FIRST
INVESTORS
GOVERNMENT
FUND, INC.
SEMI-
ANNUAL
REPORT
JUNE 30, 1997
Vertically reading from bottom to top in the center of the page the words
"FIRST INVESTORS" appear.
The following appears in a box to the left of the above language:
First Investors Logo (as described above)
NEED SERVICE?
If you have questions about your account...or would like information
regarding other products or services...please contact your representative
or call our Shareholder Services Department at...
(800) 423-4026
The following appears in a box within the above box:
Our business is...putting investors first
The following appears on the bottom lefthand side:
FIGV085
Portfolio Manager's Letter
FIRST INVESTORS GOVERNMENT FUND, INC.
Dear Investor:
We are pleased to present the semi-annual report for First Investors
Government Fund, Inc. for the six months ended June 30, 1997. During the
period, the Fund declared dividends from net investment income of 32.8
cents per share on Class A shares and 29.2 cents per share on Class B
shares. For the same period, the Fund's return on a net asset value
basis was 3.2% on Class A shares and 2.9% on Class B shares. In
comparison, the average return for Government National Mortgage
Association ("GNMA") bond funds was 3.4% according to Lipper Analytical
Services, Inc. The Government Fund invests primarily in GNMA mortgage-
backed bonds.
The first half of 1997 ended with an ideal economy: sustained, moderate
growth with little inflation. Early in the year it appeared that the
economy might be growing too fast as gross domestic product expanded at
a 4.9% annual rate during the first quarter. Concerned by the economy's
strength, the Federal Reserve raised short-term interest rates in March
for the first time in over two years as an "insurance policy" in case
faster growth led to higher inflation. The Federal Reserve's action
subsequently appeared to be unnecessary as the economy slowed down
significantly in the second quarter and consumer price inflation in fact
decelerated to an annual rate of less than 2.5%.
Although both the bond and stock markets suffered setbacks at times
during the first six months of the year, the combination of moderate
growth and low inflation ultimately provided a positive environment for
investors. The markets were also buoyed by an agreement between the
President and Congress to eliminate the Federal budget deficit over the
next five years. Lastly, the markets benefited from substantial demand
for both stocks and bonds throughout the first half of 1997.
The main risk in buying mortgage-backed bonds, such as GNMA bonds, is
that interest rates will fall and homeowners will prepay or refinance
their current mortgage. This would cause the Fund to lose its higher
yielding bonds at a time when market yields are relatively low. The
first six months of 1997 proved in fact to be very favorable for
mortgage-backed securities as interest rates rose slightly during that
time. With interest rates rising (and prepayment risk on mortgages
falling), demand for mortgage-backed bonds increased as investors bought
them to take advantage of their relatively high yields. As a result,
mortgage-backed bonds provided greater total return than either Treasury
or investment grade corporate bonds.
Management of the Government Fund focused on interest rate risk and
current income. With respect to interest rate risk, the Fund responded
to trends in the market by shifting a portion of the Fund's assets
between mortgage-backed and Treasury securities and adjusting the
average maturity of both holdings. In terms of current income, the Fund
took advantage of the market's historically low volatility by
accumulating a large position in higher coupon mortgage-backed bonds
which offered relatively high yields due to potential prepayment risk.
Investors who buy bond funds -- whether for income or total return --
should be aware that the value of their investment fluctuates as
interest rates change. For example, a 1% increase in yield on a ten-year
Treasury bond results in roughly a 7% decrease in that bond's price. In
each of the last five years, ten-year Treasury bond yields have moved
more than 1%. In addition, the value of a fund can fluctuate based on
changes in the credit quality of the bonds which it holds. Investors
should be aware of these risks and recognize that successful investing
generally requires a long-term commitment to the market.
The outlook for the financial markets continues to be positive. The
economy is growing moderately, inflation is subdued and the Federal
Reserve is unlikely to tolerate unsustainably fast economic growth.
Demand for financial assets is likely to remain strong both here and
overseas. While the sizable recent returns in some markets are not
likely to continue, the factors which might cause a sustained downturn
are not readily apparent. Despite this optimistic outlook, investors
should keep in mind that a diversified portfolio provides the best
insurance against unexpected changes in the financial markets.
As always, we appreciate the opportunity to serve your investment needs.
Sincerely,
/S/CLARK D. WAGNER
Clark D. Wagner
Chief Investment Officer
and Portfolio Manager
July 28, 1997
<TABLE>
<CAPTION>
Portfolio of Investments
FIRST INVESTORS GOVERNMENT FUND, INC.
June 30, 1997
- -----------------------------------------------------------------------------------------------------
Principal
Amount Security Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MORTGAGE-BACKED CERTIFICATES--92.8%
Government National Mortgage Association I Program--46.1%
$31,861M 7%, 4/15/2023-6/15/2024 $ 31,514,824
13,052M 71/2%, 9/15/2021-11/15/2022 13,191,340
33,986M 9%, 8/15/2016-12/15/2021 36,492,169
- -----------------------------------------------------------------------------------------------------
81,198,333
- -----------------------------------------------------------------------------------------------------
Government National Mortgage Association II Program--46.7%
14,157M 7%, 6/20/2023-1/20/2026 13,909,929
19,110M 71/2%, 12/20/2022-9/20/2023 19,189,990
33,533M 8%, 3/20/2025-5/20/2027 34,221,967
2,078M 81/2%, 5/20/2016-6/20/2017 2,189,821
11,913M 9%, 4/20/2016-7/20/2021 12,766,875
- -----------------------------------------------------------------------------------------------------
82,278,582
- -----------------------------------------------------------------------------------------------------
Total Value of Mortgage-Backed Certificates (cost $161,409,966) 163,476,915
- -----------------------------------------------------------------------------------------------------
UNITED STATES TREASURY BONDS--5.2%
9,000M 65/8%, 5/15/2005 (cost $8,991,562) 9,075,933
- -----------------------------------------------------------------------------------------------------
SHORT-TERM CORPORATE NOTES--2.0%
3,500M Archer Daniels Midland Co., 6.20%, 7/1/1997 (cost $3,500,000) 3,500,000
- -----------------------------------------------------------------------------------------------------
Total Value of Investments (cost $173,901,528) 100.0% 176,052,848
Excess of Liabilities Over Other Assets .0 (26,646)
- -----------------------------------------------------------------------------------------------------
Net Assets 100.0% $176,026,202
=====================================================================================================
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
FIRST INVESTORS GOVERNMENT FUND, INC.
June 30, 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments in securities, at value (identified cost $173,901,528) (Note 1A) $176,052,848
Cash 41,657
Receivables:
Interest $ 1,125,675
Capital shares sold 142,236 1,267,911
------------
Other assets 27,482
------------
Total Assets 177,389,898
Liabilities
Payables:
Dividend payable 863,565
Capital shares redeemed 350,090
Accrued advisory fee 103,317
Accrued expenses 46,724
------------
Total Liabilities 1,363,696
------------
Net Assets (Note 4):
Class A (15,750,601 shares outstanding) 174,367,068
Class B (150,026 shares outstanding) 1,659,134 $176,026,202
------------ ============
Net Assets Consist of:
Capital paid in $197,155,373
Undistributed net investment income 392,420
Accumulated net realized loss on investment transactions (23,672,911)
Net unrealized appreciation in value of investments 2,151,320
------------
Total $176,026,202
============
Net asset value and redemption price per share--Class A $11.07
======
Maximum offering price per share--Class A ($11.07/.9375)* $11.81
======
Net asset value and offering price per share--Class B (Note 4) $11.06
======
* On purchases of $25,000 or more, the sales charge is reduced.
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
FIRST INVESTORS GOVERNMENT FUND, INC.
Six Months Ended June 30, 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income
Interest income $6,872,823
Expenses (Notes 1 and 3):
Advisory fee $ 903,497
Distribution plan expenses--Class A 268,792
Distribution plan expenses--Class B 7,525
Shareholder servicing costs 230,113
Custodian fees 26,620
Professional fees 25,803
Reports and notices to shareholders 9,507
Other expenses 23,753
----------
Total expenses 1,495,610
Less: Portion of advisory fee waived (271,049)
Custodian fees paid indirectly (5,310)
----------
Net expenses 1,219,251
----------
Net investment income 5,653,572
Realized and Unrealized Gain (Loss) Investments (Note 2):
Net realized loss on investments (1,477,486)
Net unrealized appreciation of investments 1,444,138
----------
Net loss on investments (33,348)
----------
Net Increase in Net Assets Resulting from Operations $5,620,224
==========
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
FIRST INVESTORS GOVERNMENT FUND, INC.
- ------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 1997 December 31, 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets from Operations
Net investment income $ 5,653,572 $ 12,270,836
Net realized loss on investments (1,477,486) (1,232,902)
Net unrealized appreciation (depreciation) of investments 1,444,138 (4,653,836)
---------------- ----------------
Net increase in net assets resulting from operations 5,620,224 6,384,098
---------------- ----------------
Dividends to Shareholders from:
Net investment income--Class A (5,305,875) (11,494,009)
Net investment income--Class B (39,750) (61,453)
---------------- ----------------
Total dividends (5,345,625) (11,555,462)
---------------- ----------------
Capital Share Transactions (a)
Class A:
Proceeds from shares sold 3,318,300 9,616,660
Value of dividends reinvested 3,661,200 9,449,764
Cost of shares redeemed (19,579,191) (44,314,807)
---------------- ----------------
(12,599,691) (25,248,383)
---------------- ----------------
Class B:
Proceeds from shares sold 381,372 674,440
Value of dividends reinvested 28,469 53,224
Cost of shares redeemed (152,237) (202,104)
---------------- ----------------
257,604 525,560
---------------- ----------------
Net decrease from capital share transactions (12,342,087) (24,722,823)
---------------- ----------------
Net decrease in net assets (12,067,488) (29,894,187)
Net Assets
Beginning of period 188,093,690 217,987,877
---------------- ----------------
End of period (including undistributed net investment income
of $392,420 and $84,473, respectively) $176,026,202 $188,093,690
================ ================
(a) Capital shares issued and redeemed
Class A:
Sold 301,369 872,095
Issued for dividends reinvested 332,863 857,565
Redeemed (1,777,758) (4,024,024)
---------------- ----------------
Net decrease in Class A shares outstanding (1,143,526) (2,294,364)
================ ================
Class B:
Sold 34,657 60,779
Issued for dividends reinvested 2,591 4,837
Redeemed (13,877) (18,407)
---------------- ----------------
Net increase in Class B shares outstanding 23,371 47,209
================ ================
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. The Fund's objective is to achieve a
significant level of current income which is consistent with security
and liquidity of principal by investing, under normal market conditions,
at least 80% of its assets in obligations issued or guaranteed as to
principal and interest by the U.S. Government, its agencies or
instrumentalities (including mortgage-backed securities).
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 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. 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 June 30, 1997, the Fund had a capital loss
carryovers of $21,723,560 of which $21,519,052 expires in 2002 and
$204,508 in 2004.
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 mortgage-backed securities, capital loss carryforwards and post
October losses.
D. Security Transactions and Investment Income -- 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. The Fund's
Custodian has provided credits in the amount of $5,310 against custodian
charges based on the uninvested cash balances of the Fund.
E. 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.
2. Securities Transactions -- For the six months ended June 30, 1997,
purchases and sales (including pay-downs) of securities other than
short-term U.S. Government obligations and corporate notes, aggregated
$116,434,098 and $128,506,780, respectively.
At June 30, 1997, the cost of investments for federal income tax
purposes was $173,901,528. Accumulated net unrealized appreciation on
investments was $2,151,320 consisting of $2,254,090 gross unrealized
appreciation and $102,770 gross unrealized depreciation.
3. 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"),
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. FIMCO has voluntarily waived
.25% of the fee on the first $200 million of the Fund's average daily
net assets from July 1987 through December 1996 and .30% since January
1997. For the six months ended June 30, 1997, this reduction amounted to
$271,049.
For the six months ended June 30, 1997, FIC, as underwriter, received
$97,536 in commissions after allowing $8,095 to other dealers.
Shareholder servicing costs included $149,937 in transfer agent fees
paid to ADM, and $50,233 in IRA custodian fees paid to FFS.
Pursuant to Distribution Plans adopted under Rule 12b-1 of the 1940 Act,
the Fund is authorized to pay FIC a fee equal to .30% of the average net
assets of the Class A shares and 1% of the average net assets of the
Class B shares on an annualized basis each 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.
4. Capital -- The Fund sells two classes of shares, Class A and Class B,
each with a public offering price that reflects different sales charges
and expense levels. Class A shares are sold with an initial sales charge
of up to 6.25% of the amount invested and together with the Class B
shares are subject to distribution plan fees as described in Note 3.
Class B shares are sold without an initial sales charge, but are
generally subject to a contingent deferred sales charge which declines
in steps from 4% to 0% over a six-year period. Class B shares
automatically convert into Class A shares after eight years. Realized
and unrealized gains or losses, investment income and expenses (other
than distribution plan fees) are allocated daily to each class of shares
based upon the relative proportion of net assets of each class. Of the
1,000,000,000 shares originally authorized, the Fund has designated
500,000,000 shares as Class A and 500,000,000 shares as Class B.
<TABLE>
<CAPTION>
Financial Highlights
FIRST INVESTORS GOVERNMENT FUND, INC.
The following table sets forth the per share operating performance for a share of capital stock outstanding, total return,
ratios to average net assets and other supplemental data for each period indicated.
CLASS A CLASS B
----------------------------------------------------- --------------------------
1/1/97 Year Ended December 31 1/1/97
to -------------------------------------------- to
6/30/97 1996 1995 1994 1993 1992 6/30/97 1996 1995*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Data
Net Asset Value,
Beginning of Period $11.05 $11.31 $10.50 $11.55 $11.83 $11.92 $11.04 $11.31 $10.52
------ ------ ------ ------ ------ ------ ------ ------ ------
Income from Investment
Operations
Net investment income .35 .68 .71 .69 .72 .76 .31 .60 .63
Net realized and unrealized
gain (loss) on investments -- (.30) .82 (1.06) (.26) (.09) -- (.31) .80
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment Operations .35 .38 1.53 (.37) .46 .67 .31 .29 1.43
------ ------ ------ ------ ------ ------ ------ ------ ------
Less Distributions from
net investment income .33 .64 .72 .68 .74 .76 .29 .56 .64
------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value,
End of Period $11.07 $11.05 $11.31 $10.50 $11.55 $11.83 $11.06 $11.04 $11.31
====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return(%)+ 3.20 3.51 14.98 (3.22) 3.99 5.90 2.87 2.73 13.94
Ratios/Supplemental Data
Net Assets,
End of Period (in millions) $174 $187 $217 $219 $288 $306 $2 $1 $1
Ratio to Average Net Assets:(%)++
Expenses 1.35(a) 1.39 1.38 1.40 1.32 1.33 2.05(a) 2.09 2.13(a)
Net Investment Income 6.33(a) 6.15 6.50 6.31 6.14 6.45 5.63(a) 5.44 5.75(a)
Ratio to Average Net Assets Before
Expenses Waived (Note 3):(%)
Expenses 1.65(a) 1.63 1.61 1.60 1.48 1.49 2.35(a) 2.34 2.37(a)
Net Investment Income 6.03(a) 5.90 6.27 6.11 5.98 6.29 5.33(a) 5.20 5.51(a)
Portfolio Turnover Rate(%) 69 121 163 260 584 330 69 121 163
* For the period 1/12/95 (date Class B shares first offered) to 12/31/95
+ Calculated without sales charge
++ Net after fees waived (Note 3)
(a) Annualized
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 June 30, 1997, 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, 1997 and the year ended December 31,
1996 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, 1997, 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 June 30,
1997, and the results of its operations, changes in its net assets and
financial highlights for the periods presented, in conformity with
generally accepted accounting principles.
Tait, Weller & Baker
Philadelphia, Pennsylvania
July 31, 1997
FIRST INVESTORS GOVERNMENT FUND, INC.
Directors
James J. Coy (Emeritus)
Roger L. Grayson
Glenn O. Head
Kathryn S. Head
Rex R. Reed
Herbert Rubinstein
Nancy S. Schaenen
James M. Srygley
John T. Sullivan
Robert F. Wentworth
Officers
Glenn O. Head
President
Clark D. Wagner
Vice President
Concetta Durso
Vice President and Secretary
Joseph I. Benedek
Treasurer
Carol Lerner Brown
Assistant Secretary
Gregory R. Kingston
Assistant Treasurer
Mark S. Spencer
Assistant Treasurer
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.
581 Main Street
Woodbridge, NJ 07095-1198
Legal Counsel
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, 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.
