The words "First Investors" in a box across the top of the page.
FIRST INVESTORS
SPECIAL BOND FUND, INC.
SEMI-ANNUAL REPORT
JUNE 30, 2000
First Investors Logo
The words "A MEMBER OF THE FIRST INVESTORS FINANCIAL NETWORK"
under the First Investors logo.
Bond Market Overview
FIRST INVESTORS SPECIAL BOND FUND, INC.
Dear Investor:
We are pleased to present this Bond Market Overview for the semi-annual
report for the First Investors Special Bond Fund, Inc. for the six-month
period ended June 30, 2000.*
The Economy
The U.S. economy, now in its tenth year of expansion, continued its
solid performance during the period, with the gross domestic product
(GDP) growing by 5.0% on an annualized basis. The unemployment rate fell
to 4.0% in June, near a 30-year low. Consumer confidence remained high
as personal income continued to grow. Durable goods orders (for
airplanes, computers, etc.) and industrial production continued to rise.
The rate of inflation began to trend slightly higher, although remaining
benign by historical standards. The consumer price index, a broad
inflation gauge, increased 3.7% during the 12 months ending June 2000,
but only 2.4% excluding the volatile food and energy components. The
primary inflation story was the approximately 45% increase in the price
of oil during the first six months of the year. In the labor market, the
inflationary impact of rising wages was largely offset by the continued
improvement in productivity that has characterized much of the current
economic expansion.
Against this backdrop, the Federal Reserve ("the Fed") continued to
tighten monetary policy based upon its concerns about the pace of
economic growth (fourth quarter 1999 and first quarter 2000 growth
exceeded 6.5%) and the tight labor market. In all, the Fed raised short-
term interest rates three times during the review period, accounting for
a total of 100 basis points (1%).
The Bond Market
The economy's continued good health and the Fed's attempts to cool the
economy produced mixed results for the bond market during the first half
of the year. Short-term interest rates rose, with two-year Treasury note
yields increasing from 6.21% at year-end to 6.36% on June 30. The
increase in rates was primarily attributable to the Fed's ongoing
tightening of the money supply. Conversely, long-term interest rates
fell slightly after reaching their highest level since 1997 in January.
The ten-year Treasury note yield dropped from 6.44% at year-end 1999 to
6.03% as of June 30. This rate decline occurred despite the solid
economy and the Fed's actions largely because of the U.S. budget
surplus. Driven by the strong economy of recent years, tax collections
have increased, producing a budget surplus estimated at $211 billion for
2000 and $1.3 trillion over the next ten years. The Federal government's
good fortune has helped shrink the supply of U.S. Treasury debt.
Issuance of new Treasury securities has slowed and the Treasury has
begun buying back debt in the open market. If the economy continues to
steam ahead, some optimistic analysts have predicted that all public
debt (U.S. Treasury and municipal bonds) could be eliminated by 2012.
The decrease in Treasury debt helped trigger an unusual occurrence in
the bond market. Normally, interest rates on bonds with longer
maturities are higher than interest rates on bonds with shorter
maturities due to the former's greater interest rate risk. However, in
recent months, the interest rates on longer maturity Treasury bonds have
fallen below those of shorter maturities, causing the yield curve to
invert. While the Fed has raised short-term rates, long-term Treasury
rates have fallen due to the scarcity of high-quality bonds. However,
the decline in long-term interest rates has been limited to public debt.
In the private debt markets (corporate bonds, mortgage-backed bonds,
etc.), long-term yields have remained high, reflecting the strong
economy and inflation concerns.
Among the different sectors of the bond market, Treasury securities
(particularly long-term debt) provided the highest returns during the
first six months. The municipal bond sector was the second best
performing sector, with new issuance down 22% versus the same period of
1999, as the strong economy helped decrease the need for municipalities
to issue debt. In the mortgage-backed bond sector, investors also
benefited from a decline in issuance as well as an excellent prepayment
environment, as refinancings declined but home sales remained high. In
the investment grade corporate bond sector, the active Fed, "event risk"
(mergers and other actions taken by companies to improve their stock
price), the inverted yield curve, and heavy supply (June was the
heaviest month in the history of corporate bond issuance) converged to
produce disappointing results. However, higher-rated issues fared better
than lower-rated credits. The high yield bond segment posted the weakest
returns in the bond market, due to the factors which adversely affected
the investment grade corporate bond market plus rising default rates and
lack of investor demand due to better returns in other asset classes.
Looking Ahead
Going forward, the Fed may raise interest rates once or twice more in an
effort to slow the economy's momentum. The Fed took no action at its
meeting at the end of June, but maintained a bias to raise rates. For
the equity market, we remain optimistic that solid economic fundamentals
and healthy corporate profits may produce positive returns for the
second half of 2000. In the bond market, it appears that long-term rates
most likely peaked in January. Rates may move somewhat higher from
current levels until the Fed concludes its rate increases. The
conclusion of Fed tightening, coupled with a slowing economy, could
create a catalyst for a bond market rally by the end of the year.
Because it is impossible to predict the future direction of the markets,
even over the short term, there are certain basic investment principles
that we encourage our clients to follow to reduce exposure to risk.**
First, we encourage clients to take a long-term view, and to avoid
trying to time the market. Attempting to time the market is extremely
difficult, even for professional investors. Second, we encourage our
clients to diversify their portfolios among stock funds, bond funds and
money market portfolios. Third, we encourage our shareholders to follow
a regular investment plan, investing a specific amount of money at
defined intervals. This strategy is known as "dollar cost averaging." It
may help you to avoid getting caught up in the excitement of a rising
market and will reduce the risk of buying at high points.
Of course, no financial plan or program, no matter how well-designed, is
guaranteed to be successful. In addition, nothing eliminates the risk
associated with overall market trends. However, utilizing these various
strategies may help to minimize the risk by reducing the extent to which
an investor may be affected by a decline in any one security or segment
of the market. If you use dollar cost averaging, you should consider
your ability to continue purchases through periods of declining prices.
Thank you for placing your trust in First Investors. As always, we
appreciate the opportunity to serve your investment needs.
Sincerely,
/S/ CLARK D. WAGNER
Clark D. Wagner
Chief Investment Officer
First Investors Management Company, Inc.
July 31, 2000
* The Fund is only available through the purchase of variable annuity
contracts issued by First Investors Life Insurance Company. The semi-
annual report does not reflect the additional expenses and charges that
are applicable to variable annuity contracts.
** There are a variety of risks associated with investing in all
variable annuity subaccounts. For the bond subaccounts, the risks
include interest rate risk and credit risk. Interest rate risk is the
risk that bonds will decrease in value as interest rates rise. As a
general matter, longer-term bonds fluctuate more than shorter-term bonds
in reaction to changes in interest rates. Credit risk is the risk that
bonds will decline in value as the result of a decline in the credit
rating of the bonds or the economy as a whole. You should consult your
prospectus for a precise explanation of the risks associated with your
subaccounts.
<TABLE>
<CAPTION>
Portfolio of Investments
FIRST INVESTORS SPECIAL BOND FUND, INC.
JUNE 30, 2000
--------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE BONDS--89.8%
Aerospace/Defense--1.7%
$ 500M L-3 Communications Corp., 8%, 2008 $ 446,250 $ 168
--------------------------------------------------------------------------------------------------------
Automotive--5.3%
700M Cambridge Industries, Inc., 10 1/4%, 2007** 211,750 80
500M Collins & Aikman Products Co., 11 1/2%, 2006 480,000 180
600M Exide Corp., 10%, 2005 531,000 200
500M Special Devices, Inc., 11 3/8%, 2008 177,500 67
--------------------------------------------------------------------------------------------------------
1,400,250 527
--------------------------------------------------------------------------------------------------------
Chemicals--7.5%
800M Huntsman Polymers Corp., 11 3/4%, 2004 816,000 307
325M Hydrochem Industrial Services, 10 3/8%, 2007 248,625 94
300M Lyondell Chemical Co., 9 5/8%, 2007 297,375 112
500M Polymer Group, Inc., 9%, 2007 427,500 161
200M Tekni-Plex, Inc., 12 3/4%, 2010+ 200,500 75
--------------------------------------------------------------------------------------------------------
1,990,000 749
--------------------------------------------------------------------------------------------------------
Consumer Products--6.8%
700M AKI Inc., 10 1/2%, 2008 560,000 211
500M Chattem, Inc., 8 7/8%, 2008 402,500 151
555M Hines Horticulture, Inc., 11 3/4%, 2005 557,775 210
350M Mail-Well I Corp., 8 3/4%, 2008 299,250 113
--------------------------------------------------------------------------------------------------------
1,819,525 685
--------------------------------------------------------------------------------------------------------
Containers/Packaging--1.9%
500M U.S. Can Corp., 10 1/8%, 2006 507,500 191
--------------------------------------------------------------------------------------------------------
Durable Goods Manufacturing--2.0%
600M Columbus McKinnon Corp., 8 1/2%, 2008 531,000 200
--------------------------------------------------------------------------------------------------------
Entertainment/Leisure--1.9%
460M Carmike Cinemas, Inc., 9 3/8%, 2009 257,600 97
300M Loews Cineplex Entertainment Corp., 8 7/8%, 2008 142,500 54
180M Outboard Marine Corp., 10 3/4%, 2008 92,700 35
--------------------------------------------------------------------------------------------------------
492,800 186
--------------------------------------------------------------------------------------------------------
Food/Beverage/Tobacco--1.7%
500M Canandaigua Brands, Inc., 8 1/2%, 2009 457,500 172
--------------------------------------------------------------------------------------------------------
Gaming/Lodging--4.8%
550M Hollywood Park, Inc., 9 1/4%, 2007 550,000 207
450M Isle of Capri Casinos, 8 3/4%, 2009 418,500 158
300M Park Place Entertainment Corp., 9 3/8%, 2007 301,500 113
--------------------------------------------------------------------------------------------------------
1,270,000 478
--------------------------------------------------------------------------------------------------------
Healthcare--5.2%
300M CONMED Corp., 9%, 2008 274,125 103
400M Fisher Scientific International, Inc., 9%, 2008 367,000 138
300M Integrated Health Services, Inc., 9 1/2%, 2007** 10,125 4
350M Leiner Health Products, Inc., 9 5/8%, 2007 253,750 96
500M Tenet Healthcare Corp., 8 5/8%, 2007 477,500 180
--------------------------------------------------------------------------------------------------------
1,382,500 521
--------------------------------------------------------------------------------------------------------
Information Technology/Office Equipment--1.9%
300M Exodus Communications, Inc., 10 3/4%, 2009 290,250 109
80M Exodus Communications, Inc., 11 5/8%, 2010+ 80,600 30
200M Rhythms NetConnections, Inc., 12 3/4%, 2009 142,000 54
--------------------------------------------------------------------------------------------------------
512,850 193
--------------------------------------------------------------------------------------------------------
Media (Cable TV/Broadcasting)--9.8%
500M Charter Comunications Holdings LLC/Capital Corp., 10%, 2009 486,250 183
500M Mediacom LLC/Capital Corp., 8 1/2%, 2008 465,000 175
300M NTL Communications Corp., 11 1/2%, 2008 303,000 114
550M Rogers Communications, Inc., 9 1/8%, 2006 541,750 204
300M Sinclair Broadcast Group, Inc., 10%, 2005 285,750 108
500M Star Choice Communications, Inc., 13%, 2005 515,625 194
--------------------------------------------------------------------------------------------------------
2,597,375 978
--------------------------------------------------------------------------------------------------------
Media (Other)--1.7%
500M Garden State Newspapers, Inc., 8 5/8%, 2011 442,500 167
--------------------------------------------------------------------------------------------------------
Mining/Metals--7.1%
600M Commonwealth Aluminum Corp., 10 3/4%, 2006 579,000 218
800M CSN Iron, SA, 9 1/8%, 2007+ 648,000 244
700M Euramax International PLC, 11 1/4%, 2006 668,500 252
--------------------------------------------------------------------------------------------------------
1,895,500 714
--------------------------------------------------------------------------------------------------------
<CAPTION>
Portfolio of Investments (continued)
FIRST INVESTORS SPECIAL BOND FUND, INC.
JUNE 30, 2000
--------------------------------------------------------------------------------------------------------
Principal Amount
Amount, Invested
Shares, For Each
Units or $10,000 of
Warrants Security Value Net Assets
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Miscellaneous-5.8%
$ 500M Iron Mountain, Inc., 10 1/8%, 2006 $ 502,500 $ 189
500M Kindercare Learning Centers, Inc., 9 1/2%, 2009 462,500 174
600M Loomis Fargo & Co., 10%, 2004 576,000 217
--------------------------------------------------------------------------------------------------------
1,541,000 580
--------------------------------------------------------------------------------------------------------
Paper/Forest Products--5.0%
500M Container Corp., 11 1/4%, 2004 510,000 192
500M Packaging Corporation of America, 9 5/8%, 2009 495,000 186
350M Riverwood International Corp., 10 1/4%, 2006 336,437 127
--------------------------------------------------------------------------------------------------------
1,341,437 505
--------------------------------------------------------------------------------------------------------
Real Estate/Construction--1.2%
600M Cathay International, Ltd., 13%, 2008+ 315,000 119
--------------------------------------------------------------------------------------------------------
Telecommunications--15.1%
600M ICG Services, Inc., 0%-10%, 2008 304,500 115
500M Level 3 Communications, Inc., 9 1/8%, 2008 449,375 169
500M McCaw International, Ltd., 0%-13%, 2007 385,000 145
750M Netia Holdings BV, 0%-11 1/4%, 2007 502,500 189
400M NEXTLINK Communications, Inc., 9%, 2008 364,000 137
500M Powertel, Inc., 0%-12%, 2006 472,500 178
700M Qwest Communications International, Inc., 0%-9.47%, 2007 575,750 217
500M RCN Corp., 0%-11%, 2008 277,500 105
500M Viatel, Inc., 0%-12 1/2%, 2008 226,250 85
500M World Access, Inc., 13 1/4%, 2008 450,000 169
--------------------------------------------------------------------------------------------------------
4,007,375 1,509
--------------------------------------------------------------------------------------------------------
Transportation--2.1%
600M Eletson Holdings, Inc., 9 1/4%, 2003 561,000 211
--------------------------------------------------------------------------------------------------------
Waste Management--1.3%
400M Allied Waste, Inc., 10%, 2009 338,000 127
--------------------------------------------------------------------------------------------------------
Total Value of Corporate Bonds (cost $27,627,657) 23,849,362 8,980
--------------------------------------------------------------------------------------------------------
COMMON STOCKS--1.5%
Media (Cable TV/Broadcasting)--.5%
3,779 *Echostar Communications Corp. - Class "A" 125,120 47
--------------------------------------------------------------------------------------------------------
Media (Other)--.7%
1,500 *MediaNews Group, Inc. 187,500 71
--------------------------------------------------------------------------------------------------------
Telecommunications--.3%
2,037 *Viatel, Inc. 58,182 22
1,571 *World Access, Inc. 17,379 6
--------------------------------------------------------------------------------------------------------
75,561 28
--------------------------------------------------------------------------------------------------------
Total Value of Common Stocks (cost $79,443) 388,181 146
--------------------------------------------------------------------------------------------------------
PREFERRED STOCKS--.7%
Durable Goods Manufacturing
261 Day International Group, Inc., 12 1/4%, PIK (cost $251,514) 193,808 73
--------------------------------------------------------------------------------------------------------
WARRANTS--.1%
Media (Cable TV/Broadcasting)--.1%
11,580 *Star Choice Communications, Inc. (expiring 12/15/05)+ 30,398 11
--------------------------------------------------------------------------------------------------------
Telecommunications--.0%
1,100 *McCaw International, Ltd. (expiring 4/15/07)+ 2,750 1
--------------------------------------------------------------------------------------------------------
Total Value of Warrants (cost $0) 33,148 12
--------------------------------------------------------------------------------------------------------
UNITS--.5%
Telecommunications
250 GT Group Telecom, Inc. (cost $138,863)+,++ 138,750 52
--------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--3.9%
$ 1,000M United States Treasury Notes, 7%, 2006 (cost $1,087,969) 1,036,250 391
--------------------------------------------------------------------------------------------------------
SHORT-TERM CORPORATE NOTES--3.7%
700M CSW Credit Corp., 6.87%, 7/7/2000 749,141 282
200M General Electric Capital Corp., 6.81%, 7/7/2000 224,745 85
--------------------------------------------------------------------------------------------------------
Total Value of Short-Term Corporate Notes (cost $973,886) 973,886 367
--------------------------------------------------------------------------------------------------------
Total Value of Investments (cost $30,159,332) 100.2% 26,613,385 10,021
Excess of Liabilities Over Other Assets (0.2) (56,043) (21)
--------------------------------------------------------------------------------------------------------
Net Assets 100.0% $26,557,342 $10,000
========================================================================================================
+ See Note 5
++ Each unit consists of one GT Group Telecom, Inc., 0%-13 1/4% $1,000 Senior Note due 2010
and one warrant to buy 4.9106 Class "B" shares.
* Non-income producing
** Security is in default and currently not paying interest
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
FIRST INVESTORS SPECIAL BOND FUND, INC.
June 30, 2000
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments in securities, at value (identified cost $30,159,332) (Note 1A) $26,613,385
Cash 174,134
Interest receivable 642,772
Other assets 4,373
------------
Total Assets 27,434,664
Liabilities
Dividends payable $755,013
Investment securities purchased 80,000
Payable for capital stock redeemed 16,427
Accrued advisory fee 16,374
Accrued expenses 9,508
-----------
Total Liabilities 877,322
------------
Net Assets $26,557,342
============
Net Assets Consist of:
Capital paid in $31,043,353
Undistributed net investment income 282,563
Accumulated net realized loss on investment transactions (1,222,627)
Net unrealized depreciation in value of investments (3,545,947)
------------
Total $26,557,342
============
Net Asset Value, Offering Price and Redemption Price Per Share
($26,557,342 divided by 2,493,849 shares outstanding),
25,000,000 shares authorized, $1.00 par value (Note 2) $10.65
======
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
FIRST INVESTORS SPECIAL BOND FUND, INC.
Six Months Ended June 30, 2000
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income
Income:
Interest $1,501,151
Dividends 11,892
-----------
Total income $1,513,043
Expenses (Notes 1 and 4):
Advisory fee 104,815
Professional fees 14,165
Custodian fees 3,021
Other expenses 3,186
-----------
Total expenses 125,187
Less - Custodian fees paid indirectly (2,659)
-----------
Net expenses 122,528
------------
Net investment income 1,390,515
Realized and Unrealized Gain (Loss) on Investments (Note 3):
Net realized loss on investments (44,228)
Net unrealized depreciation of investments (1,686,325)
-----------
Net loss on investments (1,730,553)
------------
Net Decrease in Net Assets Resulting from Operations ($340,038)
============
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
FIRST INVESTORS SPECIAL BOND FUND, INC.
---------------------------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 2000 December 31, 1999
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets from Operations
Net investment income $1,390,515 $2,889,551
Net realized loss on investments (44,228) (636,995)
Net unrealized depreciation of investments (1,686,325) (382,313)
------------- -------------
Net increase (decrease) in net assets resulting from operations (340,038) 1,870,243
------------- -------------
Dividends to Shareholders
Net investment income (1,534,743) (3,168,155)
------------- -------------
Capital Share Transactions *
Proceeds from shares sold 47,260 291,841
Reinvestment of dividends 779,730 3,168,155
Cost of shares redeemed (2,589,187) (4,227,420)
------------- -------------
Net decrease in net assets resulting from share transactions (1,762,197) (767,424)
------------- -------------
Net decrease in net assets (3,636,978) (2,065,336)
Net Assets
Beginning of period 30,194,320 32,259,656
------------- -------------
End of period (including undistributed net investment income of
$282,563 and $426,791, respectively) $26,557,342 $30,194,320
============= =============
*Capital Shares Issued and Redeemed
Sold 4,309 25,008
Issued for dividends reinvested 71,666 274,660
Redeemed (237,414) (363,899)
------------- -------------
Net decrease in capital shares (161,439) (64,231)
============= =============
See notes to financial statements
</TABLE>
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. The investment objective of the Fund
is to seek high current income without undue risk to principal and
secondarily to seek growth of capital.
A. Security Valuation -- Except as provided below, a security listed or
traded on an exchange or the Nasdaq Stock Market is valued at its last
sale price on the exchange or market where the security is principally
traded, and lacking any sales, the security is valued at the mean
between the closing bid and asked prices. Securities traded in the
over-the-counter market (including securities listed on exchanges whose
primary market is believed to be over-the-counter) are 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 and other available information in
determining value. Short-term debt securities that mature in 60 days or
less are valued on the amortized cost method which approximates market
value. 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 regulated 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 December 31, 1999, the Fund had
capital loss carryovers of $1,178,399, of which $287,903 expires in
2003, $253,501 in 2004 and $636,995 in 2007.
C. Distributions to Shareholders -- Dividends to shareholders from net
investment income are declared daily and paid quarterly. Distributions
from net realized capital gains, if any, are normally declared and paid
annually. Income dividends and capital gain distributions are
determined in accordance with income tax regulations which may differ
from generally accepted accounting principles. These differences are
primarily due to differing treatments for capital loss carryforwards and
post-October capital losses.
D. Use of Estimates -- The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expense during the
reporting period. Actual results could differ from those estimates.
E. 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. For the six months ended June 30, 2000, the Fund's
custodian has provided credits in the amount of $2,659 against custodian
charges based on the uninvested cash balances of the Fund.
2. Capital Stock -- Shares of the Fund are sold only through the purchase
of First Investors Life Variable Annuity Fund A contracts issued by
First Investors Life Insurance Company.
3. Security Transactions -- For the six months ended June 30, 2000,
purchases and sales of investment securities, other than United States
Government obligations and short-term corporate notes, aggregated
$6,865,698 and $7,120,656, respectively.
At June 30, 2000, the cost of investments for Federal income tax
purposes was $30,159,332. Accumulated net unrealized depreciation on
investments was $3,545,947, consisting of $409,261 gross unrealized
appreciation and $3,955,208 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. Directors
of the Fund who are not "interested persons" of the Fund as defined in
the 1940 Act are remunerated by the Fund. For the six months ended June
30, 2000, total directors fees accrued by the Fund amounted to $1,500.
Notes to Financial Statements (continued)
FIRST INVESTORS SPECIAL BOND FUND, INC.
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.
5. 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, 2000, the Fund held seven 144A securities with an aggregate
value of $1,415,998 representing 5.3% of the Fund's net assets. These
securities are valued as set forth in Note 1A.
6. 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.
Independent Auditors' 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, 2000 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, 2000 and the year ended
December 31, 1999 and financial highlights for each of the periods
indicated thereon. 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,
2000, by correspondence with the custodian and brokers. Where brokers
have not replied to our confirmation requests, we have carried out other
appropriate auditing procedures. 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. as of
June 30, 2000 and the results of its operations for the six months then
ended, changes in its net assets and financial highlights for the
periods indicated thereon, in conformity with generally accepted
accounting principles.
Tait, Weller & Baker
Philadelphia, Pennsylvania
July 31, 2000
<TABLE>
<CAPTION>
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.
1/1/00 Year Ended December 31
to -------------------------------------------------------
6/30/00 1999 1998 1997 1996 1995
-------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data
--------------
Net Asset Value, Beginning of Period $11.37 $11.86 $12.89 $12.75 $12.23 $11.03
-------- -------- --------- -------- -------- --------
Income from Investment Operations
Net investment income .55 1.10 1.12 1.11 1.17 1.20
Net realized and unrealized
gain (loss) on investments (.67) (.39) (.95) .23 .37 1.02
-------- -------- --------- -------- -------- --------
Total from Investment Operations (.12) .71 .17 1.34 1.54 2.22
-------- -------- --------- -------- -------- --------
Less Dividends from
Net Investment Income .60 1.20 1.20 1.20 1.02 1.02
-------- -------- --------- -------- -------- --------
Net Asset Value, End of Period $10.65 $11.37 $11.86 $12.89 $12.75 $12.23
======== ======== ========= ======== ======== ========
Total Return(%)+ (1.04) 6.24 1.29 10.94 13.10 20.76
----------------
Ratios/Supplemental Data
------------------------
Net Assets, End of Period (in thousands) $26,557 $30,194 $32,260 $36,082 $36,948 $38,037
Ratio to Average Net Assets:(%)
Expenses .90(a) .87 .89 .86 .86 .88
Net investment income 9.88(a) 9.38 8.93 8.60 9.31 10.17
Portfolio Turnover Rate(%) 25 32 65 53 29 45
+ The effect of fees and charges incurred at the separate account level are not reflected in these
performance figures.
(a) Annualized
See notes to financial statements
</TABLE>
FIRST INVESTORS SPECIAL BOND FUND, INC.
Directors
---------
James J. Coy (Emeritus)
Robert M. Grohol
Glenn O. Head
Kathryn S. Head
Larry R. Lavoie
Rex R. Reed
Herbert Rubinstein
James M. Srygley
John T. Sullivan
Robert F. Wentworth
Officers
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Glenn O. Head
President
Nancy W. Jones
Vice President
Concetta Durso
Vice President and Secretary
Joseph I. Benedek
Treasurer
Mark S. Spencer
Assistant 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 Massachusetts Avenue, N.W.
Washington, DC 20036
Auditors
Tait, Weller & Baker
Eight Penn Center Plaza
Philadelphia, PA 19103
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.
