpose and by the shareholders of GROWTH SERIES and
INTERNATIONAL SECURITIES SERIES. The Subadvisory Agreement provides that WMC
shall manage the investment operations of each Series subject to the oversight
and supervision of the Adviser and the Board of Trustees.
Under the Subadvisory Agreement, the Adviser will pay to the Subadviser a
fee at an annual rate of 0.400% of the average daily net assets of each Series
allocated to WMC up to and including $50 million; 0.275% of such average daily
net assets in excess of $50 million up to and including $150 million, 0.225% of
such average daily net assets in excess of $150 million up to and including $500
million; and 0.200% of such average daily net assets in excess of $500 million.
This fee is calculated separately for each of the Series.
WMC, located at 75 State Street, Boston, MA 02109, is a Massachusetts
general partnership of which Robert W. Doran, Duncan M. McFarland and John B.
Neff are Managing Partners. WMC is a professional investment counseling firm
which provides investment services to investment companies, employee benefit
plans, endowment funds, foundations and other institutions and individuals. As
of
3
<PAGE>
December 31, 1994, WMC held discretionary investment authority with respect
to approximately $80.0 billion of assets. Of that amount, WMC acted as
investment adviser or subadviser to approximately 110 registered investment
companies or series of such companies, with net assets of approximately $58.3
billion as of December 31, 1994. WMC is not affiliated with the Adviser or any
of its affiliates.
UNDERWRITER. First Investors Life and Separate Account C have entered into
an Underwriting Agreement with First Investors Corporation. FIC, an affiliate
of First Investors Life, and of the Adviser, by virtue of its 100% ownership by
FICC, their parent company, has its principal business address at 95 Wall
Street, New York, New York 10005. For the fiscal years ended December 31,
1992, 1993 and 1994, FIC received fees of $1,660,995, $2,044,846 and $2,609,538,
respectively, in connection with the distribution of the Contracts.
The Contracts are sold by insurance agents licensed to sell variable
annuities, who are registered representatives of the Underwriter or broker-
dealers who have sales agreements with the Underwriter.
PURCHASE OF SECURITIES
PURCHASE PAYMENTS. Investors in Separate Account C will be purchasing
Accumulation Units of a particular Subaccount only and not shares of the Series
in which the Subaccount invests.
The minimum purchase payment is $2,000 for a Deferred Variable Annuity
Contract. Additional Payments under a Deferred Variable Annuity Contract in the
minimum amount of $200 may be made at any time after the issuance of the
Contract.
Purchase payments will be credited to a Contractowner's Account on the date
of receipt by First Investors Life of a completed application. In the event
First Investors Life receives an incomplete application, all required
information shall be provided not later than five business days following the
receipt of such application or the purchase payment will be returned to the
applicant at the end of such five-day period. Purchase payments, after
deductions for sales expenses and any applicable premium taxes (see "Deductions
from Purchase Payments"), will be allocated to the appropriate Subaccount or
Subaccounts.
DEDUCTIONS FROM PURCHASE PAYMENTS. First Investors Life or FIC, as the
Underwriter, makes deductions, in accordance with the Deduction Table below,
from the purchase payment for expenses in connection with sales functions
relative to the Contracts. Reductions in sales charges are applicable to the
total amount of the purchase payment. In addition, any Additional Payment made
after the issuance of a Deferred Annuity Contract is subject to the sales charge
applicable to the total amount of all purchase payments previously made plus the
amount of the Additional Payment being made. The sales charge is intended to
cover expenses relating to the sale of the Contracts, including commissions paid
to persons distributing the Contracts and costs of preparation of sales
literature.
4
<PAGE>
DEDUCTION TABLE
<TABLE>
<CAPTION>
SALES CHARGE AS % OF
------------------------ CONCESSION TO
OFFERING NET AMOUNT DEALERS AS % OF
AMOUNT OF INVESTMENT PRICE INVESTED OFFERING PRICE
- ------------------------------- ------------ ---------- ---------------
<S> <C> <C> <C>
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
- ---------------------
</TABLE>
* Assumes that no premium taxes have been deducted.
ANNUITY PAYMENTS
VALUE OF AN ACCUMULATION UNIT. For each Subaccount of Separate Account C,
the value of an Accumulation Unit was arbitrarily initially set at $10.00. The
value of an Accumulation Unit for any subsequent Valuation Period is determined
by multiplying the value of an Accumulation Unit for the immediately preceding
Valuation Period by the Net Investment Factor for the Valuation Period for which
the Accumulation Unit Value is being calculated (see Appendix I, Example B). The
investment performance of the Series, expenses and deductions of certain charges
affect the Accumulation Unit Value. The value of an Accumulation Unit for the
Subaccounts may increase or decrease from Valuation Period to Valuation Period.
NET INVESTMENT FACTOR. The Net Investment Factor for each Subaccount for
any Valuation Period is determined by dividing (a) by (b) and subtracting (c)
from the result, where:
(a) is the net result of:
(1) the net asset value per share of the applicable Series determined at
the end of the current Valuation Period, plus
(2) the per share amount of any dividend or capital gains distributions
made by the applicable Series if the "ex-dividend" date occurs during
the current Valuation Period.
(b) is the net asset value per share of the applicable Series determined as of
the end of the immediately preceding Valuation Period.
(c) is a factor representing the charges deducted for mortality and expense
risks. Such factor is equal on an annual basis to 1.00% of the daily net
asset value of the Subaccount. This percentage represents approximately
0.6% charge for the mortality risk assumed and 0.4% charge for the expense
risk assumed.
The Net Investment Factor may be greater or less than one, and therefore,
the value of an Accumulation Unit for any Subaccount may increase or decrease.
(For an illustration of this calculation, see Appendix I, Example A.)
5
<PAGE>
VALUE OF AN ANNUITY UNIT. For each Subaccount of Separate Account C, the
value of an Annuity Unit was arbitrarily initially set at $10.00. The value of
an Annuity Unit for any subsequent Valuation Period is determined by multiplying
the Annuity Unit Value for the immediately preceding Valuation Period by the Net
Investment Factor for the Valuation Period for which the Annuity Unit Value is
being calculated, and multiplying the result by an interest factor to offset the
effect of an investment earnings rate of 3.5% per annum, which is assumed in the
Annuity Tables contained in the Contract. (For an illustration of this
calculation, see Appendix III, Example A.)
AMOUNT OF ANNUITY PAYMENTS. When annuity payments are to commence, the
Accumulated Value to be applied to a variable annuity option will be determined
by multiplying the value of an Accumulation Unit for the Valuation Date on or
immediately preceding the seventh day before the Annuity Commencement Date by
the number of Accumulation Units owned. This seven day period is used to permit
calculation of amounts of annuity payments and mailing of checks in advance of
the due date. At that time any applicable premium taxes not previously deducted
will be deducted from the Accumulated Value to determine the Net Accumulated
Value. The resultant value is then applied to the Annuity Tables set forth in
the Contract to determine the amount of the first monthly annuity payment. The
Contract contains Annuity Tables setting forth the amount of the first monthly
installment for each $1,000 of Accumulated Value applied. These Annuity Tables
vary according to the Annuity Option selected by the Contractowner and according
to the sex and adjusted age of the Annuitant and any Joint Annuitant at the
Annuity Commencement Date. The Contract contains a formula for determining the
adjusted age, and the Annuity Tables are determined from the Progressive Annuity
Table with interest at 3.5% per year and assumes births prior to 1900, adjusted
by a setback of four years of age for persons born 1900 and later and an
additional setback of one year of age for each completed 5 years by which the
year of birth is later than 1900. Annuity Tables used by other insurers may
provide greater or less benefits to the Annuitant.
The dollar amount of the first monthly Variable Payment, based on the
Subaccount determined as above, is divided by the value of an Annuity Unit for
the Subaccount for the Valuation Date on or immediately preceding the seventh
day before the Annuity Commencement Date to establish the number of Annuity
Units representing each monthly payment under the Subaccount. This seven day
period is used to permit calculation of amounts of annuity payments and mailing
of checks in advance of the due date. This number of Annuity Units remains fixed
for all variable annuity payments. The dollar amount of the second and
subsequent variable annuity payments is determined by multiplying the fixed
number of Annuity Units for the Subaccount by the applicable value of an Annuity
Value for the Valuation Date on or immediately preceding the seventh day before
the due date of the payment. The value of an Annuity Unit will vary with the
investment performance of the Series, and, therefore, the dollar amount of the
second and subsequent variable annuity payments may change from month to month.
(For an illustration of the calculation of the first and subsequent Variable
Payments, see Appendix III, Examples B, C and D.)
OTHER INFORMATION
TIME OF PAYMENTS. All payments due under the Contracts will ordinarily be
made within seven days of the payment due date or within seven days after the
date of receipt of a request for partial surrender or termination. However,
First Investors Life reserves the right to suspend or postpone the date of any
payment due under the Contracts (1) for any period during which the New York
Stock Exchange
6
<PAGE>
("NYSE") is closed (other than customary weekend and holiday closings) or during
which trading on the NYSE, as determined by the Securities and Exchange
Commission, is restricted; (2) for any period during which an emergency, as
determined by the Commission, exists as a result of which disposal of securities
held by the Series are not reasonably practical or it is not reasonably
practical to determine the value of the Series' net assets; or (3) for such
other periods as the Commission may by order permit for the protection of
security holders or as may be permitted under the 1940 Act.
REPORTS TO CONTRACTOWNERS. First Investors Life will mail to each
Contractowner, at the last known address of record at the Home Office of First
Investors Life, at least annually, a report containing such information as may
be required by any applicable law or regulation and a statement of the
Accumulation Units credited to the Contract for each Subaccount and the
Accumulation Unit Values. In addition, latest available reports of the Fund
will be mailed to each Contractowner.
ASSIGNMENT. Any amounts payable under the Contracts may not be commuted,
alienated, assigned or otherwise encumbered before they are due. To the extent
permitted by law, no such payments shall be subject in any way to any legal
process to subject them to payment of any claims against any Annuitant, Joint
Annuitant or Beneficiary. The Contracts may be assigned.
PERFORMANCE INFORMATION
Separate Account C may advertise the performance of the Subaccounts in
various ways.
The yield for a Subaccount (other than the Cash Management Subaccount) is
presented for a specified thirty-day period (the "base period"). Yield is based
on the amount determined by (i) calculating the aggregate amount of net
investment income earned by the underlying Series during the base period less
expenses accrued for that period (net of reimbursement), and (ii) dividing that
amount by the product of (A) the average daily number of Accumulation Units of
the Subaccount outstanding during the base period and (B) the maximum public
offering price per Accumulation Unit on the last day of the base period. The
result is annualized by compounding on a semi-annual basis to determine the
Subaccount's yield. For this calculation, interest earned on debt obligations
held by the underlying Series is generally calculated using the yield to
maturity (or first expected call date) of such obligations based on their market
values (or, in the case of receivables-backed securities such as GNMA's, based
on cost). Dividends on equity securities are accrued daily at their estimated
stated dividend rates. For a detailed description of yield calculations for the
Cash Management Subaccount, see "Determination of Current and Effective Yield"
below.
A Subaccount's "average annual total return" ("T") is an average annual
compounded rate of return. The calculation produces an average annual total
return for the number of years measured. It is the rate of return based on
factors which include a hypothetical initial investment of $1,000 ("P" in the
formula below) over a number of years ("n") with an Ending Redeemable Value
("ERV") of that investment, according to the following formula:
T = [ (ERV/P) to the 1/nth power ] - 1
The "total return" uses the same factors, but does not average the rate of
return on an annual basis. Total return is determined as follows:
7
<PAGE>
[ERV-P]/P = TOTAL RETURN
In providing such performance data, each Subaccount will assume the payment of
the maximum sales charge of 7.00% (as a percentage of the purchase payment) on
the initial investment and the payment of the Mortality and Expense Risk Fee of
1.00% ("P"). Each Subaccount will assume that during the period covered all
dividends and capital gain distributions are paid at net asset value per
Accumulation Unit, and that the investment is redeemed at the end of the period.
Average annual total return for each Subaccount for periods ended December 31,
1994 is as follows:
<TABLE>
<CAPTION>
Life of
One Year Five Years Subaccount
-------- ---------- -----------
<S> <C> <C> <C>
Blue Chip Subaccount/*/ (8.35)% N/A 6.34
Discovery Subaccount/**/ (9.35) 12.95 12.76
Government Subaccount/****/ (10.78) N/A 1.39
Growth Subaccount/**/ (9.67) 7.13 8.88
High Yield Subaccount/**/ (8.46) 8.81 7.99
International Securities Subaccount/***/ (8.20) N/A 6.15
Investment Grade Subaccount/****/ (10.25) N/A 2.67
Utilities Income Subaccount/*****/ (13.75) N/A (12.75)
</TABLE>
------------------------
/*/ Commenced operations March 8, 1990
/**/ Commenced operations November 9, 1987
/***/ Commenced operations April 16, 1990
/****/ Commenced operations January 7, 1992
/*****/ Commenced operations November 15, 1993
The total return figures assume the current maximum sales charge of 7.00%.
Prior to December 30, 1991, the maximum sales charge for Separate Account C was
7.25%, which is not reflected in the total return figures.
Average annual total return and total return may also be based on
investment at reduced sales charge levels or at net asset value. Any quotation
of return not reflecting the maximum sales charge will be greater than if the
maximum sales charge were used. Average annual return computed at net asset
value for the period ended December 31, 1994 for each Subaccount is set forth in
the table below:
8
<PAGE>
<TABLE>
<CAPTION>
Life of
One Year Five Years Subaccount
-------- ---------- -----------
<S> <C> <C> <C>
Blue Chip Subaccount/*/ (1.45)% N/A 7.95
Discovery Subaccount/**/ (2.53) 14.60 13.91
Government Subaccount/****/ (4.10) N/A 3.87
Growth Subaccount/**/ (2.87) 8.10 9.99
High Yield Subaccount/**/ (1.57) 10.40 9.09
International Securities Subaccount/***/ (1.29) N/A 7.79
Investment Grade Subaccount/****/ (3.53) N/A 5.19
Utilities Income Subaccount/*****/ (7.24) N/A 6.96
</TABLE>
- ------------------------
/*/ Commenced operations March 8, 1990
/**/ Commenced operations November 9, 1987
/***/ Commenced operations April 16, 1990
/****/ Commenced operations January 7, 1992
/*****/ Commenced operations November 15, 1993
Some of the expenses of the underlying Series were waived from commencement
of operations through December 31, 1994. Accordingly, average annual total
return figures for the Subaccounts are higher than they would have been had such
expenses not been waived.
Total return information may be useful to investors in reviewing the
Subaccount's performance. However, the total return will fluctuate over time
and the total return for any given past period is not an indication or
representation by Separate Account C of future rates of return of any
Subaccount.
At times, the Series' Adviser may reduce its compensation or assume
expenses of the Series in order to reduce the Series' expenses. Any such waiver
or reimbursement would increase the corresponding Subaccount's total return and
yield during the period of the waiver or reimbursement.
Each Subaccount may include in advertisements and sales literature,
examples, information and statistics that illustrate the effect of taxable vs.
tax-deferred compounding income at a fixed rate of return to demonstrate the
growth of an investment over a stated period of time resulting from the payment
of dividends and capital gains distributions in additional Accumulation Units.
The examples may include hypothetical returns comparing taxable versus tax-
deferred growth which would pertain to an IRA, Section 403(b)(7) Custodial
Account or other qualified retirement program. The examples used will be for
illustrative purposes only and are not representations by any Subaccount of past
or future yield or return of any of the Subaccounts.
From time to time, in reports and promotional literature, Separate Account
C may compare the performance of its Subaccounts to, or cite the historical
performance of, other variable annuities. The performance rankings and ratings
of variable annuities reported in L-VIPPAS, a monthly publication for insurance
companies and money managers published by Lipper Analytical Services, Inc. and
in Morningstar Variable Annuity Performance Report, also a monthly publication
published by Morningstar,
9
<PAGE>
Inc., may be used. Additionally, performance rankings and ratings reported
periodically in national financial publications such as MONEY, FORBES, BUSINESS
WEEK, BARRON'S, FINANCIAL TIMES, CHANGING TIMES, FORTUNE, NATIONAL UNDERWRITER,
etc., may also be used. Quotations from articles appearing in daily newspaper
publications such as THE NEW YORK TIMES, THE WALL STREET JOURNAL and THE NEW
YORK DAILY NEWS may be cited.
DETERMINATION OF CURRENT AND EFFECTIVE YIELD. Separate Account C provides
current yield quotations for the Cash Management Subaccount based on the
underlying Series' daily dividends. The underlying Series declares dividends
from net investment income daily and pays them monthly.
For purposes of current yield quotations, dividends per Accumulation Unit
for a seven-day period are annualized (using a 365-day year basis) and divided
by the average value of an Accumulation Unit for the seven-day period.
The current yield quoted will be for a recent seven day period. Current
yields will fluctuate from time to time and are not necessarily representative
of future results. The investor should remember that yield is a function of the
type and quality of the instruments in the portfolio, portfolio maturity and
operating expenses. Current yield information is useful in reviewing the Cash
Management Subaccount's performance but, because current yield will fluctuate,
such information may not provide a basis for comparison with bank deposits or
other investments which may pay a fixed yield for a stated period of time, or
other investment companies, which may use a different method of calculating
yield.
In addition to providing current yield quotations, Separate Account C
provides effective yield quotations for the Cash Management Subaccount for a
base period return of seven days. An effective yield quotation is determined by
a formula which requires the compounding of the unannualized base period return.
Compounding is computed by adding 1 to the unannualized base period return,
raising the sum to a power equal to 365 divided by 7 and subtracting 1 from the
result.
The following is an example, for purposes of illustration only, of the
current and effective yield calculation for the seven day period ended December
31, 1994.
<TABLE>
<S> <C>
Dividends per accumulation unit from net investment income
(seven calendar days ended December 31, 1994)
(Base Period).............................................. $.001020343
Annualized (365 day basis)................................. $.053203597
Average value per accumulation unit for the
seven calendar days ended December 31, 1994................ $1.00
Annualized historical yield per accumulation unit
for the seven calendar days ended December 31, 1994....... 5.32%
Effective Yield............................................ 5.45%
Weighted average life to maturity of the portfolio on
December 31, 1994 was 28 days
</TABLE>
- --------------------
/*/ This represents the average of annualized net investment income per
accumulation unit for the seven calendar days ended December 31, 1994
/**/ Effective Yield = [(Base Period Return + 1) to the 365th power / 7] - 1
10
<PAGE>
The figures in the above example do not include the maximum sales charge of
7.00%. Accordingly, all yield quotations are higher than they would have been
had such expense been included.
Separate Account C's Prospectus and Statement of Additional Information may
be in use for a full year and, accordingly, it can be expected that yields will
fluctuate substantially from the example shown above.
RELEVANCE OF FINANCIAL STATEMENTS
The values of the interests of Contractowners under the variable portion of
the Contracts will be affected solely by the investment results of the
Subaccounts. The financial statements of First Investors Life as contained
herein should be considered only as bearing upon First Investors Life's ability
to meet its obligations to Contractowners under the Contracts, and they should
not be considered as bearing on the investment performance of the Subaccounts.
11
<PAGE>
APPENDICES
12
<PAGE>
APPENDIX I
EXAMPLE A
FORMULA AND ILLUSTRATION FOR DETERMINING
THE NET INVESTMENT FACTOR OF A
SEPARATE ACCOUNT
Net Investment Factor = A + B - C
--------- - F
D - E
Where:
<TABLE>
<S> <C>
A = The Net Asset Value of a Fund share as of the end of the current
Valuation Period.
Assume..................................................................... = $8.51000000
B = The per share amount of any dividend or capital gains distribution
since the end of the immediately preceding Valuation Period.
Assume..................................................................... = 0
C = The per share charge or credit for any taxes reserved for at the end
of the current Valuation Period.
Assume..................................................................... = $ .38560000
D = The Net Asset Value of a Fund share at the end of the immediately
preceding Valuation Period.
Assume..................................................................... = $8.39000000
E = The per share amount of any taxes reserved for at the end of the
immediately preceding Valuation Period.
Assume..................................................................... = $ .35200000
F = The daily deduction for mortality and expense risks, which totals .75%
on an annual basis.
On a daily basis........................................................... = .00002054
Then, the Net Investment Factor = 8.51000000 + 0 -.38560000
------------------------- -.00002054.......... = $1.01072840
8.39000000 - .35200000
</TABLE>
EXAMPLE B
FORMULA AND ILLUSTRATION FOR DETERMINING
ACCUMULATION UNIT VALUE OF A
SEPARATE ACCOUNT
Accumulation Unit Value = A x B
Where:
<TABLE>
<S> <C>
A = The Accumulation Unit Value for the immediately preceding Valuation
Period.
Assume..................................................................... = $1.46328760
B = The Net Investment Factor for the current Valuation Period.
Assume..................................................................... = 1.01072840
Then, the Accumulation Unit Value = $1.46328760 x 1.01072840.................... = 1.47898633
</TABLE>
13
<PAGE>
APPENDIX II
EXAMPLE A
FORMULA AND ILLUSTRATION FOR DETERMINING
DEATH BENEFIT PAYABLE UNDER
ANNUITY OPTION 4-UNIT REFUND LIFE ANNUITY
Upon the death of the Annuitant the designated Beneficiary under this option
will receive under a Separate Account a lump sum death benefit of the then
dollar value of a number of Annuity Units computed using the following formula:
Annuity Units Payable = A A
--- - (CxD), if --- is greater than CxD
B B
Where:
<TABLE>
<S> <C>
A = The net benefit applied on the Annuity Commencement Date to
purchase the Variable Annuity.
Assume..................................................................... = $ 20,000.00
B = The Annuity Unit Value at the Annuity Commencement Date.
Assume..................................................................... = $ 1.08353012
C = The number of Annuity Units represented by each payment made.
Assume..................................................................... = 116.61488844
D = The total number of monthly Variable Annuity Payments made prior
to the Annuitant's death.
Assume..................................................................... = 30
</TABLE>
Then the number of Annuity Units Payable:
$20,000.00
----------- - (116.61488844 x 30)
$1.08353012
= 18,458.18554633 - 3,498.46665300
= 15,076.35378177
If the value of an Annuity Unit on the date of receipt of notification of death
was $1.12173107 then the amount of the death benefit under the Separate Account
would be:
15,076.35378177 x $1.12173107 = $16,911.61
14
<PAGE>
APPENDIX III
EXAMPLE A
FORMULA AND ILLUSTRATION FOR DETERMINING
ANNUITY UNIT VALUE OF A
SEPARATE ACCOUNT
Annuity Unit Value = A x B x C
Where:
<TABLE>
<S> <C>
A = Annuity Unit Value of the immediately preceding Valuation Period.
Assume..................................................................... = $1.10071211
B = Net Investment Factor for the Valuation Period for which the Annuity
Unit is being calculated.
Assume..................................................................... = 1.0083530
C = A factor to neutralize the assumed interest rate of 3 1/2% built into
the Annuity tables used.
Daily factor equals........................................................ = 0.99990575
</TABLE>
Then, the Annuity Value is:
$1.10071211 x 1.0053530 x 0.99990575 = $1.10152771
EXAMPLE B
FORMULA AND ILLUSTRATION FOR DETERMINING
AMOUNT OF FIRST MONTHLY VARIABLE ANNUITY PAYMENT FROM
ONE SEPARATE ACCOUNT
A
First Monthly Variable Annuity Payment = ------- x B
$1,000
Where:
<TABLE>
<S> <C>
A = The Accumulated Value allocated to a Separate Account for the
Valuation Date on or immediately preceding the seventh day
before the Annuity Commencement Date.
Assume..................................................................... = $20,000.00
B = The Annuity purchase rate per $1,000 based upon the option
selected, the sex and adjusted age of the Annuitant
according to the tables contained in the Contract.
Assume..................................................................... = $6.40
$20,000
Then, the first Monthly Variable Payment = ------- x $6.40 = $128.00
$1,000
</TABLE>
15
<PAGE>
EXAMPLE C
FORMULA AND ILLUSTRATION FOR DETERMINING
THE NUMBER OF ANNUITY UNITS FOR ONE SEPARATE ACCOUNT
REPRESENTED BY EACH MONTHLY VARIABLE ANNUITY PAYMENT
A
Number of Annuity Units = ---
B
Where:
<TABLE>
<S> <C>
A = The dollar amount of the first monthly Variable Annuity Payment.
Assume............................................................ = $ 128.00
B = The Annuity Unit Value for the Valuation Date on or immediately
preceding the seventh day before the Annuity Commencement Date.
Assume............................................................ = $ 1.09763000
Then, the number of Annuity Units = $123.00 = 116.61488844
-----------
$1.09763000
</TABLE>
EXAMPLE D
FORMULA AND ILLUSTRATION FOR DETERMINING
THE AMOUNT OF SECOND AND SUBSEQUENT MONTHLY VARIABLE
ANNUITY PAYMENTS FROM ONE SEPARATE ACCOUNT
Second Monthly Variable Annuity Payment = A x B
Where:
<TABLE>
<S> <C>
A = The Number of Annuity Units represented by each monthly
Variable Annuity Payment.
Assume ........................................................... = 116.61488844
B = The Annuity Unit Value for the Valuation Date on or immediately
preceding the seventh day before the date on which the
second (or subsequent) Variable Annuity Payment is due.
Assume .......................................................... = $1.11834234
Then, the second monthly Variable Annuity Payment = 116.61488844 x $1.11834234 = $130.42
</TABLE>
The above example was based upon the assumption of an increase in the Annuity
Unit Value since the initial Variable Annuity Payment due to favorable
investment results of the Separate Account and the Fund. If the investment
results were less favorable, a decrease in the Annuity Unit Value and in the
second monthly Variable Annuity Payment could result. Assume B above was
$1.08103230.
Then, the second monthly Variable Annuity Payment = 116.61488844 x $1.08103230 =
$126.06
16
<PAGE>
FINANCIAL STATEMENTS
17
<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 Variable Annuity Fund C (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, 1994, and the related statements 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
Variable Annuity Fund C as of December 31, 1994, 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 21, 1995
18
<PAGE>
FIRST INVESTORS LIFE
VARIABLE ANNUITY FUND C
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments at net asset value (Note 3):
First Investors Life Series Fund.......................... $121,706,424
LIABILITIES
Payable to First Investors Life Insurance Company.......... 103,404
------------
NET ASSETS.................................................. $121,603,020
============
Net assets represented by Contracts in accumulation period.. $121,603,020
============
</TABLE>
See notes to financial statements.
19
<PAGE>
FIRST INVESTORS LIFE
VARIABLE ANNUITY FUND C
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C>
Income:
Dividends............................. $2,111,366
----------
Total income........................ 2,111,366
----------
Expenses:
Mortality and expense risks (Note 4).. 1,077,119
----------
Total expenses...................... 1,077,119
----------
NET INVESTMENT INCOME................... 1,034,247
----------
UNREALIZED APPRECIATION ON INVESTMENTS
Beginning of year...................... 9,627,210
End of year............................ 5,266,578
----------
Change in unrealized appreciation
on investments......................... (4,360,632)
-----------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS........................ $(3,326,385)
===========
</TABLE>
See notes to financial statements.
20
<PAGE>
FIRST INVESTORS LIFE
VARIABLE ANNUITY FUND C
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1994 1993
------------- ------------
<S> <C> <C>
Increase (Decrease) in Net Assets
From Operations
Net investment income............................................. $ 1,034,247 $ 1,683,381
Change in unrealized appreciation on investments.................. (4,360,632) 5,398,788
------------ -----------
Net increase (decrease) in net assets resulting from operations.. (3,326,385) 7,082,169
------------ -----------
From Unit Transactions
Net insurance premiums............................................ 43,974,468 35,778,746
Contract payments................................................. (8,918,667) (6,227,294)
------------ -----------
Increase in net assets derived from unit transactions............. 35,055,801 29,551,452
------------ -----------
Net increase in net assets....................................... 31,729,416 36,633,621
Net Assets
Beginning of year.................................................. 89,873,604 53,239,983
------------ -----------
End of year........................................................ $121,603,020 $89,873,604
============ ===========
</TABLE>
See notes to financial statements.
21
<PAGE>
FIRST INVESTORS LIFE
VARIABLE ANNUITY FUND C
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
Note 1 - Organization
First Investors Life Variable Annuity Fund C (Separate Account C), 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 Separate Account C 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 Practices
INVESTMENTS
Shares of the Fund held by Separate Account C 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.
FEDERAL INCOME TAXES
Separate Account C 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 C 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 C.
<TABLE>
<CAPTION>
Note 3 - Investments
Investments consist of the following:
NET ASSET MARKET
SHARES VALUE VALUE COST
---------- --------- ------------ ------------
<S> <C> <C> <C> <C>
First Investors Life Series Fund
Cash Management................. 2,649,936 $ 1.00 $ 2,649,936 $ 2,649,936
High Yield...................... 822,265 10.58 8,702,132 8,529,376
Growth.......................... 1,267,029 16.73 21,195,610 20,353,493
Discovery....................... 965,669 19.86 19,182,194 17,692,050
Blue Chip....................... 2,121,060 13.75 29,167,224 26,855,260
International Securities........ 1,388,057 13.51 18,751,662 17,410,946
Government...................... 754,080 9.70 7,316,650 7,807,237
Investment Grade................ 1,012,160 10.31 10,435,187 10,721,316
Utilities Income................ 468,560 9.19 4,305,829 4,420,232
------------ ------------
$121,706,424 $116,439,846
============ ============
</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 Annuity Contracts, FIL deducts an amount equal on an
annual basis to 1.00% of the daily net asset value of Separate Account C. The
deduction for the year ended December 31, 1994 was $1,077,119. An additional
administrative charge of $7.50 may be deducted annually by FIL from the
Accumulated Value of Deferred Annuity Contracts which have an Accumulated Value
of less than $1,500 due to partial surrenders. There was no deduction under
this provision during 1994.
22
<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, 1994 and 1993, and the related statements
of income, stockholder's equity and cash flows for each of the three years in
the period ended December 31, 1994. 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, 1994 and 1993, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1994, in conformity with generally accepted accounting principles.
As discussed in notes 2 and 7 to the financial statements, the Company changed
its method of accounting for investments and its method of accounting for income
taxes.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 21, 1995
23
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31,1993
----------------- ----------------
<S> <C> <C>
Investments (note 2):
Available-for-sale securities................................ $103,898,007 $108,821,051
Held-to-maturity securities.................................. 5,990,367 5,973,791
Short term investments....................................... 6,964,868 6,282,689
Policy loans................................................. 14,686,101 12,884,321
------------ ------------
Total investments.......................................... 131,539,343 133,961,852
Cash.......................................................... 977,113 2,384,714
Premiums and other receivables, net of allowances of
$30,000 in 1994 and 1993..................................... 3,901,489 2,895,579
Accrued investment income..................................... 2,593,771 2,357,922
Deferred policy acquisition costs (note 6).................... 19,321,891 19,006,119
Deferred Federal income taxes (note 7)........................ 1,884,000 -
Furniture, fixtures and equipment, at cost, less accumulated
depreciation of $697,010 in 1994 and $583,419 in 1993........ 243,634 290,104
Other assets.................................................. 193,780 171,506
Separate account assets....................................... 232,913,278 198,746,658
------------ ------------
Total assets............................................... $393,568,299 $359,814,454
============ ============
</TABLE>
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
LIABILITIES:
<S> <C> <C>
Policyholder account balances (note 6)................... $115,256,764 $112,537,306
Claims and other contract liabilities.................... 10,737,716 10,234,691
Deferred Federal income taxes (note 7)................... - 1,322,799
Accounts payable and accrued liabilities................. 3,463,635 2,799,156
Separate account liabilities............................. 232,913,278 198,746,658
------------ ------------
Total liabilities..................................... 362,371,393 325,640,610
------------ ------------
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
Unrealized holding gains (losses) on available-for-sale
securities (note 2)..................................... (2,486,000) 3,050,000
Retained earnings........................................ 24,648,563 22,089,501
------------ ------------
Total stockholder's equity............................ 31,196,906 34,173,844
------------ ------------
Total liabilities and stockholder's equity............ $393,568,299 $359,814,454
============ ============
</TABLE>
See accompanying notes to financial statements.
24
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31,1993 DECEMBER 31,1992
------------------ ----------------- -----------------
<S> <C> <C> <C>
REVENUES
Policyholder fees...................................... $16,433,269 $14,825,696 $13,539,529
Premiums............................................... 7,630,182 8,141,342 8,394,282
Investment income (note 2)............................. 8,835,356 8,470,643 7,979,295
Realized gain (loss) on fixed securities............... (259,987) 318,372 616,505
Other income........................................... 701,355 654,608 740,147
----------- ----------- -----------
Total income......................................... 33,340,175 32,410,661 31,269,758
----------- ----------- -----------
BENEFITS AND EXPENSES
Benefits and increases in contract liabilities......... 14,297,499 13,118,328 14,807,734
Dividends to policyholders............................. 910,754 985,756 792,322
Amortization of deferred acquisition costs (note 6).... 1,573,216 1,528,876 2,020,568
Commissions and general expenses....................... 13,513,644 13,212,536 11,860,405
----------- ----------- -----------
Total benefits and expenses.......................... 30,295,113 28,845,496 29,481,029
----------- ----------- -----------
Income before Federal income tax, extraordinary
item and cumulative effect of a change in
accounting principle................................... 3,045,062 3,565,165 1,788,729
Federal income tax (note 7):
Current................................................ 838,000 1,425,000 589,000
Deferred............................................... (352,000) (721,000) (388,000)
----------- ----------- -----------
486,000 704,000 201,000
----------- ----------- -----------
Income before extraordinary item and cumulative
effect of a change in accounting principle............. 2,559,062 2,861,165 1,587,729
Extraordinary item
Reduction of income taxes arising from carry-
forward of prior years' capital losses (note 7)....... - - 84,000
Cumulative effect on prior years
of a change in accounting principle (note 7)........... - 540,000 -
----------- ----------- -----------
Net Income.............................................. $ 2,559,062 $ 3,401,165 $ 1,671,729
=========== =========== ===========
Income per share, based on 534,350 shares outstanding
Income before extraordinary item and cumulative effect
of a change in accounting principle.................... $4.79 $5.35 $2.97
Extraordinary item...................................... - - 0.16
Cumulative effect of a change in accounting principle... - 1.01 -
----------- ----------- -----------
$4.79 $6.36 $3.13
============ =========== ===========
</TABLE>
See accompanying notes to financial statements.
25
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1993 DECEMBER 31, 1992
------------------ ----------------- -----------------
<S> <C> <C> <C>
Balance at beginning of year........................ $34,173,844 $27,722,679 $26,050,950
Net income.......................................... 2,559,062 3,401,165 1,671,729
Increase (decrease) in unrealized holding gains on
available-for-sale securities...................... (5,536,000) 3,050,000 -
----------- ----------- -----------
Balance at end of year.............................. $31,196,906 $34,173,844 $27,722,679
=========== =========== ===========
</TABLE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1993 DECEMBER 31, 1992
------------------ ----------------- -----------------
<S> <C> <C> <C>
Increase (decrease) in cash:
Cash flows from operating activities:
Policyholder fees received............................. $ 16,433,269 $ 14,825,696 $ 13,348,516
Premiums received...................................... 7,366,276 7,996,528 8,762,066
Amounts received on policyholder accounts.............. 63,526,544 52,654,219 48,848,930
Investment income received............................. 8,886,847 8,583,113 8,058,852
Other receipts......................................... 46,581 44,193 64,286
Benefits and contract liabilities paid................. (75,131,594) (61,360,490) (55,561,535)
Commissions and general expenses paid.................. (15,252,935) (15,866,354) (15,201,932)
------------ ------------ ------------
Net cash provided by (used for) operating activities.. 5,874,988 6,876,905 8,319,183
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sale of investment securities............ 36,751,082 36,063,998 63,809,981
Purchase of investment securities...................... (42,164,770) (39,148,690) (71,248,339)
Purchase of furniture, equipment and other assets...... (67,121) (40,227) (40,937)
Net increase in policy loans........................... (1,801,780) (1,941,256) (1,935,775)
------------ ------------ ------------
Net cash provided by (used for) investing activities.. (7,282,589) (5,066,175) (9,415,070)
------------ ------------ ------------
Net increase (decrease) in cash....................... (1,407,601) 1,810,730 (1,095,887)
Cash
Beginning of year...................................... 2,384,714 573,984 1,669,871
------------ ------------ ------------
End of year............................................ $ 977,113 $ 2,384,714 $ 573,984
============ ============ ============
</TABLE>
The Company paid Federal income tax of $1,368,000 in 1994, $1,265,000 in 1993
and $336,027 in 1992.
See accompanying notes to financial statements.
26
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1993 DECEMBER 31, 1992
------------------ ------------------ ------------------
<S> <C> <C> <C>
Reconciliation of net income to net cash
provided by (used for) operating activities:
Net income.......................................... $ 2,559,062 $ 3,401,165 $ 1,671,729
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization...................... 122,199 118,365 132,156
Amortization of deferred policy acquisition costs.. 1,573,216 1,528,876 2,020,568
Realized investment (gains) losses................. 259,987 (318,372) (616,505)
Amortization of premiums and discounts on fixed
maturities....................................... 287,340 299,666 237,033
Deferred Federal income taxes...................... (352,000) (721,000) (388,000)
Cumulative effect of a change in
accounting principle............................. - (540,000) -
Other items not requiring cash - net............... (149) (1,908) 13,602
(Increase) decrease in:
Premiums and other receivables, net................ (1,055,910) 1,683,261 2,754,443
Accrued investment income.......................... (235,849) (187,196) (157,476)
Deferred policy acquisition costs, exclusive
of amortization.................................. (1,138,988) (1,254,547) (2,025,766)
Other assets....................................... (30,882) (13,108) (68,169)
Increase (decrease) in:
Policyholder account balances...................... 2,719,458 1,268,788 3,999,801
Claims and other contract liabilities.............. 503,025 1,903,908 532,229
Accounts payable and accrued liabilities........... 664,479 (290,993) 213,538
----------- ----------- -----------
$ 5,874,988 $ 6,876,905 $ 8,319,183
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
27
<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) Depreciation. Depreciation is computed on the useful service life of the
depreciable asset using the straight line method of depreciation.
(b) Investments. The Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting For Certain Investments in Debt and Equity
Securities ("SFAS 115"), effective December 31, 1993. SFAS 115 requires that
investments in equity securities that have readily determinable fair values and
all investments in debt securities be classified in three separate categories
and accounted for as follows:
HELD-TO-MATURITY SECURITIES
Debt securities the Company has the positive intent and ability to hold to
maturity are recorded at amortized cost.
TRADING SECURITIES
Debt and equity securities that are held principally for the purpose of selling
such securities in the near term are recorded at fair value with unrealized
gains and losses included in earnings.
AVAILABLE-FOR-SALE SECURITIES
Debt and equity securities not classified in the other two categories are
recorded at fair value with unrealized gains and losses excluded from earnings
and reported as "unrealized holding gains or losses on available-for-sale
securities" in stockholder's equity.
Prior to 1993, all long-term investment securities were stated at amortized
cost.
Short term investments are reported at market value which approximates cost.
28
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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, 1994 DECEMBER 31,1993 DECEMBER 31,1992
----------------- ---------------- ----------------
<S> <C> <C> <C>
Interest on fixed maturities........ $8,091,627 $7,844,723 $6,835,037
Interest on short term investments.. 225,682 232,244 792,479
Interest on policy loans............ 886,465 771,082 645,485
Dividends on equity securities...... 10,220 - -
---------- ---------- ----------
Total investment income............ 9,213,994 8,848,049 8,273,001
Investment expense................. 378,638 377,406 293,706
---------- ---------- ----------
Net investment income............... $8,835,356 $8,470,643 $7,979,295
========== ========== ==========
</TABLE>
29
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The amortized cost and estimated market values of investments at December 31,
1994 and 1993 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
Available-For-Sale Securities
- -----------------------------
December 31, 1994
- -----------------
U.S. Treasury Securities and obligations
of U.S. Government Corporations
and Agencies............................. $ 49,362,608 $ 5,901 $1,541,620 $ 47,826,889
Debt Securities issued by
States of the U.S........................ 3,910,143 - 379,945 3,530,198
Corporate Debt Securities................. 53,768,481 86,359 2,578,037 51,276,803
Equity Securities......................... 500,000 - 15,000 485,000
Other Debt Securities..................... 873,777 1,801 96,461 779,117
------------ ---------- ---------- ------------
$108,415,009 $ 94,061 $4,611,063 $103,898,007
============ ========== ========== ============
December 31,1993
- ----------------
U.S. Treasury Securities and obligations
of U.S. Government Corporations
and Agencies............................. $ 49,405,229 $2,528,521 $ - $ 51,933,750
Debt Securities issued by
States of the U.S........................ 4,085,000 26,292 - 4,111,292
Corporate Debt Securities................. 49,330,996 2,110,508 100,808 51,340,696
Other Debt Securities..................... 1,376,028 59,285 - 1,435,313
------------ ---------- ---------- ------------
$104,197,253 $4,724,606 $ 100,808 $108,821,051
============ ========== ========== ============
</TABLE>
At December 31, 1994 and 1993, the Company recognized "Unrealized
Holding Gains (Losses) on Available-For-Sale Securities" of ($2,486,000) and
$3,050,000, net of applicable deferred income taxes and amortization of deferred
acquisition costs. The change in the Unrealized Holding Gains (Losses) of
($5,536,000) and $3,050,000 for 1994 and 1993, respectively is reported as a
separate component of stockholder's equity.
<TABLE>
<CAPTION>
Held-To-Maturity Securities
- ---------------------------
<S> <C> <C> <C> <C>
December 31, 1994
- -----------------
U.S. Treasury Securities and obligations
of U.S. Government Corporations
and Agencies............................. $ 3,380,367 $ 4,873 $ 56,807 $ 3,328,433
Corporate Debt Securities................. 2,000,000 - 324,020 1,675,980
Other Debt Securities..................... 610,000 - - 610,000
------------ ---------- ---------- ------------
$ 5,990,367 $ 4,873 $ 380,827 $ 5,614,413
============ ========== ========== ============
December 31, 1993
- -----------------
U.S. Treasury Securities and obligations
of U.S. Government Corporations
and Agencies............................. $ 3,163,791 $ 121,583 $ 124 $ 3,285,250
Corporate Debt Securities................. 2,000,000 - - 2,000,000
Other Debt Securities..................... 810,000 - - 810,000
------------ ---------- ---------- ------------
$ 5,973,791 $ 121,583 $ 124 $ 6,095,250
============ ========== ========== ============
</TABLE>
30
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The amortized cost and estimated market value of debt securities at December
31, 1994, 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................. $1,402,857 $1,406,636 $ 5,349,646 $ 5,338,348
Due after one year through five years... 2,005,617 1,975,524 54,476,425 54,091,139
Due after five years through ten years.. 581,893 556,273 43,764,673 40,099,497
Due after ten years..................... 2,000,000 1,675,980 4,324,265 3,884,023
---------- ---------- ------------ ------------
$5,990,367 $5,614,413 $107,915,009 $103,413,007
========== ========== ============ ============
</TABLE>
Proceeds from sales of investments in fixed maturities were $36,701,082,
$35,352,716 and $36,006,795 in 1994, 1993 and 1992, respectively. Gross gains of
$ 85,827 and gross losses of $345,814 were realized on those sales in 1994.
Gross gains of $397,829 and gross losses of $79,457 were realized on those sales
in 1993. Gross gains of $756,291 and gross losses of $139,786 were realized on
those sales in 1992.
(c) Recognition of Revenue, Policyholder Account Balances and Policy Benefits
TRADITIONAL ORDINARY LIFE AND HEALTH
Revenues from the traditional life insurance policies represent
premiums which 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.
31
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(d) 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.
(e) Reclassifications. Certain reclassifications have been made to the 1992
and1993 Financial Statements in order to conform to the 1994 presentation.
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 maturities 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 has a non-contributory profit sharing plan for the benefit of its
employees which provides for retirement benefits based upon earnings. Vesting
of benefits is based upon years of service. The Company did not make profit
sharing contributions in 1994, 1993 and 1992.
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 $312,000 in 1994, $292,000 in 1993 and $324,000 in 1992. The
accrued liability of approximately $2,415,000 in 1994 and $2,194,000 in 1993 was
sufficient to cover the value of benefits provided by the plan.
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 which any reinsurance company may be unable to meet.
The Company had reinsured approximately 10%, 10% and 11% of its net life
insurance in force at December 31, 1994, 1993 and 1992, respectively. The
Company also had assumed reinsurance amounting to approximately 21%, 22% and 16%
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.
(b) The Company and certain affiliates share office space, data processing
facilities and management personnel. Charges for these services are based upon
space occupied, usage of data processing facilities and time allocated to
management. During the years ended December 31, 1994, 1993 and 1992, the
Company paid approximately $1,099,000, $1,187,000 and $1,138,000, respectively,
for these services. In addition, the Company reimbursed an affiliate
approximately $196,000 in 1993 and $330,000 in 1992 for its share of the cost
of the branch offices and approximately $6,651,000 in 1994, $5,510,000 in 1993
and $4,054,000 in 1992 for commissions relating to the sale of its products.
32
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(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, 1994, 1993 and 1992 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
------------------------------------- -------------------------------------------
1994 1993 1992 1994 1993 1992
----------- ----------- ----------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Reported on a statutory basis............... $2,205,814 $1,682,537 $ 766,657 $18,020,531 $15,933,807 $14,006,335
---------- ---------- ---------- ----------- ----------- -----------
Adjustments:
Deferred policy acquisition costs (b)....... (434,228) (274,329) 5,198 19,321,891 19,006,119 19,280,448
Future policy benefits (a).................. 727,849 669,990 507,899 (3,334,870) (4,062,719) (4,732,709)
Deferred income taxes....................... 352, 000 1,261,435 388,000 1,884,000 (1,322,799) (1,010,435)
Premiums due and deferred (e)............... 70,968 11,558 (269,429) (1,524,702) (1,595,669) (1,607,227)
Cost of collection and other statutory
liabilities............................... (32,454) 8,598 28,108 65,585 98,039 89,441
Non-admitted assets......................... - - - 385,500 423,038 778,635
Asset valuation reserve..................... - - - 901,041 744,264 632,129
Interest maintenance reserve................ (71,048) (222,809) (175,511) (5,070) 325,965 286,062
Gross unrealized holding gains (losses) on
available-for-sale securities.............. - - - (4,517,000) 4,623,799 -
Net realized capital gains (losses)......... (259,987) 262,712 461,573 - - -
Other....................................... 148 1,473 (40,766) - - -
---------- ---------- ---------- ----------- ----------- -----------
353,248 1,718,628 905,072 13,176,375 18,240,037 13,716,344
---------- ---------- ---------- ----------- ----------- -----------
In accordance with generally accepted
accounting principles....................... $2,559,062 $3,401,165 $1,671,729 $31,196,906 $34,173,844 $27,722,679
========== ========== ========== =========== =========== ===========
Per share, based on 534,350 shares
outstanding................................. $4.79 $6.36 $3.13 $58.38 $63.95 $51.88
========== ========== ========== =========== =========== ===========
</TABLE>
33
<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
1994 1993 OF ISSUE INTEREST MORTALITY TABLE WITHDRAWAL
- -------------------- ------------- ------------- -------------- ---------------------------------- ----------
<S> <C> <C> <C> <C> <C>
Non-par:
$ 1,721,636 $ 1,746,952 1962-1967 4 1/2% 1955-60 Basic Select plus Ultimate Linton B
5,764,026 5,889,653 1968-1988 5 1/2% 1955-60 Basic Select plus Ultimate Linton B
2,583,886 2,551,830 1984-1988 7 1/2% 85% of 1965-70 Basic Select Modified
plus Ultimate Linton B
62,830 51,486 1989-Present 7 1/2% 1975-80 Basic Select plus Ultimate Linton B
99,022 86,776 1989-Present 7 1/2% 1975-80 Basic Select plus Ultimate Actual
41,021 44,040 1989-Present 8% 1975-80 Basic Select plus Ultimate Actual
31,043,074 29,886,814 1985-Present 6% Accumulation of Funds -
Par:
232,295 233,940 1966-1967 4 1/2% 1955-60 Basic Select plus Ultimate Linton A
13,696,383 13,238,049 1968-1988 5 1/2% 1955-60 Basic Select plus Ultimate Linton A
1,037,503 973,551 1981-1984 7 1/4% 90% of 1965-70 Basic Select
plus Ultimate Linton B
4,634,783 4,457,912 1983-1988 9 1/2% 80% of 1965-70 Basic Select
plus Ultimate Linton B
9,922,152 7,509,240 1990-Present 8% 66% of 1975-80 Basic Select
plus Ultimate Linton B
Annuities:
32,707,541 35,905,357 1976-Present 5 1/2% Accumulation of Funds -
Miscellaneous:
12,776,574 11,081,764 1962-Present 2 1/2%-3 1/2% 1958-CSO None
</TABLE>
- ----------------
* The above amounts are before deduction of deferred premiums of $1,065,962 in
1994 and $1,120,058 in 1993.
(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 which were used for computing liabilities for future policy
benefits. Amortization of $1,573,216 in 1994, $1,528,876 in 1993 and $2,020,568
in 1992 was charged to operations.
34
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(c) Participating business represented 11.9% and 12.4% of individual life
insurance in force at December 31, 1994 and 1993, 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 $8,235,339, $6,148,130 and $4,220,653 at December 31,
1994, 1993 and 1992, 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.
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, 1994 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.
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting For Income Taxes" ("SFAS 109"), effective January 1, 1993. SFAS 109
is an asset and liability approach that requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax returns.
Financial statements for the prior years have not been restated and the
cumulative effect of the accounting change as of January 1, 1993 was to increase
earnings by $540,000. This amount is reflected in the 1993 accompanying
Statement of Income as the cumulative effect of a change in accounting
principle. It primarily represents the impact of adjusting deferred taxes to
reflect the current tax rate of 34% as opposed to the tax rates that were in
effect when the deferred taxes were originally recorded.
Prior to 1993, the company provided for deferred income taxes based upon
timing differences between financial statement income and taxable income.
35
<PAGE>
FIRST INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Deferred tax liabilities (assets) are comprised of the following:
<TABLE>
<CAPTION>
1994 1993
------------- ------------
<S> <C> <C>
Policyholder dividend provision...................................... $ (309,818) $ (317,722)
Non-qualified agents' pension plan reserve........................... (967,466) (890,532)
Deferred policy acquisition costs.................................... 3,521,550 4,061,347
Future policy benefits............................................... (2,862,789) (3,111,454)
Bond discount........................................................ 20,182 13,534
Unrealized holding gains (losses) on Available-For-Sale Securities.. (1,281,000) 1,573,798
Other................................................................ (4,659) (6,172)
----------- -----------
$(1,884,000) $ 1,322,799
=========== ===========
</TABLE>
The currently payable Federal income tax provision of $838,000 for 1994 is net
of a $102,000 Federal tax benefit resulting from a capital loss carryback of
$259,987.
A reconciliation of the Federal statutory income tax rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Application of statutory tax rate................... 34% 34% 34%
Special tax deduction for life insurance companies.. (18) (16) (18)
Other............................................... - 2 (5)
---- ---- ----
16% 20% 11%
==== ==== ====
</TABLE>
The Company utilized approximately $616,000 of capital losss carry
forwards during 1992, which resulted in tax savings of $84,000. This tax
savings is classified as an extraordinary item in the accompanying 1992
Statement of Income.
36
