Portfolio Manager's Letter
FIRST INVESTORS GOVERNMENT FUND, INC.
Dear Investor:
The principal factors that affected the Fund's performance in 1994 were
strong economic growth and fears of inflation. The U.S. economic
recovery hit full stride with gross domestic product growth of
approximately 4%. The unemployment rate fell from 6.4% to 5.4% as the
economy created 3.5 million new jobs. Feeling secure about job
prospects, consumers were willing to borrow and spend. U.S. vehicle
sales reached their highest level since 1988. Despite strong growth,
inflation remained below 3% as low labor costs, improved productivity
and international competition kept prices from accelerating.
Nonetheless, concerned that strong economic growth would eventually
lead to inflation, the Federal Reserve in February engineered the first
of six short-term interest rate increases which in total raised rates
250 basis points (2.50%). As is typical at this point in the economic
cycle, long-term interest rates also rose with the benchmark 30 year
U.S. Treasury bond yield increasing approximately 155 basis points
(1.55%) during the year. With higher interest rates creating concern
that the economy might slow, broad stock market indices were unable to
advance and ended the year unchanged to slightly lower despite strong
earnings reported by many companies.
To understand the performance of the bond market in 1994, it is
important to recall that the 1993 bond market rally caused a very heavy
volume of prepayment activity in the mortgage-backed bond market. As
prepayments shortened durations of mortgage-backed security funds,
portfolio managers, seeking to maintain portfolio duration, were forced
to purchase longer-term securities in the U.S. Treasury sector. The
converse occurred in 1994. Mortgage-backed security yields began to
rise in early 1994, as yields in other markets started to increase. The
backup in yields caused prepayments to slow, thereby lengthening the
duration of mortgage-backed security portfolios. Portfolio managers
were forced to sell longer-term securities in the U.S. Treasury sector
in order to hedge their now longer mortgage-backed durations. The
effect was to accelerate greatly the early phases of the fixed-income
markets' deterioration in 1994.
The First Investors Government Fund declined 3.22% in 1994,
underperforming the Salomon Mortgage Index. The primary reason for the
Fund's performance was lack of investment in high coupon mortgage-
backed bonds. As interest rates increased throughout the year, premium
coupons such as 9's and 9.5's lost their price "insulation" as a result
of slower prepayment speeds. Consequently, as their average lives
lengthened, increasing their sensitivity to rising interest rates,
their prices deteriorated beyond expectations. However funds that
remained invested from 1993 in 10% coupons or higher were positioned
more defensively, and as such, retained a greater percentage of
principal.
Generally, the Fund maintained a defensive posture throughout the year
to the extent possible given the objective of providing a high level of
current income. Notably, although the dividend decreased during the
year, the Fund's monthly dividend at the end of 1994 was one half of a
cent per share higher than at the beginning of the year.
As always, we appreciate the opportunity to serve your investment
needs.
Sincerely,
/s/ Clark D. Wagner
Clark D. Wagner
Chief Investment Officer
January 31, 1995
Cumulative Performance Information
FIRST INVESTORS GOVERNMENT FUND, INC.
Comparison of change in value of $10,000 investment in the First
Investors Government Fund, Inc. (Class A shares), the Salomon Brothers
Mortgage Index and the Salomon Brothers Government Index.
The following table is the source data for the line chart which
appears at this point in the printed document. This table is
not part of the original printed document and is shown for
reference only. The same is also true for this descriptive
paragraph.
<TABLE>
<CAPTION>
Government Salomon Brothers Salomon Brothers
Fund Mortgage Index Government Index
<S> <C> <C> <C>
Jan-85 $ 9,375 $10,000 $10,000
Dec-85 11,068 12,568 12,094
Dec-86 12,380 14,257 13,997
Dec-87 12,241 14,835 14,269
Dec-88 13,281 16,141 15,276
Dec-89 14,906 18,573 17,473
Dec-90 16,285 20,596 18,978
Dec-91 18,848 23,820 21,880
Dec-92 19,959 25,576 23,455
Dec-93 20,755 27,375 25,960
Dec-94 20,087 26,984 25,085
</TABLE>
<TABLE>
<CAPTION>
Class A shares Average Annual Total Return*
N.A.V. Only S.E.C. Standardized
<S> <C> <C>
One Year (3.22%) (9.27%)
Five Years 6.16% 4.80%
Ten Years 7.92% 7.22%
S.E.C. 30-Day Yield 6.13%
</TABLE>
The graph compares a $10,000 investment made in the First Investors
Government Fund, Inc. on 1/1/85 with similar investments in the Salomon
Brothers Mortgage Index and the Salomon Brothers Government Index. For
purposes of the graph and the accompanying table, unless otherwise
indicated, it has been assumed that the maximum sales charge was
deducted from the initial $10,000 investment in the Fund and all
dividends and distributions were reinvested. Investors investing in
periodic payment plans bear additional expenses.
The Salomon Brothers Mortgage Index is a market capitalization-weighted
index that consists of all agency pass-throughs and FHA and GNMA
project loans. The Salomon Brothers Government Index is a market
capitalization-weighted index that consists of the traditional agencies
such as FNMA and FHLMC, and the newer agency issuers, such as the
Financing Corp. and the Government Trust Certificate bonds. The
Indices maintain high standards of pricing reliability. Every issue is
trader-priced, and the Indices follow consistent and realistic
availability limits, including only those securities with sufficient
amounts outstanding. The Indices do not take into account fees and
expenses. It is not possible to invest in the Salomon Brothers
Government Index or the Salomon Brothers Mortgage Index.
* Average Annual Total Return figures (for the period ended 12/31/94)
include the reinvestment of all dividends and distributions. "N.A.V.
Only" returns are calculated without sales charges. The "S.E.C.
Standardized" returns shown are based on the maximum sales charge of
6.25% (prior to 7/1/93 and 12/29/89, sales charges were 6.9% and 7.25%,
respectively) and are higher than they would have been had these
charges not been reduced. Some of the expenses of the Fund were waived
or assumed. If such expenses had been paid by the Fund, the S.E.C.
Standardized Average Annual Total Return for One Year, Five Years and
Ten Years would have been (9.47%), 4.60% and 7.03%, respectively and
the S.E.C. Yield for December 1994 would have been 5.91%. Results
represent past performance and do not indicate future results.
Investment return and principal value of an investment will fluctuate
so that an investor's shares, when redeemed, may be worth more or less
than the original cost. Salomon Brothers Mortgage Index and Salomon
Brothers Government Index figures from Salomon Brothers and all other
figures from First Investors Management Company, Inc. Class A shares
were the only shares offered by the Fund during the period reported.
Portfolio of Investments
FIRST INVESTORS GOVERNMENT FUND, INC.
December 31, 1994
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------
Principal
Amount Security Value
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
MORTGAGE-BACKED CERTIFICATES -- 82.7%
Government National Mortgage Association I
$20,275 M 7%, 10/15/2023-3/15/2024 $ 18,199,765
17,817 M 8%, 1/15/2024-4/15/2024 17,035,153
39,205 M 8 1/2%, 4/15/2016-9/15/2024 38,587,786
49,502 M 9%, 1/15/2016-10/15/2017 50,105,660
54,752 M 9 1/2%, 4/15/2016-7/15/2024 56,579,161
581 M 11 1/2%, 10/15/2012-5/15/2015 639,947
- - ----------------------------------------------------------------------------------------------------------
Total Value of Mortgage-Backed Certificates (cost $188,676,054) 181,147,472
- - ----------------------------------------------------------------------------------------------------------
UNITED STATES TREASURY OBLIGATIONS -- 17.1%
United States Treasury Bills
2,000 M 4.87%, 1/19/1995 1,995,130
21,500 M 4.84%, 2/9/1995 21,387,269
14,250 M 5.25%, 2/9/1995 14,168,953
- - ----------------------------------------------------------------------------------------------------------
Total Value of United States Treasury Obligations (cost $37,551,352) 37,551,352
- - ----------------------------------------------------------------------------------------------------------
Total Value of Investments (cost $226,227,406) 99.8% 218,698,824
Other Assets, Less Liabilities .2 362,122
- - ----------------------------------------------------------------------------------------------------------
Net Assets 100.0% $219,060,946
==========================================================================================================
See notes to financial statements
</TABLE>
Statement of Assets and Liabilities
FIRST INVESTORS GOVERNMENT FUND, INC.
December 31,1994
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments in securities, at value (identified cost $226,227,406) (Note 1A) $218,698,824
Cash 350,491
Receivables:
Interest $1,324,885
Capital stock sold 416,722 1,741,607
----------
Other assets 27,482
--------------
Total Assets 220,818,404
Liabilities
Payables:
Capital stock redeemed 1,225,481
Dividend payable January 20, 1995 238,545
Accrued expenses 156,083
Accrued advisory fee 137,349
-------------
Total Liabilities 1,757,458
--------------
Net Assets $219,060,946
==============
Net Assets Consist of:
Capital paid in $252,105,245
Undistributed net investment income 318,248
Accumulated net realized loss on investment transactions (25,833,965)
Net unrealized depreciation in value of investments (7,528,582)
--------------
Total $219,060,946
==============
Net Asset Value and Redemption Price Per Share--Class A (Note 5)
($219,060,946 divided by 20,859,813 shares outstanding),
500,000,000 shares authorized, $.01 par value $10.50
==============
Maximum offering price per share--Class A ($10.50/.9375)* $11.20
==============
*On purchases of $25,000 or more, the sales charge is reduced.
See notes to financial statements
</TABLE>
Statement of Operations
FIRST INVESTORS GOVERNMENT FUND, INC.
Year Ended December 31, 1994
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income
Interest income $18,949,162
Expenses:
Advisory fee (Note 3) $ 2,344,229
Distribution plan expenses (Note 4) 737,692
Shareholder servicing costs (Note 3) 588,269
Reports and notices to shareholders 125,222
Other expenses 139,124
------------
Total expenses 3,934,536
Less: Portion of advisory fee waived (Note 3) 500,000
------------
Net expenses 3,434,536
---------------
Net investment income 15,514,626
Realized and Unrealized Gain (Loss) on Investments (Note 2):
Net realized loss on investments (20,964,402)
Net unrealized depreciation of investments (3,213,275)
------------
Net loss on investments (24,177,677)
---------------
Net Decrease in Net Assets Resulting from Operations ($8,663,051)
===============
See notes to financial statements
</TABLE>
Statement of Changes in Net Assets
FIRST INVESTORS GOVERNMENT FUND, INC.
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------
Year Ended December 31 1994 1993
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets from Operations
Net investment income $ 15,514,626 $ 18,673,601
Net realized loss on investments (20,964,402) (2,124,965)
Net unrealized depreciation of investments (3,213,275) (4,560,771)
------------ -------------
Net increase (decrease) in net assets resulting from operations (8,663,051) 11,987,865
------------ -------------
Dividends to Shareholders from:
Net investment income (15,227,729) (19,189,982)
------------ -------------
Capital Share Transactions--Class A (a)
Issued 13,055,386 26,448,768
Issued on reinvestments 12,577,537 15,850,277
Redeemed (70,979,348) (52,764,698)
------------ -------------
Net decrease in net assets from capital share transactions (45,346,425) (10,465,653)
------------ -------------
Total decrease in net assets (69,237,205) (17,667,770)
Net Assets
Beginning of year 288,298,151 305,965,921
------------ -------------
End of year (including undistributed net investment
income of $318,248 and $31,351, respectively) $219,060,946 $288,298,151
============ =============
(a) Capital Shares Issued and Redeemed--Class A (Note 5)
Issued 1,192,645 2,241,778
Issued on reinvestments 1,159,051 1,346,765
Redeemed (6,453,882) (4,484,422)
------------ -------------
Net decrease in shares (4,102,186) (895,879)
============ =============
See notes to financial statements
</TABLE>
Notes to Financial Statements
FIRST INVESTORS GOVERNMENT 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--U.S. Government obligations are traded primarily
in the over-the-counter markets. Such securities are valued at the mean
between the last bid and asked prices as furnished by dealers who make
a market in such securities. 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 direction 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,
federal income taxes. At December 31, 1994, the Fund had capital loss
carryovers of $23,984,420 of which $369,131 expires in 1998, $1,892,743
expires in 2001 and $21,722,546 expires in 2002.
C. Distributions to Shareholders-- Dividends to shareholders from net
investment income are declared daily and paid monthly.
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
losses.
D. 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. Interest income and
estimated expenses are accrued daily.
2. Securities Transactions--For the year ended December 31, 1994,
purchases and sales (including pay-downs) of other than short-term U.S.
Govern-ment obligations and corporate notes, aggregated $614,313,312
and $658,062,394, respectively.
At December 31, 1994, the cost of investments for federal income tax
purposes was $226,227,406. Accumulated net unrealized depreciation on
investments was $7,528,582 consisting entirely of unrealized
depreciation.
3. Advisory Fee and Other Transactions With Affiliates (Also see Note
4)--Certain officers and directors of the Fund are officers and
directors of its investment adviser, First Investors Management
Company, Inc. ("FIMCO"), its underwriter, First Investors Corporation
("FIC"), its transfer agent, Administrative Data Management Corp.
("ADM") and/or First Financial Savings Bank, S.L.A. ("FFS"), custodian
of the Fund's Individual Retirement Accounts. 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 FIC.
The Investment Advisory Agreement provides as compensation to FIMCO an
annual fee, payable monthly, at the rate of 1% on the first $200
million of the Fund's average daily net assets, .75% on the next $300
million, declining by .03% on each $250 million thereafter, down to
.66% on average daily net assets over $1 billion. Since July 1987,
FIMCO has voluntarily waived .25% of the fee on the first $200 million
of the Fund's average daily net assets. For the year ended December 31,
1994, this reduction amounted to $500,000.
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 year ended
December 31,1994, no reimbursement was required pursuant to these
provisions.
For the year ended December 31, 1994, FIC, as underwriter, received
$470,827 in commissions after allowing $1,866 to other dealers.
Shareholder servicing costs included $344,021 in transfer agent fees
paid to ADM, and $155,684 in custodian fees paid to FFS.
4. Distribution Plan--Pursuant to a Distribution Plan adopted under
Rule 12b-1 of the 1940 Act, the Fund may pay a fee to FIC in an amount
up to .30% of the Fund's average net assets on an annualized basis each
fiscal year, payable monthly. The fee consists of a distribution fee
and a service fee. The service fee is paid for the ongoing servicing of
clients who are shareholders of the Fund.
5. Capital Stock--By the action of the Board of Directors, the Fund
amended its Articles of Incorporation on October 21, 1994 so that of
the 1,000,000,000 shares originally authorized, 500,000,000 shares were
reclassified as Class A capital stock and 500,000,000 shares as Class B
capital stock. As of December 31, 1994, only Class A shares have been
issued.
Financial Highlights
FIRST INVESTORS GOVERNMENT FUND, INC.
<TABLE>
<CAPTION>
The following table sets forth the per share operating performance data for a Class A share of capital stock outstanding, total
return, ratios to average net assets and other supplemental data for each year indicated.
- - ------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
-----------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Data
- - --------------
Net Asset Value, Beginning of Year $11.55 $11.83 $11.92 $11.08 $11.01 $10.75 $10.79 $12.12 $12.14 $11.48
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from Investment Operations
Net investment income .69 .72 .76 .84 .90 .98 .96 .87 1.05 1.25
Net realized and unrealized
gain (loss) on investments (1.06) (.26) (.09) .83 .07 .26 (.04) (1.02) .31 .72
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations (.37) .46 .67 1.67 .97 1.24 .92 (.15) 1.36 1.97
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less Distributions from:
Net investment income .68 .74 .76 .79 .90 .98 .96 .87 1.04 1.30
Capital surplus -- -- -- .04 -- -- -- .31 .34 .01
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions .68 .74 .76 .83 .90 .98 .96 1.18 1.38 1.31
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of Year $10.50 $11.55 $11.83 $11.92 $11.08 $11.01 $10.75 $10.79 $12.12 $12.14
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return(%)+ (3.22) 3.99 5.90 15.74 9.20 12.02 8.71 (1.13) 11.86 18.03
- - ----------------
Ratios/Supplemental Data
- - ------------------------
Net Assets, End of Year
(in thousands) $219,061 $288,298 $305,966 $316,017 $299,374 $236,632 $254,308 $356,688 $247,427 $102,966
Ratio to Average Net Assets:(%)
Expenses 1.40 1.32 1.33 1.34 1.28 1.01 .99 1.24 1.22 1.19
Net investment income 6.31 6.14 6.45 7.43 8.24 8.91 8.69 7.79 8.46 10.20
Ratio to Average Net Assets Before
Expenses Waived (Note 3):(%)++
Expenses 1.60 1.48 1.49 1.50 1.49 1.22 1.16 1.38 1.24 1.27
Net investment income 6.11 5.98 6.29 7.27 8.03 8.70 8.52 7.65 8.44 10.13
Portfolio Turnover Rate (%) 260 584 330 117 94 117 156 74 287 107
+ Calculated without sales charge
++ Net after fees waived (Note 3)
See notes to financial statements
</TABLE>
Independent Auditor's Report
To the Shareholders and Board of Directors of
First Investors Government Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
First Investors Government Fund, Inc., including the portfolio of
investments, as of December 31, 1994, and the related statement of
operations for the year then ended, the statement of changes in net
assets for each of the two years then ended and financial highlights
for each of the ten years in the period then ended. 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 December 31, 1994, 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 Government Fund, Inc. at December
31, 1994, and the results of its operations, changes in its net assets
and financial highlights for each of the respective years presented, in
conformity with generally accepted accounting principles.
Tait, Weller & Baker
Philadelphia, Pennsylvania
January 31, 1995
FIRST INVESTORS GOVERNMENT FUND, INC.
Directors
- - ----------
James J. Coy
Roger L. Grayson
Glenn O. Head
Kathryn S. Head
F. William Ortman, Jr.
Rex R. Reed
Herbert Rubinstein
John T. Sullivan
Robert F. Wentworth
Officers
- - --------
Glenn O. Head
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
Underwriter
First Investors Corporation
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.
10 Woodbridge Center Drive
Woodbridge, NJ 07095-1198
Legal Counsel
Kirkpatrick & Lockhart
1800 M Street, N.W.
Washington, DC 20036
Auditors
Tait, Weller & Baker
Two Penn Center Plaza
Philadelphia, PA 19102
For more complete information about First Investors Government Fund
Inc., including charges and expenses, you may obtain a prospectus from
your registered representative or by calling 1-800-423-4026. Read it
carefully before you invest or send money.
FIRST INVESTORS GOVERNMENT FUND, INC.
95 WALL STREET
NEW YORK, NY 10005
First Investors LOGO
LOGO is described as follows: The arabic numeral one separated into seven
vertical segments followed by the words "First Investors".
A MEMBER OF THE
FIRST INVESTORS
FINANCIAL NETWORK
FIGV085
The words "BULK RATE U.S. POSTAGE PAID PERMIT NO. 7379" in a box
to the right of a circle containing the words "MAILED FROM
ZIP CODE 11201" appears to the right of the above language in the
printed piece.
Vertically reading from bottom to top in center of the page the words
"FIRST INVESTORS" appear in the printed piece.
FIRST
INVESTORS
GOVERNMENT
FUND, INC.
ANNUAL
REPORT
DECEMBER 31, 1994
