FIRST INVESTORS GOVERNMENT FUND, INC.
95 WALL STREET
NEW YORK, NY 10005
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FIRST
INVESTORS
GOVERNMENT
FUND, INC.
ANNUAL
REPORT
DECEMBER 31, 1997
Portfolio Manager's Letter
FIRST INVESTORS GOVERNMENT FUND, INC.
Dear Investor:
1997 was a very good year for the U.S. economy and financial markets.
The economy grew at an annual pace of 3.8%, with the unemployment rate
falling to its lowest level since the 1970's. Despite faster economic
growth, inflation, as measured by the Consumer Price Index, rose less
than 2%, its smallest increase in over ten years. Reflecting the strong
economy, the Federal budget deficit declined substantially and had
almost been eliminated by year-end. Against this backdrop, the Federal
Reserve held monetary policy steady after one small increase in the
benchmark Federal funds rate in March.
Although both the U.S. bond and stock markets suffered setbacks at times
during the year, the combination of moderate growth and low inflation
ultimately provided a rewarding environment for investors. Long-term
bond yields fell to their lowest level in two years, while the broad
stock market indices recorded their third consecutive year of
substantial gains. While many overseas markets were buffeted by the
economic crisis in Southeast Asia, U.S. markets remained relatively
stable or -- in the case of the bond market -- benefited from a "flight
to safety" as investors sought the security of the world's largest and
most efficient financial markets.
Long-term bond yields traded in a historically narrow range during much
of 1997 as evidence of strong economic growth was offset by continuing
indications of low inflation. During the last four months of the year,
the market broke out of its range, as several factors combined to create
a rally. First, investors began to believe that strong economic growth
would not necessarily lead to inflation. Second, the substantial
reduction in the Federal budget deficit decreased the U.S. Treasury's
financing needs, lowering supply of long-term debt. Third, the crisis in
Southeast Asia benefited the bond market as overseas investors sought
the safety of the U.S. market and domestic investors speculated that
Southeast Asia's problems would slow economic growth. As a result,
thirty-year U.S. Treasury bond yields fell below 6% in December for the
first time in two years. In contrast to the approximately 70 basis point
decline in long-term Treasury yields, short-term interest rates rose
slightly during the year in response to the Federal Reserve's decision
to tighten monetary policy in March.
During 1997, First Investors Government Fund returned 8.4% on a net
asset value basis for Class A shares and 7.6% for Class B shares,
compared to the average return for GNMA bond funds of 8.8% according to
Lipper Analytical Services, Inc. The Fund declared dividends from net
investment income of 65.9 cents per share on Class A shares and 58.5
cents per share on Class B shares.
Management of the Fund focused on minimizing interest rate risk and
prepayment risk. Prepayment risk is the risk that homeowners, whose
mortgages comprise GNMA mortgage-backed bonds, will refinance their
mortgages when interest rates fall, causing the Fund to lose its higher
yielding bonds at a time when market yields are relatively low. The
first eight months of 1997 were very favorable for mortgage-backed bonds
as interest rates generally remained in a narrow range with low
volatility. Demand for mortgage-backed bonds was substantial as
investors bought them to take advantage of their relatively high yields.
During this period, management of the Fund focused on interest rate
risk, responding to trends in interest rates by buying or selling
Treasury securities and adjusting the weighted average maturity of its
mortgage-backed holdings. In particular, the Fund reduced its interest
rate exposure during the first quarter when the economy appeared to be
accelerating and the Federal Reserve raised short-term interest rates.
During the second quarter, as the economy showed signs of slowing, the
Fund increased its interest rate exposure.
The bond market's rally during the last four months of the year put
pressure on the mortgage-backed bond market. Falling interest rates
offered homeowners their best opportunity in years to refinance their
mortgages. Consequently, the Fund's focus shifted from interest rate
risk to prepayment risk. To reduce prepayment risk, the Fund decreased
its exposure to higher coupon mortgage-backed bonds, replacing them with
lower coupon bonds which are less likely to be prepaid. Despite these
moves, the Fund's performance lagged its peer group during the second
half of the year due to the 28% of its assets invested in seasoned, high
coupon GNMA mortgage-backed bonds. The relatively short average life of
these securities resulted in modest price appreciation relative to lower
coupon mortgage-backed bonds during the market's rally. The Fund ended
the year with 84% of its assets in GNMA mortgage-backed bonds, 6% in
FNMA mortgage-backed bonds, and 10% in U.S. Treasury notes.
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 100 basis point (or 1%) increase
in yield on a ten-year Treasury bond results in roughly a 7 1/2%
decrease in that bond's price. In each of the last five years, ten-year
Treasury bond yields have fluctuated by more than 1%. In addition, the
value of a fund can fluctuate based on changes in the credit quality of
the bonds it holds. Investors should be aware of these risks and
recognize that successful investing generally requires a long-term
commitment to the market.
Following 1997's strong performance, the outlook for U.S. financial
markets continues to be positive, although uncertainties do exist. In
particular, we believe that the economic problems in Southeast Asia will
slow growth in the U.S. However, it is unclear to what extent growth
will be slowed and, consequently, what the ultimate impact will be on
the financial markets. On a positive note, Southeast Asia's problems
should result in lower inflation worldwide. Uncertainty often leads to
volatile markets. During such times, investors are generally best served
by focusing on long-term objectives and maintaining a disciplined
approach to investing.
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
January 30, 1998
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) and 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.
Salomon Brothers Salomon Brothers
Government Fund Mortgage Index Government Index
JAN 1988 9,375 10,000 10,000
DEC 1988 10,190 10,880 10,706
DEC 1989 11,415 12,529 12,256
DEC 1990 12,474 13,894 13,301
DEC 1991 14,390 16,068 15,335
DEC 1992 15,290 17,252 16,439
DEC 1993 15,900 18,467 18,195
DEC 1994 15,388 18,203 17,581
DEC 1995 17,693 21,256 20,816
DEC 1996 18,314 22,395 21,428
DEC 1997 19,852 24,471 23,496
(INSET BOX IN CHART READS:)
As of December 31, 1997
Average Annual Total Returns*
Class A Shares N.A.V. Only S.E.C. Standardized
One Year 8.40% 1.60%
Five Years 5.36% 4.01%
Ten Years 7.79% 7.10%
S.E.C. 30-Day Yield 5.84%
Class B Shares
One Year 7.60% 3.60%
Since Inception
(1/12/95) 8.08% 7.21%
S.E.C. 30-Day Yield 5.47%
The graph compares a $10,000 investment in the First Investors
Government Fund, Inc. (Class A shares) beginning 1/1/88 with theoretical
investments in the Salomon Brothers Mortgage Index and the Salomon
Brothers Government Index. The Salomon Brothers Mortgage Index is a
market capitalization-weighted index that consists of all agency pass-
throughs and FHA and GNMA project notes. The Salomon Brothers Government
Index is a market capitalization-weighted index that consists of debt
issued by the U.S. Treasury and U.S. Government sponsored agencies.
Every issue included in the Indices is trader-priced, and the Indices
follow consistent and realistic availability limits, including only
those securities with sufficient amounts outstanding. It is not possible
to invest directly in these Indices. In addition, the Indices do not
take into account fees and expenses. 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. Class B shares performance may be greater than or less than
that shown in the line graph above for Class A shares based on
differences in sales loads and fees paid by shareholders investing in
the different classes.
* Average Annual Total Return figures (for the period ended 12/31/97)
include the reinvestment of all dividends and distributions. "N.A.V.
Only" returns are calculated without sales charges. The Class A "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, the maximum sales charges were 6.9%
and 7.25%, respectively). The Class B "S.E.C. Standardized" returns are
adjusted for the applicable deferred sales charge (maximum of 4% in the
first year). Some or all of the expenses of the Fund were waived or
assumed. If such expenses had been paid by the Fund, the Class A "S.E.C.
Standardized" Average Annual Total Return for One Year, Five Years and
Ten Years would have been 1.30%, 3.78% and 6.88%, respectively and the
S.E.C. 30-Day Yield for December 1997 would have been 5.60%. The Class B
"S.E.C. Standardized" Average Annual Total Return for One Year and Since
Inception would have been 3.30% and 6.87%, respectively and the S.E.C.
30-Day Yield for December 1997 would have been 5.22%. 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.
<TABLE>
<CAPTION>
Portfolio of Investments
FIRST INVESTORS GOVERNMENT FUND, INC.
December 31, 1997
- -------------------------------------------------------------------------------------------------------------
Principal
Amount Security Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MORTGAGE-BACKED CERTIFICATES--89.6%
Federal National Mortgage Association Program--5.9%
$10,012M 7%, 1/1/2027-8/1/2027 $10,099,125
- -------------------------------------------------------------------------------------------------------------
Government National Mortgage Association I Program--32.6%
21,108M 7 1/2%, 11/15/2022-11/15/2027 21,661,166
31,567M 9%, 8/15/2016-12/15/2021 34,484,748
- -------------------------------------------------------------------------------------------------------------
56,145,914
- -------------------------------------------------------------------------------------------------------------
Government National Mortgage Association II Program--51.1%
48,082M 7%, 6/20/2023-11/20/2027 48,386,880
24,182M 7 1/2%, 12/20/2022-10/23/2023 24,762,705
1,741M 8 1/2%, 5/20/2016-6/20/2017 1,847,311
11,917M 9%, 4/20/2016-7/20/2021 12,834,882
- -------------------------------------------------------------------------------------------------------------
87,831,778
- -------------------------------------------------------------------------------------------------------------
Total Value of Mortgage-Backed Certificates (cost $151,271,576) 154,076,817
- -------------------------------------------------------------------------------------------------------------
UNITED STATES TREASURY NOTES--9.7%
16,000M 6 1/2%, 10/15/2006 (cost $16,258,359) 16,760,000
- -------------------------------------------------------------------------------------------------------------
Total Value of Investments (cost $167,529,935) 99.3% 170,836,817
Other Assets, Less Liabilities .7 1,208,719
- -------------------------------------------------------------------------------------------------------------
Net Assets 100.00% $172,045,536
- -------------------------------------------------------------------------------------------------------------
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
FIRST INVESTORS GOVERNMENT FUND, INC.
December 31, 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments in securities, at value (identified cost $167,529,935) (Note 1A) $170,836,817
Cash 479,141
Receivables:
Interest 1,175,536
Capital shares sold 33,561
Other assets 27,482
--------------
Total Assets 172,552,537
Liabilities
Payables:
Capital shares redeemed $197,107
Dividends payable 135,389
Accrued advisory fee 100,330
Accrued expenses 74,175
--------------
Total Liabilities 507,001
--------------
Net Assets (Note 4):
Class A (15,066,823 shares outstanding) 170,053,991
Class B (176,675 shares outstanding) 1,991,545 $172,045,536
============== ==============
Net Assets Consist of:
Capital paid in $189,803,495
Undistributed net investment income 17,753
Accumulated net realized loss on investment transactions (21,082,594)
Net unrealized appreciation in value of investments 3,306,882
--------------
Total $172,045,536
==============
Net asset value and redemption price per share--Class A $11.29
=======
Maximum offering price per share--Class A ($11.29/.9375) $12.04
=======
Net asset value and offering price per share--Class B (Note 4) $11.27
=======
* 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.
December 31, 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income
Interest income $13,293,739
Expenses (Notes 1 and 3):
Advisory fee $1,774,029
Distribution plan expenses--Class A 527,205
Distribution plan expenses--Class B 16,678
Shareholder servicing costs 409,833
Custodian fees 63,875
Professional fees 38,877
Reports and notices to shareholders 14,773
Other expenses 70,409
------------
Total expenses 2,915,679
Less: Portion of advisory fee waived (532,208)
Custodian fees paid indirectly (13,559)
------------
Net expenses 2,369,912
------------
Net investment income 10,923,827
Realized and Unrealized Gain on Investments (Note 2):
Net realized gain on investments 639,617
Net unrealized appreciation of investments 2,599,700
------------
Net gain on investments 3,239,317
------------
Net Increase in Net Assets Resulting from Operations $14,163,144
============
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
FIRST INVESTORS GOVERNMENT FUND, INC.
- -----------------------------------------------------------------------------------------------------------
Year Ended December 31 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets from Operations
Net investment income $10,923,827 $12,270,836
Net realized gain (loss) on investments 639,617 (1,232,902)
Net unrealized appreciation (depreciation) of investments 2,599,700 (4,653,836)
------------ ------------
Net increase in net assets resulting from operations 14,163,144 6,384,098
------------ ------------
Dividends to Shareholders
Net investment income--Class A (10,429,404) (11,494,009)
Net investment income--Class B (87,929) (61,453)
------------ ------------
Total dividends (10,517,333) (11,555,462)
------------ ------------
Capital Share Transactions (a)
Class A:
Proceeds from shares sold 5,908,414 9,616,660
Value of dividends reinvested 8,585,051 9,449,764
Cost of shares redeemed (34,742,760) (44,314,807)
------------ ------------
(20,249,295) (25,248,383)
------------ ------------
Class B:
Proceeds from shares sold 771,873 674,440
Value of dividends reinvested 77,395 53,224
Cost of shares redeemed (293,938) (202,104)
------------ ------------
555,330 525,560
------------ ------------
Net decrease from capital share transactions (19,693,965) (24,722,823)
------------ ------------
Net decrease in net assets (16,048,154) (29,894,187)
Net Assets
Beginning of year 188,093,690 217,987,877
------------ ------------
End of year (including undistributed net investment income of
$17,753, and $84,473, respectively) $172,045,536 $188,093,690
============ ============
(a) Capital Shares Issued and Redeemed
Class A:
Sold 532,781 872,095
Issued for dividends reinvested 772,790 857,565
Redeemed (3,132,875) (4,024,024)
------------ ------------
Net decrease in Class A shares outstanding (1,827,304) (2,294,364)
============ ============
Class B:
Sold 69,580 60,779
Issued for dividends reinvested 6,967 4,837
Redeemed (26,527) (18,407)
------------ ------------
Net increase in Class B shares outstanding 50,020 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.
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 December 31, 1997, 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. 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 capital 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 $13,559 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 year ended December 31, 1997,
purchases and sales (including pay-downs) of securities other than
short-term U.S. Government obligations and corporate notes, aggregated
$227,484,801 and $244,546,178, respectively.
At December 31, 1997, the cost of investments for federal income tax
purposes was $167,529,935. Accumulated net unrealized appreciation on
investments was $3,306,882, consisting entirely of gross unrealized
appreciation.
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)
was paid by FIMCO or FIC. Effective January 1, 1998, independent
directors will be remunerated by the Fund.
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 year ended December
31, 1997, FIMCO has voluntarily waived .30% of the fee on the first $200
million of the Fund's average daily net assets. This reduction amounted
to $532,208.
For the year ended December 31, 1997, FIC, as underwriter, received
$176,381 in commissions after allowing $8,095 to other dealers.
Shareholder servicing costs included $272,743 in transfer agent fees
paid to ADM, and $80,338 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.
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<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 year indicated.
- ----------------------------------------------------------------------------------------------------------------
CLASS A
-----------------------------------------------------------------
Year Ended December 31 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Data
- --------------
Net Asset Value, Beginning of Year $11.05 $11.31 $10.50 $11.55 $11.83
-------- -------- -------- -------- --------
Income from Investment Operations
Net investment income .69 .68 .71 .69 .72
Net realized and unrealized
gain (loss) on investments .21 (.30) .82 (1.06) (.26)
-------- -------- -------- -------- --------
Total from Investment Operations .90 .38 1.53 (.37) .46
-------- -------- -------- -------- --------
Less dividends from net investment income .66 .64 .72 .68 .74
-------- -------- -------- -------- --------
Net Asset Value, End of Year $11.29 $11.05 $11.31 $10.50 $11.55
======== ======== ======== ======== ========
Total Return (%)+ 8.40 3.51 14.98 (3.22) 3.99
- ------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Year (in millions) $170 $187 $217 $219 $288
Ratio to Average Net Assets: (%)++
Expenses 1.34 1.39 1.38 1.40 1.32
Net investment income 6.16 6.15 6.50 6.31 6.14
Ratio to Average Net Assets Before
Expenses Waived (Note 3): (%)
Expenses 1.64 1.63 1.61 1.60 1.48
Net investment income 5.86 5.90 6.27 6.11 5.98
Portfolio Turnover Rate (%) 134 121 163 260 584
<CAPTION>
Financial Highlights (Continued)
FIRST INVESTORS GOVERNMENT FUND, INC.
- --------------------------------------------------------------------------------------
CLASS B
-----------------------------------
Year Ended December 31 1997 1996 1995*
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share Data
- --------------
Net Asset Value, Beginning of Year $11.04 $11.31 $10.52
-------- -------- --------
Income from Investment Operations
Net investment income .61 .60 .63
Net realized and unrealized
gain (loss) on investments .21 (.31) .80
-------- -------- --------
Total from Investment Operations .82 .29 1.43
-------- -------- --------
Less dividends from net investment income .59 .56 .64
-------- -------- --------
Net Asset Value, End of Year $11.27 $11.04 $11.31
======== ======== ========
Total Return (%)+ 7.60 2.73 13.94
- ------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Year (in millions) $2 $1 $1
Ratio to Average Net Assets: (%)++
Expenses 2.04 2.09 2.13(a)
Net investment income 5.46 5.44 5.75(a)
Ratio to Average Net Assets Before
Expenses Waived (Note 3): (%)
Expenses 2.34 2.34 2.37(a)
Net investment income 5.16 5.20 5.51(a)
Portfolio Turnover Rate (%) 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 December 31, 1997, and the related statement of
operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended 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 December 31, 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 December
31, 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
January 30, 1998
[This page intentionally left blank.]
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.
