FIRST INVESTORS GOVERNMENT FUND, INC.
95 WALL STREET
NEW YORK, NY 10005
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FIRST
INVESTORS
GOVERNMENT
FUND, INC.
SEMI-
ANNUAL
REPORT
JUNE 30, 1998
Chief Investment Officer's Market Overview 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, 1998. Although both
the bond and stock markets suffered setbacks at times during the first six
months of the year, the combination of moderate growth, low inflation, and
respectable corporate earnings reports helped provide a positive
environment for investors in most types of funds.
The U.S. economy remained strong for the first half of 1998, with
sustained, moderate growth and low levels of inflation and unemployment.
Inflation remained low, as the Consumer Price Index rose just 1.7% for the
twelve months ended June 30. The unemployment rate continued to be low, at
4.5% as of June 30, 1998. Consumer confidence remained high, encouraged by
the robust domestic economy and rising income levels.
In general, our long-term outlook for the financial markets continues to be
positive. The economy appears to be growing moderately, inflation remains
subdued and the Federal Reserve appears unlikely to tolerate unsustainably
fast economic growth. In regard to the stock market, we are encouraged by
the underlying fundamentals of the U.S. economy. However, we are cautioned
by a number of situations, including the struggles in Asia. We are
concerned about the effect this region's difficulties may have on U.S.
growth and corporate earnings. We are also concerned about the relative
lack of pricing power and the prospects that the lofty level of gains
posted year-to-date can continue into the second half of 1998.
With regard to the bond market, interest rates continue to remain in a
tight range; we believe the Federal Reserve is likely to maintain current
interest rates. Continued weak Asian markets, low inflation in the U.S. and
the Federal budget surplus should support an environment of low interest
rates and high bond prices. However, the continued strength of the U.S.
economy could result in higher interest rates and inflation,
notwithstanding Asia. In this event, bond fund values would decline.
Thank you for your continued confidence 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, 1998
<TABLE>
<CAPTION>
Portfolio of Investments
FIRST INVESTORS GOVERNMENT FUND, INC.
June 30, 1998
- -------------------------------------------------------------------------------------------------------------
Principal
Amount Security Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MORTGAGE-BACKED CERTIFICATES--89.4%
Government National Mortgage Association I Program--39.9%
$21,063M 6 1/2%, 4/15/2028-5/15/2028 $ 21,036,149
42,845M 7 1/2%, 11/15/2022-5/15/2028 44,086,352
- -------------------------------------------------------------------------------------------------------------
65,122,501
- -------------------------------------------------------------------------------------------------------------
Government National Mortgage Association II Program--49.5%
46,557M 7%, 6/20/2023-11/20/2027 47,228,493
21,463M 7 1/2%, 12/20/2022-10/20/2023 22,069,532
10,631M 9%, 4/20/2016-7/20/2021 11,460,229
- -------------------------------------------------------------------------------------------------------------
80,758,254
- -------------------------------------------------------------------------------------------------------------
Total Value of Mortgage-Backed Certificates (cost $143,461,995) 145,880,755
- -------------------------------------------------------------------------------------------------------------
UNITED STATES TREASURY BONDS--6.4%
9,500M 6 3/8%, 8/15/2027 (cost $10,143,477) 10,438,125
- -------------------------------------------------------------------------------------------------------------
SHORT-TERM CORPORATE NOTES--3.9%
6,300M Merrill Lynch & Co., Inc., 5.82%, 7/6/1998 (cost $6,294,908) 6,294,908
- -------------------------------------------------------------------------------------------------------------
Total Value of Investments (cost $159,900,380) 99.7% 162,613,788
Other Assets, Less Liabilities .3 469,128
- -------------------------------------------------------------------------------------------------------------
Net Assets 100.0% $163,082,916
=============================================================================================================
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
FIRST INVESTORS GOVERNMENT FUND, INC.
June 30, 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments in securities, at value (identified cost $159,900,380) (Note 1A) $162,613,788
Cash 533,767
Receivables:
Interest 1,094,858
Capital shares sold 168,214
Other assets 27,482
--------------
Total Assets 164,438,109
Liabilities
Payables:
Capital shares redeemed $ 525,950
Dividend payable 700,952
Accrued advisory fee 89,127
Accrued expenses 39,164
--------------
Total Liabilities 1,355,193
--------------
Net Assets (Note 4):
Class A (14,200,270 shares outstanding) 160,853,742
Class B (197,010 shares outstanding) 2,229,174 $163,082,916
-------------- ==============
Net Assets Consist of:
Capital paid in $180,234,048
Undistributed net investment income 332,208
Accumulated net realized loss on investment transactions (20,196,748)
Net unrealized appreciation in value of investments 2,713,408
--------------
Total $163,082,916
==============
Net asset value and redemption price per share-Class A $11.33
======
Maximum offering price per share-Class A ($11.33/.9375)* $12.09
======
Net asset value and offering price per share-Class B (Note 4) $11.32
======
* 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, 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income
Interest income $5,952,251
Expenses (Notes 1 and 3):
Advisory fee $ 841,349
Distribution plan expenses-Class A 249,151
Distribution plan expenses-Class B 10,845
Shareholder servicing costs 211,062
Custodian fees 17,530
Professional fees 16,791
Reports and notices to shareholders 9,811
Other expenses 21,215
------------
Total expenses 1,377,754
Less: Portion of advisory fee waived (294,472)
Custodian fees paid indirectly (10,697)
------------
Net expenses 1,072,585
------------
Net investment income 4,879,666
Realized and Unrealized Gain (Loss) on Investments (Note 2):
Net realized gain on investments 885,846
Net unrealized depreciation of investments (593,474)
------------
Net gain on investments 292,372
------------
Net Increase in Net Assets Resulting from Operations $5,172,038
============
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, 1998 December 31, 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets from Operations
Net investment income $ 4,879,666 $ 10,923,827
Net realized gain on investments 885,846 639,617
Net unrealized appreciation (depreciation) of investments (593,474) 2,599,700
------------ ------------
Net increase in net assets resulting from operations 5,172,038 14,163,144
------------ ------------
Dividends to Shareholders
Net investment income-Class A (4,514,229) (10,429,404)
Net investment income-Class B (50,982) (87,929)
------------ ------------
Total dividends (4,565,211) (10,517,333)
------------ ------------
Capital Share Transactions (a)
Class A:
Proceeds from shares sold 3,799,596 5,908,414
Reinvestment of dividends 3,127,809 8,585,051
Cost of shares redeemed (16,727,585) (34,742,760)
------------ ------------
(9,800,180) (20,249,295)
------------ ------------
Class B:
Proceeds from shares sold 405,072 771,873
Reinvestment of dividends 36,993 77,395
Cost of shares redeemed (211,332) (293,938)
------------ ------------
230,733 555,330
------------ ------------
Net decrease from capital share transactions (9,569,447) (19,693,965)
------------ ------------
Net decrease in net assets (8,962,620) (16,048,154)
Net Assets
Beginning of period 172,045,536 188,093,690
------------ ------------
End of period (including undistributed net investment income of
$332,208 and $17,753, respectively) $163,082,916 $172,045,536
============ ============
(a)Capital Shares Issued and Redeemed
Class A:
Sold 336,249 532,781
Issued for dividends reinvested 276,763 772,790
Redeemed (1,479,565) (3,132,875)
------------ ------------
Net decrease in Class A shares outstanding (866,553) (1,827,304)
============ ============
Class B:
Sold 35,806 69,580
Issued for dividends reinvested 3,278 6,967
Redeemed (18,749) (26,527)
------------ ------------
Net decrease in Class A shares outstanding 20,335 50,020
============ ============
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.
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. Short-term
securities 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 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, 1998, the Fund had capital loss carryovers of
$21,082,594 of which $20,878,086 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. Distributions from
net realized capital gains, if any, are generally 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 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. For the six months ended
June 30, 1998, the Fund's Custodian has provided credits in the amount of
$10,697 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, 1998,
purchases and sales (including pay-downs) of securities other than short-
term U.S. Government obligations and corporate notes, aggregated
$65,070,835 and $79,881,152, respectively.
At June 30, 1998, the cost of investments for federal income tax purposes
was $159,900,380. Accumulated net unrealized appreciation on investments
was $2,713,408, consisting of unrealized appreciation of $2,716,285 and
$2,877 of 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. 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, 1998, total directors fees accrued by the Fund
amounted to $4,500.
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. For the six months ended June 30, 1998,
FIMCO has voluntarily waived 35% of the fee on the first $200 million of
the Fund's average daily net assets. This reduction amounted to $294,472.
For the six months ended June 30, 1998, FIC, as underwriter, received
$74,824 in commissions after allowing $6,692 to other dealers. Shareholder
servicing costs included $116,588 in transfer agent fees paid to ADM, and
$42,672 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 daily
net assets of the Class A shares and 1% of the average daily 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
--------------------------------------------------- ---------------------------------
1/1/98 Year Ended December 31 1/1/98 Year Ended December 31
to ----------------------------------------- to ------------------------
6/30/98 1997 1996 1995 1994 1993 6/30/98 1997 1996 1995*
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Data
- --------------
Net Asset Value,
Beginning of Period $11.29 $11.05 $11.31 $10.50 $11.55 $11.83 $11.27 $11.04 $11.31 $10.52
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from Investment Operations
Net investment income .33 .69 .68 .71 .69 .72 .29 .61 .60 .63
Net realized and unrealized
gain (loss) on investments .02 .21 (.30) .82 (1.06) (.26) .03 .21 (.31) .80
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment Operations .35 .90 .38 1.53 (.37) .46 .32 .82 .29 1.43
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less dividends from
net investment income .31 .66 .64 .72 .68 .74 .27 .59 .56 .64
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of Period $11.33 $11.29 $11.05 $11.31 $10.50 $11.55 $11.32 $11.27 $11.04 $11.31
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return (%)+ 3.12 8.40 3.51 14.98 (3.22) 3.99 2.84 7.60 2.73 13.94
- ------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period
(in millions) $161 $170 $187 $217 $219 $288 $2 $2 $1 $1
Ratio to Average Net Assets: (%)++
Expenses 1.28(a) 1.34 1.39 1.38 1.40 1.32 1.98(a) 2.04 2.09 2.13(a)
Net investment income 5.81(a) 6.16 6.15 6.50 6.31 6.14 5.11(a) 5.46 5.44 5.75(a)
Ratio to Average Net Assets Before
Expenses Waived (Note 3): (%)
Expenses 1.63(a) 1.64 1.63 1.61 1.60 1.48 2.33(a) 2.34 2.34 2.37(a)
Net investment income 5.46(a) 5.86 5.90 6.27 6.11 5.98 4.76(a) 5.16 5.20 5.51(a)
Portfolio Turnover Rate (%) 41 134 121 163 260 584 41 134 121 163
* For the period 1/12/95 (date 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 Auditors' 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, 1998, 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, 1998 and the year ended December 31, 1997
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, 1998, 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, 1998, 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, 1998
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
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.
