<PAGE>
FIRST INVESTORS
FIRST INVESTORS SPECIAL BOND FUND, INC.
SEMI-ANNUAL REPORT
JUNE 30, 1995
[Logo] FIRST INVESTORS
A MEMBER OF THE FIRST INVESTORS FINANCIAL NETWORK
<PAGE>
PORTFOLIO MANAGER'S LETTER
FIRST INVESTORS SPECIAL BOND FUND, INC.
DEAR INVESTOR:
U.S. economic growth slowed during the first six months of 1995. In response to
the Federal Reserve's tightening of monetary policy, economic growth downshifted
from an unsustainable 5.1% fourth quarter pace to a more moderate 2.7% rate in
the first quarter of 1995. By Spring, the financial markets began to anticipate
an end to the Federal Reserve's interest rate hikes. The economic crisis in
Mexico, higher individual tax payments and excessive business inventories
further dampened the U.S. economy in the second quarter. By June, in a notable
reversal of opinion from six months earlier, the markets began to expect the
Federal Reserve to lower short-term interest rates to insure against the
possibility of a recession.
Positive returns in the equity market indicated a market consensus that low
inflation and a transition to slower growth are still compatible with good
earnings results in most companies and industries. The Special Bond Fund
performed well during the first half of 1995 with a total return of 11.84% on a
net asset value basis, which compares favorably with a 9.72% return for the
average high yield fund according to Lipper Analytical Services. During this
period, dividends paid from net investment income amounted to 51 cents per
share.
Fixed income investors in search of yield have continued to commit money to the
market, which sparked a rally beginning early in the year. Led at first by
lower-rated and deferred coupon bonds, several industry sectors that had done
poorly in 1994, such as gaming and housing, rebounded. Other industries that
generally outperformed due to lower interest rates and regulatory developments
were finance, media/cable, telecommunications and energy.
Many companies sought to issue bonds under these favorable financing conditions.
The arrival of these new issues during the second quarter coincided with some
signs of a slowing economy. Market leadership began to change as the economic
outlook changed. One of the major developments so far in 1995 has been some
softening in bonds of cyclical industries such as metals, chemicals and forest
products. These industries have contributed to the performance of the Fund and
the high yield market during the past two years, but there has been some
evidence that the volume growth and pricing flexibility that they had enjoyed
may be ending. Despite ample cash for investment, investors have become more
risk averse and regard each company selectively, bidding up the stronger issues,
refusing to fund weaker credits and requiring better terms from those in the
middle tier. The result has been that as the second quarter progressed, the
higher rating categories outperformed. With 88.5% of the Fund's bonds rated
single B or better, the Special Bond Fund was well positioned for this
development.
We believe that high yield bonds are positioned to perform well versus fixed
income alternatives over the balance of the year. We are unlikely to see the
kind of decisive downward move in interest rates that occurred in the first half
of the year. Although there is a higher credit risk associated with high yield
bonds, in a stable interest rate environment, they tend to outperform fixed
income alternatives by virtue of their higher income. Also, the economy appears
to be returning to a sustainable rate of growth after the pause we saw in the
second quarter. We expect that our credit oriented strategy of concentrating on
stable to improving bonds will continue to reward Fund investors.
As always we appreciate the opportunity to serve your investment needs.
Sincerely,
/s/ George V. Ganter
George V. Ganter
Portfolio Manager
July 31, 1995
<PAGE>
PORTFOLIO OF INVESTMENTS
FIRST INVESTORS SPECIAL BOND FUND, INC.
JUNE 30, 1995
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
AMOUNT
INVESTED
FOR EACH
PRINCIPAL $10,000 OF
AMOUNT SECURITY VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
CORPORATE BONDS--96.0%
APPAREL/TEXTILES--.0%
$ 500M + Linter Textiles Corp., Ltd., 13 3/4%, 2000 $ 6,250 $ 2
- ------------------------------------------------------------------------------------------------------------------------------
AUTOMOTIVE--6.5%
500M Aftermarket Technology Corp., 12%, 2004 (Note 6) 532,500 147
750M Exide Corp., 10%, 2005 (Note 6) 771,563 212
1,000M SPX Corp.,11 3/4%, 2002 1,046,250 288
- ------------------------------------------------------------------------------------------------------------------------------
2,350,313 647
- ------------------------------------------------------------------------------------------------------------------------------
CHEMICALS--9.3%
1,000M Huntsman Corp., 11%, 2004 1,102,500 304
900M OSI Specialties, Inc., 9 1/4%, 2003 913,500 252
800M Rexene Corp., 11 3/4%, 2004 862,000 237
500M Synthetic Industries, Inc., 12 3/4%, 2002 502,500 138
- ------------------------------------------------------------------------------------------------------------------------------
3,380,500 931
- ------------------------------------------------------------------------------------------------------------------------------
CONGLOMERATES--2.5%
1,250M Eagle Industries, Inc., 0%-10 1/2%, 2003 893,750 246
- ------------------------------------------------------------------------------------------------------------------------------
CONTAINERS--3.0%
1,000M Owens Illinois, Inc., 11%, 2003 1,107,500 305
- ------------------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--8.8%
1,100M Essex Group, Inc., 10%, 2003 1,061,500 292
1,000M IMO Industries, Inc., 12%, 2001 1,027,500 283
472M Thermadyne Industries, Inc., 10 1/4%, 2002 460,200 127
656M Thermadyne Industries, Inc., 10 3/4%, 2003 633,040 174
- ------------------------------------------------------------------------------------------------------------------------------
3,182,240 876
- ------------------------------------------------------------------------------------------------------------------------------
ENERGY SERVICES--6.7%
1,000M Clark Oil & Refining Corp., 10 1/2%, 2001 1,052,500 290
1,000M Clark R&M Holdings, Inc., 0%-10 1/2%, 2001 620,000 171
837M Synergy Group, Inc., 9 1/2%, 2000 (Note 5) 753,300 207
- ------------------------------------------------------------------------------------------------------------------------------
2,425,800 668
- ------------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES--1.7%
600M Olympic Financial Ltd., 13%, 2000 618,000 170
- ------------------------------------------------------------------------------------------------------------------------------
FOOD/BEVERAGE/TOBACCO--2.0%
700M Fleming Co, Inc., 10 5/8%, 2001 740,250 204
- ------------------------------------------------------------------------------------------------------------------------------
GAMING/LODGING--4.2%
900M GB Funding, Inc., 10 7/8%, 2004 780,750 215
800M Showboat, Inc., 9 1/4%, 2008 740,000 204
- ------------------------------------------------------------------------------------------------------------------------------
1,520,750 419
- ------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE--12.0%
870M Abbey Healthcare Group, Inc., 9 1/2%, 2002 900,450 248
700M Hillhaven Corp., 10 1/8%, 2001 731,500 202
900M Integrated Health Services, Inc., 9 5/8%, 2002 (Note 6) 922,500 254
900M Mediq/PRN Life Support Services, Inc., 11 1/8%, 1999 850,500 234
900M National Medical Enterprises, Inc., 10 1/8%, 2005 956,250 263
- ------------------------------------------------------------------------------------------------------------------------------
4,361,200 1,201
- ------------------------------------------------------------------------------------------------------------------------------
MEDIA/CABLE TELEVISION--9.2%
1,500M Affiliated Newspaper Investments, 0%-13 1/4%, 2006 877,500 242
1,000M Bell Cable Media, 0%-11.95%, 2004 672,500 185
1,400M Videotron Holding, PLC, 0% - 11 1/8%, 2004 920,500 253
900M World Color Press, Inc., 9 1/8%, 2003 886,500 244
- -------------------------------------------------------------------------------------------------------------------------------
3,357,000 924
- -------------------------------------------------------------------------------------------------------------------------------
<PAGE>
PORTFOLIO OF INVESTMENTS
FIRST INVESTORS SPECIAL BOND FUND, INC.
JUNE 30, 1995
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
AMOUNT
PRINCIPAL INVESTED
AMOUNT FOR EACH
OR $10,000 OF
SHARES SECURITY VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
MINING/METALS--1.9%
$ 700M WCI Steel, Inc., 10 1/2%, 2002 $ 686,000 $ 189
- ------------------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS--1.5%
1,050M +Acme Holdings, Inc., 11 3/4%, 2000 535,500 147
- ------------------------------------------------------------------------------------------------------------------------------
PAPER/FOREST PRODUCTS--6.8%
1,000M Container Corp., 11 1/4%, 2004 1,052,500 290
700M Rainy River Forest Products Co., Inc., 10 3/4%, 2001 731,500 202
700M Stone Container Corp., 9 7/8%, 2001 698,250 192
- ------------------------------------------------------------------------------------------------------------------------------
2,482,250 684
- ------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE/CONSTRUCTION--1.5%
600M Oriole Homes, Inc., 12 1/2%, 2003 526,500 145
- ------------------------------------------------------------------------------------------------------------------------------
RETAIL/FOOD/DRUG--3.7%
800M P&C Food Markets, Inc., 11 1/2%, 2001 838,000 231
500M Penn Traffic Company, 10 1/4%, 2002 512,500 141
- ------------------------------------------------------------------------------------------------------------------------------
1,350,500 372
- ------------------------------------------------------------------------------------------------------------------------------
RETAIL/GENERAL MERCHANDISE--.6%
3M Barry's Jewelers, Inc., 12 5/8%, 1996 1,742 1
200M General Host Co., Inc., 11 1/2%, 2002 201,000 55
- ------------------------------------------------------------------------------------------------------------------------------
202,742 56
- ------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS--11.7%
850M Cencall Communication Corp., 0%-10 1/8%, 2004 429,250 118
350M Centennial Cellular, 8 7/8%, 2001 330,750 91
1,675M Echostar, 0%-12 7/8%, 2004 816,563 225
1,000M MFS Communication, Inc., 0%-9 3/8%, 2004 700,000 193
900M Paging Network, Inc., 11 3/4%, 2002 973,125 268
700M PanAmSat Capital Corp., 9 3/4%, 2000 719,250 198
400M PanAmSat Capital Corp., 0%-11 3/8%, 2003 288,000 79
- ------------------------------------------------------------------------------------------------------------------------------
4,256,938 1,172
- ------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--2.4%
900M Eletson Holdings, Inc., 9 1/4%, 2003 866,250 239
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL VALUE OF CORPORATE BONDS (cost $35,654,186) 34,850,233 9,597
- ------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS--.4%
ELECTRICAL EQUIPMENT--.0%
1,036 *Thermadyne Holding Corp. 14,633 4
- ------------------------------------------------------------------------------------------------------------------------------
GAMING/LODGING--.0%
8,500 *Gold River Hotel & Casino Corp., Series "B" 12,750 4
- ------------------------------------------------------------------------------------------------------------------------------
MEDIA/CABLE TELEVISION--.1%
1,500 *Affiliated Newspaper Investments, Inc. Class "B" 37,500 10
- ------------------------------------------------------------------------------------------------------------------------------
PAPER/FOREST PRODUCTS--.2%
6,136 *Gaylord Container Corp., Class "A" 73,632 20
- ------------------------------------------------------------------------------------------------------------------------------
RETAIL/GENERAL MERCHANDISE--.1%
7,355 *Barry's Jewelers, Inc. 24,822 7
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL VALUE OF COMMON STOCKS (COST $259,473) 163,337 45
- ------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS--3.0%
FINANCIAL SERVICES
10,000 California Federal Bank, 10 5/8%, Series "B" (cost $1,000,000) 1,070,000 295
- ------------------------------------------------------------------------------------------------------------------------------
<PAGE>
PORTFOLIO OF INVESTMENTS
FIRST INVESTORS SPECIAL BOND FUND, INC.
JUNE 30, 1995
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
AMOUNT
INVESTED
FOR EACH
$10,000 OF
WARRANTS SECURITY VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
WARRANTS--1.2%
GAMING/LODGING -.0%
850 *Goldriver Finance Corp., Liquidating Trust $ 12,750 $ 3
- ------------------------------------------------------------------------------------------------------------------------------
PAPER/FOREST PRODUCTS--.9%
32,590 *Gaylord Container Corp. (expiring 7/31/96) 325,900 90
- ------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS--.3%
10,050 *Echostar Communications Corp. (expiring 6/1/04) 113,063 31
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL VALUE OF WARRANTS (COST $48,875) 451,713 124
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL VALUE OF INVESTMENTS (COST $36,962,534) 100.6% 36,535,283 10,061
EXCESS OF LIABILITIES OVER OTHER ASSETS (.6) (223,109) (61)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS 100.0% $36,312,174 $ 10,000
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
*Non-incoming producing
+In default as to principal and/or interest (Note 7)
</TABLE>
See notes to financial statements
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
FIRST INVESTORS SPECIAL BOND FUND, INC.
JUNE 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
Investments in securities, at value (identified cost $36,962,534) (Note 1A). . . . . $ 36,535,283
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,107
Interest and dividends receivable. . . . . . . . . . . . . . . . . . . . . . . . . . 639,416
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,373
------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,294,179
LIABILITIES
Dividend Payable July 15, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 815,526
Payable for capital stock redeemed . . . . . . . . . . . . . . . . . . . . . . . . . 143,283
Accrued advisory fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,024
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172
---------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 982,005
------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 36,312,174
------------
------------
NET ASSETS CONSIST OF:
Capital paid in. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 55,848,053
Undistributed net investment income. . . . . . . . . . . . . . . . . . . . . . . . . 608,997
Accumulated net realized loss on investment transactions . . . . . . . . . . . . . . (19,717,625)
Net unrealized depreciation in value of investments. . . . . . . . . . . . . . . . . (427,251)
------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 36,312,174
------------
------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE
($36,312,174 divided by 3,074,657 shares outstanding),
25,000,000 shares authorized, $1.00 par value (Note 2) . . . . . . . . . . . . . . . $11.81
------
------
</TABLE>
See notes to financial statements
<PAGE>
STATEMENT OF OPERATIONS
FIRST INVESTORS SPECIAL BOND FUND, INC.
SIX MONTHS ENDED June 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,044,098
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,629
Consent fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000
-----------
Total income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,112,727
Expenses:
Advisory fee (Note 4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139,020
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,518
Reports and notices to shareholders. . . . . . . . . . . . . . . . . . . . . . . . 967
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,552
-----------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157,057
-----------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,955,670
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Net realized loss on investments . . . . . . . . . . . . . . . . . . . . . . . . . . (96,392)
Net unrealized appreciation of investments . . . . . . . . . . . . . . . . . . . . . 2,340,610
-----------
Net gain on investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,244,218
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . . . . . . . . . . . $ 4,199,888
-----------
-----------
</TABLE>
See notes to financial statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FIRST INVESTORS SPECIAL BOND FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31, 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,955,670 $ 3,680,764
Net realized gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . (96,392) 702,669
Net unrealized appreciation (depreciation) of investments . . . . . . . . . . . . 2,340,610 (4,824,981)
------------ ------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . . 4,199,888 (441,548)
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,653,814) (3,465,637)
------------ ------------
CAPITAL SHARE TRANSACTIONS (a)
Proceeds from shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 639,323 385,945
Value of dividends reinvested . . . . . . . . . . . . . . . . . . . . . . . . . . 838,289 3,465,637
Cost of shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,436,595) (6,275,104)
------------ ------------
Net decrease in net assets resulting from share transactions. . . . . . . . . . . (2,958,983) (2,423,522)
------------ ------------
Net decrease in net assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . (412,909) (6,330,707)
NET ASSETS
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,725,083 43,055,790
------------ ------------
End of year (including undistributed net investment income of
$608,997 and $307,141, respectively). . . . . . . . . . . . . . . . . . . . . . $ 36,312,174 $ 36,725,083
------------ ------------
------------ ------------
(a) CAPITAL SHARES ISSUED AND REDEEMED
Sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,350 33,791
Issued for dividends reinvested . . . . . . . . . . . . . . . . . . . . . . . . . 73,858 305,954
Redeemed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (385,054) (546,626)
------------ ------------
Net decrease in capital shares. . . . . . . . . . . . . . . . . . . . . . . . . . (254,846) (206,881)
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FIRST INVESTORS SPECIAL BOND FUND, INC.
1. SIGNIFICANT ACCOUNTING POLICIES - The Fund is registered under the Investment
Company Act of 1940 (the "1940 Act") as a diversified, open-end management
investment company.
A. Security Valuation - Except as provided below, a security listed or traded on
an exchange or the NASDAQ National Market System is valued at its last sale
price on the exchange or system where the security is principally traded, and
lacking any sales, the security is valued at the mean between the closing bid
and asked prices. Each security traded in the over-the-counter market (including
securities listed on exchanges whose primary market is believed to be
over-the-counter) is valued at the mean between the last bid and asked prices
based upon quotes furnished by a market maker for such securities. Securities
may also be priced by a pricing service. The pricing service uses quotations
obtained from investment dealers or brokers, information with respect to market
transactions in comparable securities and other available information in
determining value. Short-term corporate notes which are purchased at a discount
are valued at amortized cost. Securities for which market quotations are not
readily available are valued on a consistent basis at fair value as determined
in good faith by or under the supervision of the Fund's officers in a manner
specifically authorized by the Board of Directors.
B. Federal Income Taxes - No provision has been made for federal income taxes on
net income or capital gains, since it is the policy of the Fund to continue to
comply with the special provisions of the Internal Revenue Code applicable to
investment companies and to make sufficient distributions of income and capital
gains (in excess of any available capital loss carryovers) to relieve it from
all, or substantially all, such taxes. At June 30, 1995, the Fund had capital
loss carryovers of $19,621,233, of which $16,599,362 expires in 1998 and
$3,021,871 expires in 1999.
C. Other - Security transactions are accounted for on the date the securities
are purchased or sold. Cost is determined, and gains and losses are based, on
the identified cost basis for both financial statement and federal income tax
purposes. Dividend income is recorded on the ex-dividend date. Interest income
and estimated expenses are accrued daily. Dividends from net investment income
are declared daily and paid quarterly.
2. CAPITAL STOCK - Shares of the Fund are sold only through the purchase of
annuity contracts issued by First Investors Life Variable Annuity Fund A.
3. SECURITY TRANSACTIONS - For the period ended June 30, 1995, purchases and
sales of investment securities, other than United States Government obligations
and short-term corporate notes, aggregated $11,087,978 and $11,834,454,
respectively.
At June 30, 1995, the cost of investments for federal income tax purposes was
$36,962,534. Accumulated net unrealized depreciation on investments was
$427,251, consisting of $1,557,811 gross unrealized appreciation and $1,985,062
gross unrealized depreciation.
4. ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES - Certain officers and
directors of the Fund are officers and directors of its investment adviser,
First Investors Management Company, Inc. ("FIMCO") and its transfer agent,
Administrative Data Management Corp. Officers and directors of the Fund
received no remuneration from the Fund for serving in such capacities. Their
remuneration (together with certain other expenses of the Fund) is paid by FIMCO
or First Investors Corporation.
The Investment Advisory Agreement provides as compensation to FIMCO an annual
fee, payable monthly, at the rate of .75% on the first $250 million of the
Fund's average daily net assets, declining by .03% on each $250 million
thereafter, down to .66% on average daily net assets over $750 million.
Pursuant to certain state regulations, FIMCO has agreed to reimburse the Fund if
and to the extent that the Fund's aggregate operating expenses, including the
advisory fee but generally excluding interest, taxes, brokerage commissions and
extraordinary expenses, exceed any limitation on expenses applicable to the Fund
in those states (unless waivers of such limitations have been obtained). The
amount of any such reimbursement is limited to the yearly advisory fee. For the
period ended June 30, 1995, no reimbursement was required pursuant to these
provisions.
5. RESTRICTED SECURITIES - On March 15, 1995, the Fund purchased $837,000 par
value of Synergy Group, Inc., Senior Secured Increasing Rate Note, Series A, 9
1/2%, 9/15/2000 at a cost of $682,295. This security which was acquired through
a private placement, may not be sold or transferred without prior registration
under the Securities Act of 1933 or pursuant to an exemption therefrom. If and
when the Fund sells this security, additional costs for registration may be
required. The security is valued based upon the price of the unrestricted
shares of common stock. At June 30, 1995, the value of the above restricted
stock was $753,300.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FIRST INVESTORS SPECIAL BOND FUND, INC.
6. RULE 144A SECURITIES - Under Rule 144A, certain restricted securities are
exempt from the registration requirements of the Securities Act of 1933 and may
only be resold to qualified institutional investors. At June 30, 1995, the Fund
held three 144A securities with a aggregate value of $2,226,563 representing
6.1% of the Fund's net assets. These securities are valued as set forth in Note
1A.
7. CONCENTRATION OF CREDIT RISK - The Fund's investment in high yield
securities, whether rated or unrated, may be considered speculative and subject
to greater market fluctuations and risk of loss of income and principal than
lower yielding, higher rated, fixed income securities. The risk of loss due to
default by the issuer may be significantly greater for the holders of high
yielding securities, because such securities are generally unsecured and are
often subordinated to other creditors of the issuer. At June 30, 1995, the Fund
held two defaulted securities with a value aggregating $541,750 representing
1.5% of the Fund's net assets.
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Board of Directors of
First Investors Special Bond Fund, Inc.
We have audited the accompanying statement of assets and liabilities of First
Investors Special Bond Fund, Inc., including the portfolio of investments, as of
June 30, 1995, and the related statement of operations for the six months then
ended, the statement of changes in net assets for the six months ended June 30,
1995 and the year ended December 31, 1994 and financial highlights for each of
the periods presented. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements.
Our procedures included confirmation of securities owned as of June 30, 1995, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of First
Investors Special Bond Fund, Inc. at June 30, 1995, and the results of its
operations, changes in its net assets and financial highlights for each of the
respective periods presented, in conformity with generally accepted accounting
principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
July 31, 1995
<PAGE>
FINANCIAL HIGHLIGHTS
FIRST INVESTORS SPECIAL BOND FUND, INC.
The following table sets forth the operating performance data for a share of
capital stock outstanding, total return, ratios to average net assets and other
supplemental data for each period indicated.
<TABLE>
<CAPTION>
-----------------------------------------------
1/1/95 YEAR ENDED DECEMBER 31
to -----------------------------------------------
6/30/95 1994 1993 1992 1991 1990
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period . . . . . . . . . . . . $11.03 $12.18 $11.38 $11.05 $9.16 $11.47
------- ------- ------- ------- ------- -------
Income from Investment Operations
Net investment income . . . . . . . . . . . . . . . . . . . .62 1.09 1.14 1.27 1.26 1.32
Net realized and unrealized
gain (loss) on investments . . . . . . . . . . . . . . . . .67 (1.22) .86 .29 1.86 (2.30)
------- ------- ------- ------- ------- -------
Total from Investment Operations. . . . . . . . . . . . . 1.29 (.13) 2.00 1.56 3.12 (.98)
------- ------- ------- ------- ------- -------
Less Dividends from:
Net investment income . . . . . . . . . . . . . . . . . . . .51 1.02 1.20 1.23 1.23 1.33
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period . . . . . . . . . . . . . . . $11.81 $11.03 $12.18 $11.38 $11.05 $9.16
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
TOTAL RETURN(%)+ . . . . . . . . . . . . . . . . . . . . . . 11.84 (1.00) 18.15 14.56 35.76 (9.18)
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (in thousands) . . . . . . . . . . $36,312 $36,725 $43,056 $44,116 $50,914 $53,328
Ratio to Average Net Assets:(%)
Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . .85(a) .87 .85 .88 .89 .86
Net investment income . . . . . . . . . . . . . . . . . . . 10.55(a) 9.38 9.54 10.95 11.99 12.57
Portfolio Turnover Rate(%) . . . . . . . . . . . . . . . . . 31 54 79 65 47 37
<FN>
+ The effect of fees and charges incurred at the separate account level are
not reflected in these performance figures.
(a) Annualized
</TABLE>
See notes to financial statements
<PAGE>
FIRST INVESTORS SPECIAL BOND FUND, INC.
DIRECTORS
- ---------------------------------------------
JAMES J. COY
ROGER L. GRAYSON
GLENN O. HEAD
KATHRYN S. HEAD
F. WILLIAM ORTMAN, JR.
REX R. REED
HERBERT RUBINSTEIN
JAMES M. SRYGLEY
JOHN T. SULLIVAN
ROBERT F. WENTWORTH
OFFICERS
- ---------------------------------------------
GLENN O. HEAD
President
GEORGE V. GANTER
Vice President
CONCETTA DURSO
Vice President and Secretary
JOSEPH I. BENEDEK
Treasurer
CAROL LERNER BROWN
Assistant Secretary
SHAREHOLDER INFORMATION
- ---------------------------------------------
INVESTMENT ADVISER
FIRST INVESTORS
MANAGEMENT COMPANY, INC.
95 Wall Street
New York, NY 10005
CUSTODIAN
THE BANK OF NEW YORK
48 Wall Street
New York, NY 10286
TRANSFER AGENT
ADMINISTRATIVE DATA
MANAGEMENT CORP.
581 Main Street
Woodbridge, NJ 07095-1198
LEGAL COUNSEL
KIRKPATRICK & LOCKHART LLP
1800 M Street, N.W.
Washington, DC 20036
AUDITORS
TAIT, WELLER & BAKER
Two Penn Center Plaza
Philadelphia, PA 19102
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 will be mailed if requested by any shareholder in writing or by calling
800-423-4026. The Fund will ensure that separate reports are sent to any
shareholder who subsequently changes his or her mailing address.
This report is authorized for distribution only to existing shareholders, and,
if given to prospective shareholders, must be accompanied or preceded by the
Fund's prospectus.
