UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------
FORM N-CSR
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CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
INVESTMENT COMPANY ACT FILE NUMBERS 811-3967
FIRST INVESTORS INCOME FUNDS
(Exact name of registrant as specified in charter)
95 Wall Street
New York, NY 10005
(Address of principal executive offices) (Zip code)
Joseph I. Benedek
First Investors Management Company, Inc.
Raritan Plaza I
Edison, NJ 08837-3620
1-732-855-2712
(Name and address of agent for service)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
1-212-858-8000
DATE OF FISCAL YEAR END: SEPTEMBER 30, 2006
DATE OF REPORTING PERIOD: MARCH 31, 2006
Item 1. Reports to Stockholders
The semi-annual report to stockholders follows.
[First Investors Logo]
INCOME FUNDS
CASH MANAGEMENT
GOVERNMENT
INVESTMENT GRADE
FUND FOR INCOME
SEMI-ANNUAL REPORT
March 31, 2006
Bond Market Overview
FIRST INVESTORS INCOME FUNDS
Dear Investor:
The U.S. economy sputtered to a 1.7% growth rate in the fourth quarter of
2005 following Hurricane Katrina but came roaring back in the first quarter
of 2006 at 4.8%, the strongest growth in over two years. The unemployment
rate fell to a cycle low of 4.7% in January, and personal income and
consumption showed strong growth despite a softening housing market.
Investment by corporations picked up substantially in the first quarter.
Inflation moved lower during the reporting period as oil prices moderated.
Excluding food and energy, the rate of inflation was stable at 2.1% over the
past twelve months.
Nonetheless, the Federal Reserve ("the Fed") was concerned that continued
economic strength and high energy prices were a potential threat to price
stability. Consequently, the Fed raised the benchmark federal funds rate
four times from 3.75% to 4.75%. The Fed has now raised rates fifteen times
since June 2004.
The Fed's rate hikes contributed to a 65 basis point (.65%) increase in
short-term interest rates as the 2-year U.S. Treasury note yield rose from
4.17% to 4.82%. Long-term interest rates also increased as 10-year Treasury
note yields moved from 4.33% to 4.85%. Almost the entire increase in
long-term interest rates occurred in the first quarter as strong economic
growth suggested that the Fed would need to raise rates further. As well,
global interest rates moved higher in response to robust economic growth and
the prospect of tighter monetary policy in Japan and Europe. Given the
United States' dependence on foreign investors to finance its trade and
budget deficits, higher overseas interest rates pushed U.S. rates up.
During the reporting period, high-yield corporate bonds provided the best
returns by far in the domestic fixed income market. Strong economic growth,
low default rates, and demand from investors for yield contributed to the
sector's strong performance. Outside of high yield, overall returns in the
fixed income market were flat. The mortgage-backed market managed slightly
positive returns due to strong overseas and bank demand. The investment
grade corporate bond and government bond markets had slightly negative
returns reflecting their greater sensitivity to rising interest rates. Money
market yields rose steadily throughout the past six months in response to
the Fed rate hikes, resulting in solid returns for money market investments
during the reporting period.
Bond Market Overview (continued)
FIRST INVESTORS INCOME FUNDS
Thank you for placing your trust in First Investors. As always, we appreciate
the opportunity to serve your investment needs.
Sincerely,
/s/ CLARK D. WAGNER
Clark D. Wagner
Director of Fixed Income
First Investors Management Company, Inc.
May 1, 2006
This Market Overview is not part of the Funds' financial report and is
submitted for the general information of the shareholders of the Funds. It
is not authorized for distribution to prospective investors in the Funds,
unless preceded or accompanied by an effective prospectus. The Market
Overview reflects conditions through the end of the period as stated on the
cover. Market conditions are subject to change. This Market Overview may not
be relied upon as investment advice or an indication of current or future
trading intent on behalf of any Fund.
There are a variety of risks associated with investing in mutual funds. For
stock funds, the risks include market risk (the risk that the entire stock
market will decline because of an event such as a deterioration in the
economy or a rise in interest rates), as well as special risks associated
with investing in certain types of stock funds, such as small-cap, global
and international funds. For bond funds, the risks include interest rate
risk and credit risk. Interest rate risk is the risk that bonds will
decrease in value as interest rates rise. As a general matter, longer-term
bonds fluctuate more than shorter-term bonds in reaction to changes in
interest rates. Credit risk is the risk that bonds will decline in value as
the result of a decline in the credit rating of the bonds or the economy as
a whole, or that the issuer will be unable to pay interest and/or principal
when due. You should consult your prospectus for a precise explanation of
the risks associated with your fund.
Understanding Your Fund's Expenses
FIRST INVESTORS INCOME FUNDS
As a mutual fund shareholder, you incur two types of costs: (1) transaction
costs, including a sales charge (load) on purchase payments (on Class A
shares only), a contingent deferred sales charge on redemptions (on Class B
shares only); and (2) ongoing costs, including advisory fees; distribution
and service fees (12b-1); and other expenses. This example is intended to
help you understand your ongoing costs (in dollars) of investing in the
Funds and to compare these costs with the ongoing costs of investing in
other mutual funds.
The examples are based on an investment of $1,000 in each Fund at the
beginning of the period, October 1, 2005, and held for the entire six-month
period ended March 31, 2006. The calculations assume that no shares were
bought or sold during the period. Your actual costs may have been higher or
lower, depending on the amount of your investment and the timing of any
purchases or redemptions.
Actual Expenses Example:
These amounts help you to estimate the actual expenses that you paid over
the period. The "Ending Account Value" shown is derived from the Fund's
actual return, and the "Expenses Paid During Period" shows the dollar amount
that would have been paid by an investor who started with $1,000 in each
Fund. You may use the information here, together with the amount you
invested, to estimate the expenses that you paid over the period.
To estimate the expense you paid on your account during this period, simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.60), then multiply the result by the number given for
your Fund under the heading "Expenses Paid During Period".
Hypothetical Expenses Example:
These amounts provide information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio for Class A
and Class B shares, and an assumed rate of return of 5% per year before
expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples
that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight and
help you compare your ongoing costs only and do not reflect any transaction
costs, such as front-end or contingent deferred sales charges (loads).
Therefore, the hypothetical expense example is useful in comparing ongoing
costs only and will not help you determine the relative total costs of
owning different funds. In addition, if these transaction costs were
included, your costs would have been higher.
Fund Expenses
CASH MANAGEMENT FUND
The examples below show the ongoing costs (in dollars) of investing in your
Fund and will help you in comparing these costs with costs of other mutual
funds. Please refer to page 3 for a detailed explanation of the information
presented in these examples.
- -----------------------------------------------------------------------------
Beginning Ending
Account Account Expenses Paid
Value Value During Period
(10/1/05) (3/31/06) (10/1/05-3/31/06)*
- -----------------------------------------------------------------------------
Expense Example --
Class A Shares
Actual $1,000.00 $1,016.99 $3.82
Hypothetical
(5% annual return
before expenses) $1,000.00 $1,021.14 $3.83
- -----------------------------------------------------------------------------
Expense Example --
Class B Shares
Actual $1,000.00 $1,013.21 $7.58
Hypothetical
(5% annual return
before expenses) $1,000.00 $1,017.40 $7.59
- -----------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio of .76% for Class A
shares and 1.51% for Class B shares, multiplied by the average account
value over the period, multiplied by 182/365 (to reflect the one-half year
period). Expenses paid during the period are net of expenses waived.
Portfolio Compostion
BY SECTOR
[BAR CHART DATA]
Corporate Notes 40.4%
U.S. Government Agency Obligations 35.2%
Floating Rate Notes 17.0%
U.S. Government Obligations 3.4%
Certificates of Deposit 2.9%
Bankers' Acceptances 1.1%
Portfolio holdings and allocations are subject to change. Percentages are as
of March 31, 2006, and are based on the total value of investments.
Portfolio of Investments
CASH MANAGEMENT FUND
March 31, 2006
- ----------------------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal Interest $10,000 of
Amount Security Rate* Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------
CORPORATE NOTES--40.1%
$5,000M AIG Funding, Inc., 5/15/06 4.78% $4,970,785 $282
1,773M Bank of America Corp., 10/15/06 5.06 1,768,943 100
5,000M Chevron Funding Corp., 4/12/06 4.57 4,992,998 283
4,850M Concentrate Manufacturing Co.
of Ireland, 4/17/06 + 4.63 4,839,999 275
3,725M Florida Power & Light Co., 4/20/06 4.71 3,715,727 211
4,500M Gannett Co., Inc., 4/27/06 + 4.72 4,484,640 255
3,000M General Electric Capital Corp., 4/4/06 4.50 2,998,867 170
5,400M Madison Gas & Electric Co., 4/27/06 4.74 5,381,502 305
5,000M National Rural Utilities Cooperative
Finance Corp., 4/13/06 4.72 4,992,125 283
6,000M New Jersey Natural Gas Co., 4/3/06 4.73 5,998,422 341
5,000M Paccar Financial Corp., 4/25/06 4.56 4,984,688 283
Pitney Bowes, Inc.:
2,000M 4/28/06 + 4.71 1,992,933 113
1,603M 5/1/06 4.72 1,604,280 91
4,500M Procter & Gamble Co., 4/17/06 + 4.59 4,490,798 255
5,000M Prudential Funding Corp., 5/15/06 4.73 4,971,083 282
5,400M Stanley Works, 4/24/06 + 4.60 5,384,079 306
3,000M Toyota Motor Credit Corp., 4/3/06 4.52 2,999,243 170
- ----------------------------------------------------------------------------------------------------------------------
Total Value of Corporate Notes (cost $70,571,112) 70,571,112 4,005
- ----------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
OBLIGATIONS--34.9%
Fannie Mae:
10,000M 4/5/06 4.42 9,995,057 567
400M 4/10/06 4.50 399,547 23
628M 7/3/06 3.64 628,004 36
1,000M 9/22/06 4.81 991,519 56
719M 12/26/06 4.77 704,754 40
1,850M 2/12/07 5.00 1,826,612 104
Federal Farm Credit Bank:
3,500M 4/10/06 4.49 3,496,063 198
5,000M 4/11/06 4.47 4,993,775 283
500M 4/27/06 4.50 498,363 28
1,000M 7/21/06 3.83 994,918 57
Federal Home Loan Bank:
500M 4/13/06 4.60 499,661 28
1,000M 4/28/06 3.65 998,804 57
1,425M 5/5/06 3.85 1,422,732 81
- ----------------------------------------------------------------------------------------------------------------------
Portfolio of Investments (continued)
CASH MANAGEMENT FUND
March 31, 2006
- ----------------------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal Interest $10,000 of
Amount Security Rate* Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------
Federal Home Loan Bank (continued):
$1,700M 5/26/06 4.48% $1,694,084 $96
1,000M 6/28/06 4.75 993,586 56
1,500M 6/30/06 3.75 1,500,000 85
1,000M 6/30/06 4.75 993,374 56
1,830M 7/6/06 4.48 1,824,580 104
1,200M 7/10/06 4.29 1,192,503 68
2,000M 7/28/06 4.17 1,989,423 113
2,100M 10/16/06 4.71 2,076,523 118
1,000M 11/28/06 4.93 987,503 56
400M 3/14/07 5.05 394,358 22
Freddie Mac:
2,000M 4/11/06 4.47 1,997,465 113
2,000M 4/28/06 3.56 1,998,725 113
1,000M 4/28/06 3.65 999,274 58
1,850M 6/2/06 4.12 1,844,205 105
1,900M 6/9/06 4.10 1,892,892 107
1,000M 7/7/06 3.83 995,149 56
2,500M 11/3/06 4.51 2,499,886 142
2,150M 11/9/06 4.67 2,147,700 122
1,000M 12/11/06 4.71 984,664 56
3,000M 12/29/06 4.75 3,000,000 170
1,295M 4/13/07 5.15 1,295,000 74
800M Tennessee Valley Authority, 4/15/06 4.55 798,563 45
- ----------------------------------------------------------------------------------------------------------------------
Total Value of U.S. Government Agency Obligations
(cost $61,549,266) 61,549,266 3,493
- ----------------------------------------------------------------------------------------------------------------------
FLOATING RATE NOTES--16.8%
2,000M Bank One Corp., 8/11/06 4.86 2,001,240 114
Federal Home Loan Bank:
2,400M 5/24/06 4.20 2,400,000 136
2,000M 12/22/06 4.00 1,989,525 113
2,000M Fifth Third Bancorp, 9/22/06 ++ 4.78 2,000,000 113
Merrill Lynch & Co., Inc.:
2,100M 4/18/06 4.88 2,100,311 119
805M 12/22/06 5.09 806,177 46
3,000M Toyota Motor Credit Corp., 6/12/06 4.92 3,000,173 170
5,750M US Bank, NA, 1/25/07 4.58 5,750,000 326
4,750M Wachovia Bank, NA, 12/4/06 4.79 4,750,000 270
4,865M Wells Fargo & Co., 9/15/06 5.00 4,866,875 276
- ----------------------------------------------------------------------------------------------------------------------
Total Value of Floating Rate Notes (cost $29,664,301) 29,664,301 1,683
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal Interest $10,000 of
Amount Security Rate* Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--3.4%
$6,000M U.S. Treasury Bills, 4/13/06
(cost $5,990,899) 4.55% $5,990,899 $340
- ----------------------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT--2.8%
5,000M Citibank, NA, 5/17/06 (cost $5,000,000) 4.72 5,000,000 284
- ----------------------------------------------------------------------------------------------------------------------
BANKERS' ACCEPTANCES--1.1%
1,857M Bank of America, NA, 5/8/06
(cost $1,848,146) 4.63 1,848,146 105
- ----------------------------------------------------------------------------------------------------------------------
Total Value of Investments (cost $174,623,724)** 99.1% 174,623,724 9,910
Other Assets, Less Liabilities .9 1,581,622 90
- ----------------------------------------------------------------------------------------------------------------------
Net Assets 100.0% $176,205,346 $10,000
======================================================================================================================
* The interest rates shown are the effective rates at the time of purchase
by the Fund. The interest rates shown on the floating rate notes are
adjusted periodically; the rates shown are the rates in effect at March
31, 2006.
** Aggregate cost for federal income tax purposes is the same.
+ Security exempt from registration under Section4(2) of the Securities
Act of 1933 (see Note 4).
++ Security exempt from registration under Rule 144A of the Securities
Act of 1933 (see Note 4).
See notes to financial statements
Fund Expenses
GOVERNMENT FUND
The examples below show the ongoing costs (in dollars) of investing in your
Fund and will help you in comparing these costs with costs of other mutual
funds. Please refer to page 3 for a detailed explanation of the information
presented in these examples.
- -----------------------------------------------------------------------------
Beginning Ending
Account Account Expenses Paid
Value Value During Period
(10/1/05) (3/31/06) (10/1/05-3/31/06)*
- -----------------------------------------------------------------------------
Expense Example --
Class A Share
Actual $1,000.00 $1,006.65 $5.50
Hypothetical
(5% annual return
before expenses) $1,000.00 $1,019.45 $5.54
- -----------------------------------------------------------------------------
Expense Example --
Class B Shares
Actual $1,000.00 $1,002.74 $9.24
Hypothetical
(5% annual return
before expenses) $1,000.00 $1,015.71 $9.30
- -----------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio of 1.10% for Class A
shares and 1.85% for Class B shares, multiplied by the average account
value over the period, multiplied by 182/365 (to reflect the one-half year
period). Expenses paid during the period are net of expenses waived.
Portfolio Compostion
BY SECTOR
[BAR CHART DATA]
Government National Mortgage Association 82.7%
Fannie Mae 12.4%
Freddie Mac 2.3%
Portfolio holdings and allocations are subject to change. Percentages are as of
March 31, 2006, and are based on the total value of investments.
Portfolio of Investments
GOVERNMENT FUND
March 31, 2006
- ----------------------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED CERTIFICATES--94.3%
Fannie Mae--12.0%
$24,164M 5.5%, 4/1/2033 - 9/1/2035 $23,641,395 $1,199
- ----------------------------------------------------------------------------------------------------------------------
Freddie Mac--2.2%
4,471M 5.5%, 2/1/2035 4,368,110 221
- ----------------------------------------------------------------------------------------------------------------------
Government National Mortgage
Association I Program--80.1%
17,660M 5%, 4/15/2034 - 4/20/2036 17,123,146 868
50,684M 5.5%, 3/15/2033 - 11/15/2035 50,273,674 2,549
51,325M 6%, 3/15/2031 - 6/15/2035 52,110,969 2,642
24,361M 6.5%, 10/15/2028 - 8/15/2035 25,359,229 1,285
8,686M 7%, 4/15/2032 - 8/15/2035 9,086,837 461
3,879M 7.5%, 7/15/2023 - 6/15/2034 4,073,174 206
- ----------------------------------------------------------------------------------------------------------------------
158,027,029 8,011
- ----------------------------------------------------------------------------------------------------------------------
Total Value of Mortgage-Backed Certificates
(cost $189,821,793) 186,036,534 9,431
- ----------------------------------------------------------------------------------------------------------------------
SHORT-TERM U.S. GOVERNMENT
OBLIGATIONS--2.5%
U.S. Treasury Bills:
1,500M 4.345%, 4/6/06 1,499,092 76
3,500M 4.57%, 4/13/06 3,494,667 177
- ----------------------------------------------------------------------------------------------------------------------
Total Value of Short-Term U.S. Government Obligations
(cost $4,993,759) 4,993,759 253
- ----------------------------------------------------------------------------------------------------------------------
Total Value of Investments (cost $194,815,552) 96.8% 191,030,293 9,684
Other Assets, Less Liabilities 3.2 6,228,910 316
- ----------------------------------------------------------------------------------------------------------------------
Net Assets 100.0% $197,259,203 $10,000
======================================================================================================================
See notes to financial statements
Fund Expenses
INVESTMENT GRADE FUND
The examples below show the ongoing costs (in dollars) of investing in your
Fund and will help you in comparing these costs with costs of other mutual
funds. Please refer to page 3 for a detailed explanation of the information
presented in these examples.
- -----------------------------------------------------------------------------
Beginning Ending
Account Account Expenses Paid
Value Value During Period
(10/1/05) (3/31/06) (10/1/05-3/31/06)*
- -----------------------------------------------------------------------------
Expense Example --
Class A Shares
Actual $1,000.00 $992.61 $5.46
Hypothetical
(5% annual return
before expenses) $1,000.00 $1,019.45 $5.54
- -----------------------------------------------------------------------------
Expense Example --
Class B Shares
Actual $1,000.00 $988.91 $9.17
Hypothetical
(5% annual return
before expenses) $1,000.00 $1,015.71 $9.30
- -----------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio of 1.10% for Class A
shares and 1.85% for Class B shares, multiplied by the average account
value over the period, multiplied by 182/365 (to reflect the one-half year
period). Expenses paid during the period are net of expenses waived.
Portfolio Composition
TOP TEN SECTORS
[BAR CHART DATA]
Financials 20.9%
Consumer Staples 15.8%
U.S. Government Agency Obligations 10.9%
Industrials 10.3%
Utilities 9.2%
U.S. Government Obligations 7.4%
Consumer Discretionary 5.8%
Materials 5.6%
Mortgage-Backed Certificates 4.4%
Health Care 2.9%
Portfolio holdings and allocations are subject to change. Percentages are as
of March 31, 2006, and are based on the total value of investments.
Portfolio of Investments
INVESTMENT GRADE FUND
March 31, 2006
- ----------------------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS--71.2%
Aerospace/Defense--1.4%
Honeywell International, Inc.:
$1,050M 7.5%, 2010 $1,127,972 $47
975M 6.125%, 2011 1,007,590 42
400M Precision Castparts Corp., 5.6%, 2013 394,130 16
717M TRW, Inc., 7.125%, 2009 751,201 31
- ----------------------------------------------------------------------------------------------------------------------
3,280,893 136
- ----------------------------------------------------------------------------------------------------------------------
Automotive--.8%
1,200M DaimlerChrysler NA Holdings Corp., 8%, 2010 1,292,044 54
886M Ford Motor Co., 8.9%, 2032 699,940 29
- ----------------------------------------------------------------------------------------------------------------------
1,991,984 83
- ----------------------------------------------------------------------------------------------------------------------
Chemicals--.3%
700M Lubrizol Corp., 7.25%, 2025 752,601 31
- ----------------------------------------------------------------------------------------------------------------------
Consumer Durables--.6%
1,650M Black & Decker Corp., 4.75%, 2014 1,510,674 63
- ----------------------------------------------------------------------------------------------------------------------
Consumer Non-Durables--3.4%
2,250M Avon Products, Inc., 4.2%, 2018 1,932,305 80
Colgate-Palmolive Co.:
1,800M 7.84%, 2007 1,849,023 77
710M 5.98%, 2012 736,222 31
1,600M Newell Rubbermaid, Inc., 6.75%, 2012 1,663,669 69
1,350M Procter & Gamble Co., 4.85%, 2015 1,291,274 54
775M Rubbermaid, Inc., 6.6%, 2006 781,339 32
- ----------------------------------------------------------------------------------------------------------------------
8,253,832 343
- ----------------------------------------------------------------------------------------------------------------------
Energy--1.0%
500M Mobil Corp., 8.625%, 2021 668,951 28
975M Sunoco, Inc., 9.375%, 2016 978,708 40
800M Texaco Capital, Inc., 8.25%, 2006 811,166 34
- ----------------------------------------------------------------------------------------------------------------------
2,458,825 102
- ----------------------------------------------------------------------------------------------------------------------
Financial--5.5%
875M American General Finance Corp., 8.125%, 2009 942,271 39
900M Caterpillar Financial Services Corp., 4.6%, 2014 848,550 35
- ----------------------------------------------------------------------------------------------------------------------
Portfolio of Investments (continued)
INVESTMENT GRADE FUND
March 31, 2006
- ----------------------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------
Financial (continued)
CIT Group, Inc.:
$300M 6.875%, 2009 $313,275 $13
2,100M 7.75%, 2012 2,317,505 97
250M 5%, 2015 236,599 10
ERAC USA Finance Enterprise Co.:
1,775M 7.35%, 2008 + 1,844,042 77
1,170M 8%, 2011 + 1,282,942 53
General Electric Capital Corp.:
850M 7.875%, 2006 865,335 36
700M 8.5%, 2008 747,818 31
1,000M 5.45%, 2013 1,000,649 42
1,825M Household Finance Corp., 6.5%, 2008 1,877,325 78
1,000M HSBC Finance Corp., 5%, 2015 945,551 39
- ----------------------------------------------------------------------------------------------------------------------
13,221,862 550
- ----------------------------------------------------------------------------------------------------------------------
Financial Services--9.1%
Bank of America Corp.:
1,017M 7.8%, 2010 1,100,610 46
200M 7.4%, 2011 216,383 9
1,165M Bank One Corp., 7.6%, 2007 1,190,967 50
700M Chase Manhattan Corp., 7.875%, 2010 762,505 32
1,750M Comerica, 7.125%, 2013 1,788,596 74
1,200M First Union National Bank, 7.8%, 2010 1,308,806 54
1,000M Fleet Capital Trust II, 7.92%, 2026 1,053,472 44
1,500M Florida Windstorm Underwriting Assoc.,
7.125%, 2019 + 1,667,074 69
625M Greenpoint Bank, 9.25%, 2010 713,632 30
1,875M MetLife, Inc., 5%, 2015 1,787,726 74
1,200M National City Bank of Pennsylvania,
7.25%, 2011 1,304,063 54
1,505M Nationsbank Corp., 7.8%, 2016 1,748,583 73
288M NBD Bancorp, Inc., 7.125%, 2007 292,847 12
1,298M Republic NY Corp., 7.75%, 2009 1,383,114 57
2,000M Royal Bank of Scotland Group PLC, 5%, 2014 1,926,294 80
U.S. Bank NA:
600M 4.95%, 2014 574,667 24
900M 6.3%, 2014 941,617 39
Washington Mutual, Inc.:
1,825M 8.25%, 2010 1,987,931 83
250M 4.625%, 2014 228,952 10
- ----------------------------------------------------------------------------------------------------------------------
21,977,839 914
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------
Food/Beverage/Tobacco--2.6%
$910M Bottling Group, LLC, 5%, 2013 $883,680 $37
1,355M Coca-Cola Enterprises, Inc., 7.125%, 2017 1,508,924 63
1,745M ConAgra Foods, Inc., 6.75%, 2011 1,815,636 75
1,000M Pepsi Bottling Group, Inc., 7%, 2029 1,128,287 47
900M Philip Morris Cos., Inc., 6.95%, 2006 902,246 37
- ----------------------------------------------------------------------------------------------------------------------
6,238,773 259
- ----------------------------------------------------------------------------------------------------------------------
Food/Drug--2.9%
2,000M CVS Corp., 4.875%, 2014 1,884,792 78
1,550M Delhaize America, Inc., 8.125%, 2011 1,681,035 70
1,600M Kroger Co., 7%, 2018 1,677,717 70
Safeway, Inc.:
510M 7%, 2007 520,718 22
450M 9.3%, 2007 461,896 19
700M 6.5%, 2011 721,740 30
- ----------------------------------------------------------------------------------------------------------------------
6,947,898 289
- ----------------------------------------------------------------------------------------------------------------------
Forest Products/Containers--2.2%
1,690M International Paper Co., 6.75%, 2011 1,757,186 73
1,725M Sappi Papier Holding AG, 6.75%, 2012 + 1,642,997 68
Weyerhaeuser Co.:
1,100M 7.25%, 2013 1,171,240 49
610M 7.5%, 2013 655,831 27
- ----------------------------------------------------------------------------------------------------------------------
5,227,254 217
- ----------------------------------------------------------------------------------------------------------------------
Gaming/Leisure--.7%
750M MGM Mirage, Inc., 8.5%, 2010 806,250 34
750M Park Place Entertainment Corp., 9.375%, 2007 775,312 32
- ----------------------------------------------------------------------------------------------------------------------
1,581,562 66
- ----------------------------------------------------------------------------------------------------------------------
Health Care--2.8%
1,880M Becton, Dickinson & Co., 7.15%, 2009 1,991,597 83
900M Columbia/HCA Healthcare, Inc., 7.5%, 2023 878,502 36
1,300M Quest Diagnostics, Inc., 5.45%, 2015 1,269,200 53
1,130M Tenet Healthcare Corp., 6.375%, 2011 1,025,475 43
1,500M Wyeth, 6.95%, 2011 1,591,983 66
- ----------------------------------------------------------------------------------------------------------------------
6,756,757 281
- ----------------------------------------------------------------------------------------------------------------------
Portfolio of Investments (continued)
INVESTMENT GRADE FUND
March 31, 2006
- ----------------------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------
Housing--.7%
$1,112M Hanson Australia Funding, Ltd., 5.25%, 2013 $1,068,385 $44
646M Hanson PLC, 7.875%, 2010 700,009 29
- ----------------------------------------------------------------------------------------------------------------------
1,768,39 473
- ----------------------------------------------------------------------------------------------------------------------
Information Technology--.1%
250M First Data Corp., 4.7%, 2013 235,018 10
- ----------------------------------------------------------------------------------------------------------------------
Manufacturing--2.9%
1,700M Dover Corp., 4.875%, 2015 1,615,335 67
Ingersoll-Rand Co.:
1,600M 4.75%, 2015 1,504,424 62
875M 9%, 2021 1,169,837 49
United Technologies Corp.:
900M 6.5%, 2009 933,889 39
1,600M 7.125%, 2010 1,710,202 71
- ----------------------------------------------------------------------------------------------------------------------
6,933,687 288
- ----------------------------------------------------------------------------------------------------------------------
Media-Broadcasting--2.0%
Comcast Cable Communications, Inc.:
705M 8.375%, 2007 726,883 30
2,000M 7.125%, 2013 2,120,444 88
Cox Communications, Inc.:
400M 4.625%, 2013 364,796 15
1,000M 5.5%, 2015 946,570 40
700M PanAmSat Corp., 6.375%, 2008 704,375 29
- ----------------------------------------------------------------------------------------------------------------------
4,863,068 202
- ----------------------------------------------------------------------------------------------------------------------
Media-Diversified--4.5%
575M AOL Time Warner, Inc., 6.875%, 2012 603,619 25
1,480M Cox Enterprises, Inc., 8%, 2007 + 1,502,746 62
500M Houghton Mifflin Co., 7.2%, 2011 518,750 22
New York Times Co.:
500M 6.95%, 2009 520,898 22
1,900M 5%, 2015 1,773,002 74
News America, Inc.:
500M 5.3%, 2014 481,789 20
1,600M 7.3%, 2028 1,667,704 69
Time Warner, Inc.:
1,000M 9.125%, 2013 1,159,290 48
1,500M 6.875%, 2018 1,558,595 65
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------
Media-Diversified (continued)
Viacom, Inc.:
$500M 8.625%, 2012 $565,839 $24
360M 8.875%, 2014 415,194 17
- ----------------------------------------------------------------------------------------------------------------------
10,767,426 448
- ----------------------------------------------------------------------------------------------------------------------
Metals/Mining--2.3%
Alcan, Inc.:
2,200M 4.5%, 2013 2,046,832 85
825M 5%, 2015 779,402 33
1,300M Alcoa, Inc., 6%, 2012 1,328,261 55
1,350M Thiokol Corp., 6.625%, 2008 1,378,827 57
- ----------------------------------------------------------------------------------------------------------------------
5,533,322 230
- ----------------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts--5.8%
1,654M Archstone-Smith Trust, 7.9%, 2016 1,824,847 76
AvalonBay Communities, Inc.:
1,900M 7.5%, 2010 2,047,622 85
200M 6.625%, 2011 210,184 9
2,050M Boston Properties, Inc., 5%, 2015 1,924,870 80
Duke Weeks Realty Corp.:
1,350M 7.75%, 2009 1,444,060 60
200M 4.625%, 2013 187,391 8
EOP Operating LP:
1,005M 8.1%, 2010 1,092,441 45
625M 7.25%, 2018 677,801 28
1,900M Mack-Cali Realty LP, 7.75%, 2011 2,053,545 85
Simon Property Group, Inc.:
1,875M 7.875%, 2016 + 2,123,138 88
425M 7.375%, 2018 469,266 20
- ----------------------------------------------------------------------------------------------------------------------
14,055,165 584
- ----------------------------------------------------------------------------------------------------------------------
Retail-General Merchandise--3.7%
1,750M Federated Department Stores, Inc., 7.45%, 2017 1,944,162 81
Lowe's Cos., Inc.:
900M 8.25%, 2010 996,297 41
1,420M 5%, 2015 1,369,860 57
1,675M RadioShack Corp., 7.375%, 2011 1,733,581 72
190M Target Corp., 5.375%, 2009 190,840 8
- ----------------------------------------------------------------------------------------------------------------------
Portfolio of Investments (continued)
INVESTMENT GRADE FUND
March 31, 2006
- ----------------------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------
Retail-General Merchandise (continued)
Wal-Mart Stores, Inc.:
$850M 8%, 2006 $859,949 $36
1,800M 4.125%, 2011 1,706,015 71
100M 4.5%, 2015 93,013 4
- ----------------------------------------------------------------------------------------------------------------------
8,893,717 370
- ----------------------------------------------------------------------------------------------------------------------
Telecommunications--2.8%
1,200M Deutsche Telekom AG, 8%, 2010 1,308,011 54
GTE Corp.:
909M 6.84%, 2018 949,393 40
500M 7.9%, 2027 522,910 22
Sprint Capital Corp.:
1,325M 6.375%, 2009 1,357,669 57
900M 6.9%, 2019 963,576 40
800M Verizon New York, Inc., 6.875%, 2012 822,767 34
750M Vodafone AirTouch PLC, 7.75%, 2010 804,386 33
- ----------------------------------------------------------------------------------------------------------------------
6,728,712 280
- ----------------------------------------------------------------------------------------------------------------------
Transportation--2.8%
Burlington Northern Santa Fe Corp.:
700M 6.75%, 2011 738,949 31
1,000M 8.125%, 2020 1,215,119 51
600M Caliber System, Inc., 7.8%, 2006 603,979 25
850M Canadian National Railway Co., 7.375%, 2031 1,017,248 42
800M Norfolk Southern Corp., 7.7%, 2017 928,506 39
1,700M Union Pacific Corp., 7.375%, 2009 1,798,911 75
300M Union Pacific Railroad, 7.28%, 2011 324,193 13
- ----------------------------------------------------------------------------------------------------------------------
6,626,905 276
- ----------------------------------------------------------------------------------------------------------------------
Utilities--9.0%
700M Arizona Public Service Co., 5.5%, 2035 608,105 25
1,350M Carolina Power & Light, Inc., 5.15%, 2015 1,300,437 54
Consumers Energy Co.:
735M 6.375%, 2008 744,398 31
1,800M 6.875%, 2018 1,936,159 80
1,450M Dominion Resources, Inc., 5%, 2013 1,375,121 57
720M DPL, Inc., 6.875%, 2011 754,420 31
1,650M Duke Capital Corp., 8%, 2019 1,931,172 80
1,371M Eastern Energy, Ltd., 6.75%, 2006 + 1,383,769 58
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------
Utilities (continued)
$795M El Paso Energy Corp., 7.375%, 2012 $812,888 $34
500M Entergy Gulf States, Inc., 6.2%, 2033 469,387 20
1,325M Jersey Central Power & Light Co., 5.625%, 2016 1,319,705 55
700M Michigan Consolidated Gas Co., 7.06%, 2012 752,813 31
NiSource Finance Corp.:
900M 7.875%, 2010 977,182 41
600M 5.4%, 2014 582,937 24
1,400M OGE Energy Corp., 5%, 2014 1,323,291 55
1,350M PP&L Capital Funding, Inc., 8.375%, 2007 1,388,675 58
775M PSI Energy, Inc., 8.85%, 2022 990,998 41
1,510M Public Service Electric & Gas Co., 6.75%, 2016 1,630,939 68
400M South Carolina Electric & Gas Co., 6.7%, 2011 422,456 18
900M Wisconsin Power & Light Co., 7%, 2007 914,251 38
- ----------------------------------------------------------------------------------------------------------------------
21,619,103 899
- ----------------------------------------------------------------------------------------------------------------------
Waste Management--1.3%
Allied Waste NA, Inc.:
750M 8.875%, 2008 791,250 33
500M 5.75%, 2011 478,750 20
Waste Management, Inc.:
1,400M 6.875%, 2009 1,456,687 61
300M 7.375%, 2010 320,336 13
- ----------------------------------------------------------------------------------------------------------------------
3,047,023 127
- ----------------------------------------------------------------------------------------------------------------------
Total Value of Corporate Bonds (cost $173,259,087) 171,272,294 7,121
- ----------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
OBLIGATIONS--10.7%
Fannie Mae:
1,287M 5%, 2016 1,230,268 51
3,700M 5%, 2017 3,516,350 146
Federal Farm Credit Bank:
2,800M 4.875%, 2015 2,734,150 114
2,000M 6%, 2015 1,987,444 83
Federal Home Loan Bank:
1,330M 4%, 2008 1,294,544 54
1,900M 4.91%, 2012 1,835,233 76
1,000M 7.23%, 2015 1,074,093 45
- ----------------------------------------------------------------------------------------------------------------------
Portfolio of Investments (continued)
INVESTMENT GRADE FUND
March 31, 2006
- ----------------------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------
Freddie Mac:
$760M 5.5%, 2015 $753,049 $31
1,400M 4.6%, 2018 1,288,571 54
900M 5%, 2018 847,576 35
2,300M 5.2%, 2019 2,187,169 91
1,250M 6.5%, 2020 1,245,141 52
2,300M 5.625%, 2035 2,215,843 92
3,284M Tennessee Valley Authority, 6.25%, 2017 3,565,882 148
- ----------------------------------------------------------------------------------------------------------------------
Total Value of U.S. Government Agency Obligations
(cost $26,352,221) 25,775,313 1,072
- ----------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--7.3%
1,205M FDA Queens LP, 6.99%, 2017 + 1,292,727 54
2,500M U.S. Treasury Bonds, 6.5%, 2026 2,954,492 123
U.S. Treasury Notes:
1,000M 6.5%, 2006 1,008,633 42
3,500M 6.625%, 2007 3,566,720 148
2,100M 5.625%, 2008 2,133,552 89
3,000M 6%, 2009 3,109,338 129
3,300M 6.5%, 2010 3,492,202 145
- ----------------------------------------------------------------------------------------------------------------------
Total Value of U.S. Government Obligations (cost $18,083,061) 17,557,664 730
- ----------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED CERTIFICATES--4.3%
Fannie Mae--2.5%
5,935M 6%, 1/1/2036 5,953,148 247
- ----------------------------------------------------------------------------------------------------------------------
Freddie Mac--1.8%
4,353M 6%, 2/1/2036 4,356,789 181
- ----------------------------------------------------------------------------------------------------------------------
Total Value of Mortgage-Backed Certificates (cost $10,370,775) 10,309,937 428
- ----------------------------------------------------------------------------------------------------------------------
PASS THROUGH CERTIFICATES--1.9%
Transportation
617M American Airlines, Inc., 7.377%, 2019 577,540 24
1,305M Continental Airlines, Inc., 8.388%, 2020 1,250,291 52
1,323M FedEx Corp., 7.5%, 2018 1,450,522 60
825M Southwest Airlines Co., 6.126%, 2006 827,909 34
376M Union Pacific Railroad, 6.91%, 2017 397,940 17
- ----------------------------------------------------------------------------------------------------------------------
Total Value of Pass Through Certificates (cost $4,641,564) 4,504,202 187
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS--.3%
Housing
$800M Virginia State Housing Development Authority,
Series "A", 6.51%, 2019 (cost $708,084) $828,744 $34
- ----------------------------------------------------------------------------------------------------------------------
SHORT-TERM U.S. GOVERNMENT
AGENCY OBLIGATIONS--1.7%
4,000M Federal Home Loan Bank, 4.48%, 4/5/06
(cost $3,998,005) 3,998,005 166
- ----------------------------------------------------------------------------------------------------------------------
SHORT-TERM CORPORATE NOTES--.7%
500M AIG Funding, Inc., 4.68%, 4/6/06 499,674 21
800M ChevronTexaco Funding Corp., 4.71%, 4/13/06 798,744 33
500M Toyota Motor Credit Corp., 4.75%, 4/6/06 499,670 21
- ----------------------------------------------------------------------------------------------------------------------
Total Value of Short-Term Corporate Notes (cost $1,798,088) 1,798,088 75
- ----------------------------------------------------------------------------------------------------------------------
Total Value of Investments (cost $239,210,885) 98.1% 236,044,247 9,813
Other Assets, Less Liabilities 1.9 4,487,436 187
- ----------------------------------------------------------------------------------------------------------------------
Net Assets 100.0% $240,531,683 $10,000
======================================================================================================================
+ Security exempt from registration under Rule 144A of the Securities Act of
1933 (see Note 4).
See notes to financial statements
Fund Expenses
FUND FOR INCOME
The examples below show the ongoing costs (in dollars) of investing in your
Fund and will help you in comparing these costs with costs of other mutual
funds. Please refer to page 3 for a detailed explanation of the information
presented in these examples.
- -----------------------------------------------------------------------------
Beginning Ending
Account Account Expenses Paid
Value Value During Period
(10/1/05) (3/31/06) (10/1/05-3/31/06)*
- -----------------------------------------------------------------------------
Expense Example --
Class A Shares
Actual $1,000.00 $1,014.39 $6.68
Hypothetical
(5% annual return
before expenses) $1,000.00 $1,018.30 $6.69
- -----------------------------------------------------------------------------
Expense Example --
Class B Shares
Actual $1,000.00 $1,013.78 $10.19
Hypothetical
(5% annual return
before expenses) $1,000.00 $1,014.81 $10.20
- -----------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio of 1.33% for Class A
shares and 2.03% for Class B shares, multiplied by the average account value
over the period, multiplied by 182/365 (to reflect the one-half year period
Portfolio Composition
TOP TEN SECTORS
[BAR CHART DATA]
Consumer Discretionary 23.8%
Consumer Staples 21.8%
Materials 14.3%
Energy 11.3%
Health Care 9.1%
Industrials 8.6%
Financials 2.9%
Telecommunication Services 2.7%
U.S. Government Obligations 0.9%
Information Technology 0.7%
Portfolio holdings and allocations are subject to change. Percentages are as
of March 31, 2006, and are based on the total value of investments.
Portfolio of Investments
FUND FOR INCOME
March 31, 2006
- ----------------------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS--90.7%
Aerospace/Defense--2.7%
DRS Technologies, Inc.:
$5,250M 6.875%, 2013 $5,276,250 $89
1,000M 6.625%, 2016 1,000,000 17
6,000M Dyncorp International, LLC, 9.5%, 2013 6,270,000 106
1,747M GenCorp, Inc., 9.5%, 2013 1,895,495 32
1,600M L-3 Communications Corp., 7.625%, 2012 1,660,000 28
- ----------------------------------------------------------------------------------------------------------------------
16,101,745 272
- ----------------------------------------------------------------------------------------------------------------------
Automotive--6.5%
2,700M Accuride Corp., 8.5%, 2015 2,689,875 45
Asbury Automotive Group, Inc.:
3,400M 9%, 2012 3,489,250 59
5,400M 8%, 2014 5,440,500 92
4,208M Cambridge Industries Liquidating Trust, 2007 ++ ** 2,630 --
Dana Corp.:
5,450M 9%, 2011 ++ 4,169,250 70
87M 9%, 2011 ++ ** 66,555 1
Delco Remy International, Inc.:
5,800M 11%, 2009 3,016,000 51
3,250M 9.375%, 2012 1,576,250 27
General Motors Acceptance Corp.:
3,400M 4.5%, 2006 3,371,056 57
4,350M 6.75%, 2014 3,922,073 66
2,500M Special Devices, Inc., 11.375%, 2008 1,890,625 32
500M Tenneco Automotive, Inc., 8.625%, 2014 502,500 8
4,693M TRW Automotive, Inc., 9.375%, 2013 5,097,771 86
3,600M United Components, Inc., 9.375%, 2013 3,492,000 59
- ----------------------------------------------------------------------------------------------------------------------
38,726,335 653
- ----------------------------------------------------------------------------------------------------------------------
Chemicals--11.5%
1,940M BCP Crystal US Holdings Corp., 9.625%, 2014 2,158,250 36
3,500M Equistar Chemicals LP, 10.625%, 2011 3,806,250 64
2,200M Ethyl Corp., 8.875%, 2010 2,293,500 39
6,550M Huntsman International, LLC, 7.375%, 2015 + 6,648,250 112
Huntsman, LLC:
1,636M 11.625%, 2010 1,860,950 31
2,765M 11.5%, 2012 3,193,575 54
7,000M IMC Global, Inc., 10.875%, 2013 8,050,000 136
- ----------------------------------------------------------------------------------------------------------------------
Portfolio of Investments (continued)
FUND FOR INCOME
March 31, 2006
- ----------------------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------
Chemicals (continued)
Lyondell Chemical Co.:
$1,000M 9.625%, 2007 $1,037,500 $18
8,000M 10.875%, 2009 8,160,000 138
4,375M Millennium America, Inc., 9.25%, 2008 4,467,969 75
3,500M Nell AF Sarl, 8.375%, 2015 + 3,491,250 59
4,900M Omnova Solutions, Inc., 11.25%, 2010 5,206,250 88
1,000M PQ Corp., 7.5%, 2013 + 965,000 16
8,150M Resolution Performance Products, LLC,
13.5%, 2010 8,751,063 148
5,526M Terra Capital, Inc., 11.5%, 2010 6,133,860 103
1,750M Tronox Worldwide, LLC, 9.5%, 2012 + 1,846,250 31
- ----------------------------------------------------------------------------------------------------------------------
68,069,917 1,148
- ----------------------------------------------------------------------------------------------------------------------
Consumer Non-Durables--4.1%
1,700M Broder Brothers Co., 11.25%, 2010 1,700,000 29
4,000M GFSI, Inc., 11%, 2011 + 3,900,000 66
Levi Strauss & Co.:
4,600M 9.28%, 2012 *** 4,784,000 81
4,000M 9.75%, 2015 4,230,000 71
7,200M Playtex Products, Inc., 9.375%, 2011 7,560,000 127
2,500M Remington Arms Co., 10.5%, 2011 2,075,000 35
- ----------------------------------------------------------------------------------------------------------------------
24,249,000 409
- ----------------------------------------------------------------------------------------------------------------------
Energy--11.0%
7,000M Bluewater Finance, Ltd., 10.25%, 2012 7,385,000 125
Chesapeake Energy Corp.:
1,800M 7.5%, 2014 1,894,500 32
8,850M 6.625%, 2016 8,872,125 150
Compagnie Generale de Geophysique:
3,600M 7.5%, 2015 + 3,726,000 63
750M 7.5%, 2015 776,250 13
4,250M Delta Petroleum Corp., 7%, 2015 3,910,000 66
4,075M Dresser, Inc., 9.375%, 2011 4,278,750 72
13,750M El Paso Production Holding Co., 7.75%, 2013 14,317,188 242
1,800M Energy Partners, Ltd., 8.75%, 2010 1,849,500 31
Giant Industries, Inc.:
5,493M 11%, 2012 6,097,230 103
4,150M 8%, 2014 4,305,625 73
250M Hornbeck Offshore Services, Inc., 6.125%, 2014 241,250 4
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------
Energy (continued)
Pacific Energy Partners, LP:
$1,000M 7.125%, 2014 $1,022,500 $17
250M 6.25%, 2015 245,000 4
2,650M POGO Producing Co., 6.875%, 2017 2,630,125 44
3,490M Tesoro Corp., 6.25%, 2012 + 3,446,375 58
- ----------------------------------------------------------------------------------------------------------------------
64,997,418 1,097
- ----------------------------------------------------------------------------------------------------------------------
Financial Services--1.8%
8,352M Dow Jones CDX, High Yield, Trust 1,
Series 4, 8.25%, 2010 + 8,487,720 143
2,220M Targeted Return Index Securities Trust,
7.651%, 2015 + *** 2,248,082 38
- ----------------------------------------------------------------------------------------------------------------------
10,735,802 181
- ----------------------------------------------------------------------------------------------------------------------
Food/Beverage/Tobacco--1.5%
Land O'Lakes, Inc.:
1,800M 9%, 2010 1,926,000 33
725M 8.75%, 2011 760,344 13
1,800M Pierre Foods, Inc., 9.875%, 2012 1,858,500 31
Pilgrim's Pride Corp.:
1,550M 9.625%, 2011 1,623,625 27
150M 9.25%, 2013 151,875 3
2,250M Southern States Cooperative, Inc., 10.5%, 2010 + 2,396,250 40
- ----------------------------------------------------------------------------------------------------------------------
8,716,594 147
- ----------------------------------------------------------------------------------------------------------------------
Food/Drug--1.1%
6,250M Ingles Markets, Inc., 8.875%, 2011 6,562,500 111
- ----------------------------------------------------------------------------------------------------------------------
Forest Products/Containers--.7%
2,150M Stone Container Corp., 9.75%, 2011 2,219,875 37
2,000M Tekni-Plex, Inc., 8.75%, 2013 + 1,890,000 32
- ----------------------------------------------------------------------------------------------------------------------
4,109,875 69
- ----------------------------------------------------------------------------------------------------------------------
Gaming/Leisure--7.2%
4,250M Circus & Eldorado/Silver Legacy,
10.125%, 2012 4,590,000 78
2,200M Herbst Gaming, Inc., 8.125%, 2012 2,296,250 39
4,500M Isle of Capri Casinos, Inc., 7%, 2014 4,466,250 75
5,220M Mandalay Resort Group, 6.375%, 2011 5,161,275 87
- ----------------------------------------------------------------------------------------------------------------------
Portfolio of Investments (continued)
FUND FOR INCOME
March 31, 2006
- ----------------------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------
Gaming/Leisure (continued)
$6,960M MGM Mirage, Inc., 6.625%, 2015 $6,881,700 $116
Park Place Entertainment Corp.:
3,500M 9.375%, 2007 3,618,125 61
5,000M 7%, 2013 5,214,975 88
9,745M Speedway Motorsports, Inc., 6.75%, 2013 9,793,725 165
500M Station Casinos, Inc., 6.875%, 2016 505,000 9
- ----------------------------------------------------------------------------------------------------------------------
42,527,300 718
- ----------------------------------------------------------------------------------------------------------------------
Health Care--8.8%
3,150M Alliance Imaging, Inc., 7.25%, 2012 2,748,375 46
4,000M Encore Medical IHC, Inc., 9.75%, 2012 4,060,000 69
3,480M Fisher Scientific International, Inc., 6.125%, 2015 3,414,750 58
4,400M Genesis Health Ventures, Inc., 9.75%, 2008 ++ ** 2,750 --
HCA, Inc.:
6,100M 6.75%, 2013 6,108,229 103
4,350M 6.5%, 2016 4,259,768 72
4,000M Insight Health Services Corp., 9.875%, 2011 2,220,000 37
1,800M MedQuest, Inc., 11.875%, 2012 1,368,000 23
4,000M Omnicare, Inc., 6.875%, 2015 4,010,000 68
2,800M Owens & Minor, Inc., 8.5%, 2011 2,954,000 50
900M Res-Care, Inc., 7.75%, 2013 + 909,000 15
Tenet Healthcare Corp.:
12,400M 6.375%, 2011 11,253,000 190
2,250M 9.25%, 2015 + 2,261,250 38
6,820M Triad Hospitals, Inc., 7%, 2013 6,751,800 114
- ----------------------------------------------------------------------------------------------------------------------
52,320,922 883
- ----------------------------------------------------------------------------------------------------------------------
Housing--3.9%
4,360M Beazer Homes USA, Inc., 6.875%, 2015 4,163,800 70
4,350M Builders FirstSource, Inc., 8.999%, 2012 *** 4,480,500 76
900M NTK Holdings, Inc., 0%-10.75%, 2014 # 661,500 11
7,700M Ply Gem Industries, Inc., 9%, 2012 7,199,500 122
William Lyon Homes, Inc.:
4,500M 7.625%, 2012 3,937,500 66
2,700M 10.75%, 2013 2,733,750 46
- ----------------------------------------------------------------------------------------------------------------------
23,176,550 391
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------
Information Technology--.7%
$3,000M Exodus Communications, Inc., 10.75%, 2009 ++ ** $1,875 $--
Iron Mountain, Inc.
1,000M 8.625%, 2013 1,045,000 18
1,000M 6.625%, 2016 945,000 16
1,300M Sanmina - SCI Corp., 8.125%, 2016 1,319,500 22
500M Xerox Corp., 6.4%, 2016 498,750 9
- ----------------------------------------------------------------------------------------------------------------------
3,810,125 65
- ----------------------------------------------------------------------------------------------------------------------
Investment/Finance Companies--1.0%
5,500M LaBranche & Co., Inc., 11%, 2012 6,132,500 103
- ----------------------------------------------------------------------------------------------------------------------
Manufacturing--1.6%
1,740M Case New Holland, Inc., 7.125%, 2014 + 1,726,950 29
334M Columbus McKinnon Corp., 10%, 2010 369,070 6
2,500M Itron, Inc., 7.75%, 2012 2,581,250 44
Wolverine Tube, Inc.:
3,500M 7.375%, 2008 + 2,782,500 47
2,500M 10.5%, 2009 2,075,000 35
- ----------------------------------------------------------------------------------------------------------------------
9,534,770 161
- ----------------------------------------------------------------------------------------------------------------------
Media-Broadcasting--4.7%
5,250M Block Communications, Inc., 8.25%, 2015 + 5,171,250 87
8,920M Clear Channel Communications, Inc., 5.5%, 2014 8,255,638 139
5,000M Nexstar Finance Holding LLC, 0%-11.375%, 2013 # 4,125,000 70
450M Nexstar Finance, Inc., 7%, 2014 427,500 7
3,000M Sinclair Broadcasting Group, Inc., 8.75%, 2011 3,168,750 54
Young Broadcasting, Inc.:
2,920M 10%, 2011 2,708,300 46
4,900M 8.75%, 2014 4,214,000 71
- ----------------------------------------------------------------------------------------------------------------------
28,070,438 474
- ----------------------------------------------------------------------------------------------------------------------
Media-Cable TV--8.8%
8,745M Adelphia Communications Corp., 10.25%, 2011 ++ 5,553,075 94
6,250M Atlantic Broadband Finance, LLC, 9.375%, 2014 5,953,125 100
6,900M Cablevision Systems Corp., 8%, 2012 6,762,000 114
Charter Communications Holdings, LLC:
8,500M 10%, 2009 5,801,250 98
1,000M 10.75%, 2009 685,000 12
- ----------------------------------------------------------------------------------------------------------------------
Portfolio of Investments (continued)
FUND FOR INCOME
March 31, 2006
- ----------------------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------
Media-Cable TV (continued)
Charter Communications Holdings, LLC:
$2,000M 10.25%, 2010 $1,205,000 $20
7,250M 0%-11.75%, 2011 # 3,733,750 63
2,000M 8%, 2012 + 2,000,000 34
4,625M CSC Holdings, Inc., 8.125%, 2009 4,798,437 81
8,690M Echostar DBS Corp., 6.375%, 2011 8,537,925 144
Mediacom LLC/Mediacom Capital Corp.:
4,000M 7.875%, 2011 3,790,000 64
2,000M 9.5%, 2013 1,990,000 34
1,000M Quebecor Media, Inc., 7.75%, 2016 + 1,032,500 17
- ----------------------------------------------------------------------------------------------------------------------
51,842,062 875
- ----------------------------------------------------------------------------------------------------------------------
Media-Diversified--3.2%
5,200M Cenveo, Inc., 7.875%, 2013 5,109,000 86
MediaNews Group, Inc.:
2,625M 6.875%, 2013 2,454,375 41
1,750M 6.375%, 2014 1,588,125 27
1,500M R.H. Donnelley Financial Corp., 10.875%, 2012 + 1,670,625 28
Six Flags, Inc.:
2,500M 8.875%, 2010 2,503,125 42
1,800M 9.625%, 2014 1,822,500 31
3,400M Universal City Development Partners, Ltd.,
11.75%, 2010 3,765,500 64
250M Universal City Florida Holding Co., 9.43%, 2010 *** 255,000 4
- ----------------------------------------------------------------------------------------------------------------------
19,168,250 323
- ----------------------------------------------------------------------------------------------------------------------
Metals/Mining--1.0%
1,750M Metals USA, Inc., 11.125%, 2015 + 1,933,750 33
3,910M Russell Metals, Inc., 6.375%, 2014 3,880,675 65
- ----------------------------------------------------------------------------------------------------------------------
5,814,425 98
- ----------------------------------------------------------------------------------------------------------------------
Retail-General Merchandise--3.1%
9,000M Gregg Appliances, Inc., 9%, 2013 8,392,500 141
GSC Holdings Corp.:
1,800M 8.405%, 2011 + *** 1,849,500 31
1,700M 8%, 2012 + 1,695,750 29
6,100M Neiman Marcus Group, Inc., 10.375%, 2015 + 6,511,750 110
- ----------------------------------------------------------------------------------------------------------------------
18,449,500 311
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Amount
Principal Invested
Amount For Each
or $10,000 of
Shares Security Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------
Services--3.4%
Allied Waste NA, Inc.:
$3,450M 5.75%, 2011 $3,303,375 $56
1,847M 9.25%, 2012 2,001,686 34
1,800M 7.875%, 2013 1,887,750 32
6,000M 7.375%, 2014 5,970,000 100
500M Great Lakes Dredge & Dock Corp., 7.75%, 2013 470,000 8
1,680M Hydrochem Industrial Services, Inc., 9.25%, 2013 + 1,675,800 28
5,000M United Rentals, Inc., 6.5%, 2012 4,925,000 83
- ----------------------------------------------------------------------------------------------------------------------
20,233,611 341
- ----------------------------------------------------------------------------------------------------------------------
Telecommunications--.0%
6,050M E. Spire Communications, Inc., 13%, 2010 ++ ** 605 --
2,400M ICG Services, Inc., 10%, 2008 ++ ** 1,500 --
- ----------------------------------------------------------------------------------------------------------------------
2,105 --
- ----------------------------------------------------------------------------------------------------------------------
Transportation--.6%
1,117M American Commercial Lines, LLC, 9.5%, 2015 1,234,285 21
1,750M Overseas Shipholding Group, Inc., 8.25%, 2013 1,868,125 31
500M Titan Petrochemicals Group, Ltd., 8.5%, 2012 + 472,500 8
- ----------------------------------------------------------------------------------------------------------------------
3,574,910 60
- ----------------------------------------------------------------------------------------------------------------------
Utilities--.0%
5,500M AES Drax Energy, Ltd., 11.5%, 2010 ++ 12,375 --
250M Reliant Energy, Inc., 6.75%, 2014 221,875 4
- ----------------------------------------------------------------------------------------------------------------------
234,250 4
- ----------------------------------------------------------------------------------------------------------------------
Wireless Communications--1.8%
8,000M Nextel Communications, Inc., 5.95%, 2014 7,929,976 134
2,600M Rogers Wireless, Inc., 6.375%, 2014 2,606,500 44
- ----------------------------------------------------------------------------------------------------------------------
10,536,476 178
- ----------------------------------------------------------------------------------------------------------------------
Total Value of Corporate Bonds (cost $564,550,534) 537,697,380 9,072
- ----------------------------------------------------------------------------------------------------------------------
COMMON STOCKS--2.0%
Automotive--.0%
37,387 * Safelite Glass Corporation - Class "B" + ** 140,575 2
2,523 * Safelite Realty Corporation ** 19,654 --
- ----------------------------------------------------------------------------------------------------------------------
160,229 2
- ----------------------------------------------------------------------------------------------------------------------
Portfolio of Investments (continued)
FUND FOR INCOME
March 31, 2006
- ----------------------------------------------------------------------------------------------------------------------
Amount
Shares, Invested
Principal For Each
Amount or $10,000 of
Warrants Security Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------
Chemicals--.8%
180,613 * Texas Petrochemicals Corporation ** $4,199,252 $71
14,634 * Texas Petrochemicals Corporation ** 255,180 4
- ----------------------------------------------------------------------------------------------------------------------
4,454,432 75
- ----------------------------------------------------------------------------------------------------------------------
Consumer Non-Durables--.0%
25,200 * Worldtex, Inc. ** 252 --
- ----------------------------------------------------------------------------------------------------------------------
Food/Drug--.3%
111,700 Ingles Markets, Inc. 1,990,494 34
- ----------------------------------------------------------------------------------------------------------------------
Telecommunications--.9%
16,049 Deutsche Telekom AG (ADR) 269,944 5
163,197 * RCN Corporation 4,226,802 71
9,300 * RCN Corporation ** 93 --
11,620 * TelCove, Inc. + ** 639,100 11
2,533 * Viatel Holding (Bermuda), Ltd. ** 8 --
18,224 * World Access, Inc. 22 --
2,958 * XO Holdings, Inc. 11,684 --
- ----------------------------------------------------------------------------------------------------------------------
5,147,653 87
- ----------------------------------------------------------------------------------------------------------------------
Total Value of Common Stocks (cost $22,995,427) 11,753,060 198
- ----------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--.9%
$5,000M U.S. Treasury Notes, 7%, 2006 (cost $5,013,917) 5,031,840 85
- ----------------------------------------------------------------------------------------------------------------------
WARRANTS--.0%
Aerospace/Defense--.0%
3,000 * DeCrane Aircraft Holdings, Inc. (expiring 9/30/08) + ** 30 --
- ----------------------------------------------------------------------------------------------------------------------
Automotive--.0%
Safelite Glass Corporation:
91,625 * Class "A" (expiring 9/29/06) + ** 916 --
61,084 * Class "B" (expiring 9/29/07) + ** 611 --
- ----------------------------------------------------------------------------------------------------------------------
1,527 --
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Amount
Warrants, Invested
Shares or For Each
Principal $10,000 of
Amount Security Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------
Telecommunications--.0%
3,500 * GT Group Telecom, Inc. (expiring 2/1/10) + ** $-- $--
9,045 * TelCove, Inc. (expiring 4/8/08) + ** 184,247 3
XO Holdings, Inc.:
5,910 * Class "A" (expiring 1/16/10) 2,659 --
4,438 * Class "B" (expiring 1/16/10) 1,775 --
4,438 * Class "C" (expiring 1/16/10) 1,110 --
- ----------------------------------------------------------------------------------------------------------------------
189,791 3
- ----------------------------------------------------------------------------------------------------------------------
Total Value of Warrants (cost $8,210,455) 191,348 3
- ----------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS--.0%
Consumer Non-Durables
7,714 * Worldtex, Inc., 12%, 2049 (cost $527,885) ** 77 --
- ----------------------------------------------------------------------------------------------------------------------
SHORT-TERM CORPORATE NOTES--3.3%
$10,000M AIG Funding, Inc., 4.68%, 4/6/06 9,993,491 169
800M ChevronTexaco Funding Corp., 4.71%, 4/13/06 798,744 13
2,000M New Jersey Natural Gas Co., 4.73%, 4/3/06 1,999,474 34
7,000M Toyota Motor Credit Corp., 4.75%, 4/6/06 6,995,379 118
- ----------------------------------------------------------------------------------------------------------------------
Total Value of Short-Term Corporate Notes (cost $19,787,088) 19,787,088 334
- ----------------------------------------------------------------------------------------------------------------------
SHORT-TERM U.S. GOVERNMENT
AGENCY OBLIGATIONS--.5%
3,000M Federal Home Loan Bank, 4.48%, 4/5/06
(cost $2,998,504) 2,998,504 50
- ----------------------------------------------------------------------------------------------------------------------
Total Value of Investments (cost $624,083,810) 97.4% 577,459,297 9,742
Other Assets, Less Liabilities 2.6 15,262,996 258
- ----------------------------------------------------------------------------------------------------------------------
Net Assets 100.0% $592,722,293 $10,000
======================================================================================================================
+ Security exempt from registration under Rule 144A of the Securities Act
of 1933 (see Note 4).
++ In default as to principal and/or interest payment
* Non-income producing
** Security valued at fair value (see Note 1A)
*** Interest rates on adjustable rate bonds are determined and reset
quarterly by the indentures. The interest rates shown are the rates in
effect on March 31, 2006.
# Denotes a step bond (a zero-coupon bond that converts to a fixed
interest rate at a designated future date).
See notes to financial statements
Statements of Assets and Liabilities
FIRST INVESTORS INCOME FUNDS
March 31, 2006
- --------------------------------------------------------------------------------------------------------------------------------
CASH INVESTMENT
MANAGEMENT GOVERNMENT GRADE INCOME
- --------------------------------------------------------------------------------------------------------------------------------
Assets
Investments in securities:
At identified cost $174,623,724 $194,815,552 $239,210,885 $624,083,810
============ ============ ============ ============
At value (Note 1A) $174,623,724 $191,030,293 $236,044,247 $577,459,297
Cash 1,335,494 543,952 750,260 3,682,712
Receivables:
Interest and dividends 628,485 904,008 3,923,757 12,970,743
Shares sold -- 367,527 556,862 456,636
Investment securities sold -- 14,606,608 -- --
Other assets 49,053 55,671 33,110 321,032
------------ ------------ ------------ ------------
Total Assets 176,636,756 207,508,059 241,308,236 594,890,420
------------ ------------ ------------ ------------
Liabilities
Payables:
Investment securities purchased -- 9,844,135 -- --
Dividends payable 22,476 70,545 152,641 832,683
Shares redeemed 278,848 178,091 468,445 844,338
Accrued advisory fees 21,056 90,194 106,652 366,518
Accrued shareholder servicing costs 63,639 34,808 43,171 96,813
Accrued expenses 45,391 31,083 5,644 27,775
------------ ------------ ------------ ------------
Total Liabilities 431,410 10,248,856 776,553 2,168,127
------------ ------------ ------------ ------------
Net Assets $176,205,346 $197,259,203 $240,531,683 $592,722,293
============ ============ ============ ============
Net Assets Consist of:
Capital paid in $176,205,346 $209,373,965 $252,556,702 $774,801,704
Undistributed net investment income (deficit) -- (382,967) (5,058,012) 117,966
Accumulated net realized loss on investments -- (7,946,536) (3,800,369) (135,572,864)
Net unrealized depreciation in value of investments -- (3,785,259) (3,166,638) (46,624,513)
------------ ------------ ------------ ------------
Total $176,205,346 $197,259,203 $240,531,683 $592,722,293
============ ============ ============ ============
Net Assets:
Class A $173,524,476 $182,931,993 $214,642,508 $558,860,648
Class B $2,680,870 $14,327,210 $25,889,175 $33,861,645
Shares outstanding (Note 6):
Class A 173,524,476 17,088,381 22,732,939 186,265,941
Class B 2,680,870 1,338,976 2,745,067 11,298,928
Net asset value and redemption price per share--Class A $1.00* $10.71 $9.44 $3.00
============ ============ ============ ============
Maximum offering price per share--Class A
(Net asset value/.9425)** N/A $11.36 $10.02 $3.18
============ ============ ============ ============
Net asset value and offering price per share--Class B
(Note 6) $1.00 $10.70 $9.43 $3.00
============ ============ ============ ============
* Also maximum offering price per share
** On purchases of $100,000 or more, the sales charge is reduced.
See notes to financial statements
Statements of Operations
FIRST INVESTORS INCOME FUNDS
Six Months Ended March 31, 2006
- --------------------------------------------------------------------------------------------------------------------------------
CASH INVESTMENT
MANAGEMENT GOVERNMENT GRADE INCOME
- --------------------------------------------------------------------------------------------------------------------------------
Investment Income
Income (Note 1F):
Interest $3,588,745 $5,046,711 $6,332,108 $25,873,057
Dividends -- -- -- 36,861
------------ ------------ ------------ ------------
Total income 3,588,745 5,046,711 6,332,108 25,909,918
------------ ------------ ------------ ------------
Expenses (Notes 1 and 3):
Advisory fees 431,779 867,343 881,552 2,160,965
Distribution plan expenses - Class A -- 227,011 259,874 838,429
Distribution plan expenses - Class B 10,149 75,148 135,906 174,475
Shareholder servicing costs 311,492 195,238 243,370 567,073
Reports to shareholders 58,110 38,975 47,072 130,548
Professional fees 22,976 28,362 22,437 59,536
Registration fees 38,021 40,521 34,145 40,920
Custodian fees 19,913 14,072 8,081 20,028
Trustees' fees 4,216 5,524 5,741 14,828
Other expenses 19,529 32,922 29,415 73,982
------------ ------------ ------------ ------------
Total expenses 916,185 1,525,116 1,667,593 4,080,784
Less: Expenses waived (238,598) (375,443) (263,154) --
Expenses paid indirectly (4,745) (11,905) (10,011) (21,550)
------------ ------------ ------------ ------------
Net expenses 672,842 1,137,768 1,394,428 4,059,234
------------ ------------ ------------ ------------
Net investment income 2,915,903 3,908,943 4,937,680 21,850,684
------------ ------------ ------------ ------------
Realized and Unrealized Gain (Loss) on Investments
(Note 2):
Net realized gain (loss) on investments -- (387,634) 416,060 (6,427,481)
Net unrealized depreciation of investments -- (2,326,146) (7,102,867) (6,041,132)
------------ ------------ ------------ ------------
Net loss on investments -- (2,713,780) (6,686,807) (12,468,613)
------------ ------------ ------------ ------------
Net Increase (Decrease) in Net Assets Resulting
from Operations $2,915,903 $1,195,163 $(1,749,127) $9,382,071
============ ============ ============ ============
See notes to financial statements
Statements of Changes in Net Assets
FIRST INVESTORS INCOME FUNDS
- -----------------------------------------------------------------------------------------------------------------------------------
CASH MANAGEMENT GOVERNMENT
------------------------------ ------------------------------
10/1/2005 to 10/1/2004 to 10/1/2005 to 10/1/2004 to
3/31/2006 9/30/2005 3/31/2006 9/30/2005
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations
Net investment income $2,915,903 $3,196,616 $3,908,943 $7,311,559
Net realized gain (loss) on investments -- -- (387,634) 631,796
Net unrealized depreciation of investments -- -- (2,326,146) (3,730,063)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations 2,915,903 3,196,616 1,195,163 4,213,292
------------ ------------ ------------ ------------
Dividends to Shareholders
Net investment income - Class A (2,880,371) (3,155,474) (4,053,517) (8,125,876)
Net investment income - Class B (35,532) (41,142) (277,399) (602,132)
------------ ------------ ------------ ------------
Total dividends (2,915,903) (3,196,616) (4,330,916) (8,728,008)
------------ ------------ ------------ ------------
Share Transactions *
Class A:
Proceeds from shares sold 118,339,318 225,191,078 15,954,998 25,491,260
Reinvestment of dividends 2,836,254 3,105,081 3,532,133 6,993,703
Cost of shares redeemed (109,770,506) (237,177,113) (15,351,926) (25,500,703)
------------ ------------ ------------ ------------
11,405,066 (8,880,954) 4,135,205 6,984,260
------------ ------------ ------------ ------------
Class B:
Proceeds from shares sold 1,123,887 2,334,919 1,232,119 1,753,391
Reinvestment of dividends 33,961 37,941 258,997 561,459
Cost of shares redeemed (1,659,701) (4,412,048) (2,409,877) (3,303,272)
------------ ------------ ------------ ------------
(501,853) (2,039,188) (918,761) (988,422)
------------ ------------ ------------ ------------
Net increase (decrease) from share transactions 10,903,213 (10,920,142) 3,216,444 5,995,838
------------ ------------ ------------ ------------
Net increase (decrease) in net assets 10,903,213 (10,920,142) 80,691 1,481,122
Net Assets
Beginning of period 165,302,133 176,222,275 197,178,512 195,697,390
------------ ------------ ------------ ------------
End of period+ $176,205,346 $165,302,133 $197,259,203 $197,178,512
============ ============ ============ ============
+Includes undistributed net investment income (deficit) of $-- $-- $(382,967) $39,006
============ ============ ============ ============
*Shares Issued and Redeemed
Class A:
Sold 118,339,318 225,191,078 1,476,251 2,313,120
Issued for dividends reinvested 2,836,254 3,105,081 327,218 634,924
Redeemed (109,770,506) (237,177,113) (1,420,324) (2,314,243)
------------ ------------ ------------ ------------
Net increase (decrease) in Class A shares outstanding 11,405,066 (8,880,954) 383,145 633,801
============ ============ ============ ============
Class B:
Sold 1,123,887 2,334,919 114,028 159,145
Issued for dividends reinvested 33,961 37,941 24,003 51,004
Redeemed (1,659,701) (4,412,048) (223,202) (299,862)
------------ ------------ ------------ ------------
Net decrease in Class B shares outstanding (501,853) (2,039,188) (85,171) (89,713)
============ ============ ============ ============
Statements of Changes in Net Assets (continued)
FIRST INVESTORS INCOME FUNDS
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT GRADE INCOME
------------------------------ ------------------------------
10/1/2005 to 10/1/2004 to 10/1/2005 to 10/1/2004 to
3/31/2006 9/30/2005 3/31/2006 9/30/2005
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations
Net investment income $4,937,680 $8,848,078 $21,850,684 $44,586,837
Net realized gain (loss) on investments 416,060 (267,229) (6,427,481) (6,651,104)
Net unrealized depreciation of investments (7,102,867) (5,240,595) (6,041,132) (17,110,814)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations (1,749,127) 3,340,254 9,382,071 20,824,919
------------ ------------ ------------ ------------
Dividends to Shareholders
Net investment income - Class A (5,401,481) (9,743,057) (21,102,747) (41,327,828)
Net investment income - Class B (604,867) (1,311,803) (1,182,350) (2,541,843)
------------ ------------ ------------ ------------
Total dividends (6,006,348) (11,054,860) (22,285,097) (43,869,671)
------------ ------------ ------------ ------------
Share Transactions *
Class A:
Proceeds from shares sold 31,698,732 58,265,215 26,571,118 67,802,783
Reinvestment of dividends 4,565,701 8,182,635 15,888,488 31,078,336
Cost of shares redeemed (18,209,166) (25,999,627) (42,380,937) (66,983,667)
------------ ------------ ------------ ------------
18,055,267 40,448,223 78,669 31,897,452
------------ ------------ ------------ ------------
Class B:
Proceeds from shares sold 1,922,339 3,767,335 1,680,112 5,395,191
Reinvestment of dividends 533,950 1,150,885 862,731 1,872,646
Cost of shares redeemed (4,052,344) (5,209,093) (4,557,857) (9,509,080)
------------ ------------ ------------ ------------
(1,596,055) (290,873) (2,015,014) (2,241,243)
------------ ------------ ------------ ------------
Net increase (decrease) from share transactions 16,459,212 40,157,350 (1,936,345) 29,656,209
------------ ------------ ------------ ------------
Net increase (decrease) in net assets 8,703,737 32,442,744 (14,839,371) 6,611,457
Net Assets
Beginning of period 231,827,946 199,385,202 607,561,664 600,950,207
------------ ------------ ------------ ------------
End of period+ $240,531,683 $231,827,946 $592,722,293 $607,561,664
============ ============ ============ ============
+Includes undistributed net investment income (deficit) of $(5,058,012) $(3,989,344) $117,966 $552,379
============ ============ ============ ============
*Shares Issued and Redeemed
Class A:
Sold 3,302,202 5,849,008 8,842,199 21,460,627
Issued for dividends reinvested 476,567 822,105 5,290,229 9,902,008
Redeemed (1,896,582) (2,611,201) (14,110,028) (21,309,546)
------------ ------------ ------------ ------------
Net increase (decrease) in Class A shares outstanding 1,882,187 4,059,912 22,400 10,053,089
============ ============ ============ ============
Class B:
Sold 201,152 378,111 560,147 1,709,202
Issued for dividends reinvested 55,787 115,677 287,420 596,997
Redeemed (423,375) (522,612) (1,518,184) (3,031,130)
------------ ------------ ------------ ------------
Net decrease in Class B shares outstanding (166,436) (28,824) (670,617) (724,931)
============ ============ ============ ============
See notes to financial statements
Notes to Financial Statements
FIRST INVESTORS INCOME FUNDS
March 31, 2006
1. Significant Accounting Policies--First Investors Income Funds, a
Delaware statutory trust ("the Trust"), is registered under the Investment
Company Act of 1940 ("the 1940 Act") as a diversified, open-end management
investment company. The Trust operates as a series fund, issuing shares of
beneficial interest in the Cash Management Fund, Government Fund,
Investment Grade Fund and Fund For Income (each a "Fund", collectively,
"the Funds"), and accounts separately for the assets, liabilities and
operations of each Fund. The objective of each Fund is as follows:
Cash Management Fund seeks to earn a high rate of current income consistent
with the preservation of capital and maintenance of liquidity.
Government Fund seeks to achieve a significant level of current income
which is consistent with security and liquidity of principal.
Investment Grade Fund seeks to generate a maximum level of income
consistent with investment in investment grade debt securities.
Fund For Income primarily seeks high current income and, secondarily, seeks
capital appreciation.
A. Security Valuation--The Cash Management Fund values its portfolio
securities in accordance with the amortized cost method of valuation under
Rule 2a-7 of the 1940 Act. Amortized cost is an approximation of market
value of an instrument, whereby the difference between its acquisition cost
and market value at maturity is amortized on a straight-line basis over the
remaining life of the instrument. The effect of changes in the market value
of a security as a result of fluctuating interest rates is not taken into
account and thus the amortized cost method of valuation may result in the
value of a security being higher or lower than its actual market value.
With respect to each of the other Funds, except as provided below, a
security listed or traded on an exchange or the Nasdaq Stock Market is
valued at its last sale price on the exchange or market where the security
is principally traded, and lacking any sales, the security is valued at the
mean between the closing bid and asked prices. Securities traded in the
over-the-counter ("OTC") market (including securities listed on exchanges
whose primary market is believed to be OTC) are valued at the mean between
the last bid and asked prices based upon quotes furnished by a market maker
for such securities. Securities may also be priced by a pricing service
approved by the Trust's Board of Trustees ("the Board"). The pricing
service considers security type, rating, market condition and yield data as
well as market quotations, prices provided by market makers and other
available information in determining value. Short-term debt securities that
mature in 60 days or less are valued at amortized cost. If market
quotations or prices are not readily available or determined to be
unreliable, the securities will be valued at fair value as determined in
good faith pursuant to
procedures adopted by the Board. At March 31, 2006, Fund For Income held
twenty securities that were fair valued by the Funds' Valuation Committee
with an aggregate value of $5,515,910 representing .9% of the Fund's net
assets.
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 each 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 September 30, 2005, capital loss carryovers were as follows:
Year Capital Loss Carryovers Expire
----------------------------------------------------------------------------------------------------------
Fund Total 2007 2008 2009 2010 2011 2012 2013
- ---- ----- ---- ---- ---- ---- ---- ---- ----
Government $ 6,938,282 $ -- $1,017,364 $ 2,144,197 $ -- $ 54,921 $ 2,120,906 $ 1,600,894
Investment
Grade 3,507,032 -- -- 1,715,940 27,419 407,283 1,356,376 14
Income 123,088,445 842,581 1,832,458 13,810,649 18,563,112 52,099,335 25,740,298 10,200,012
C. Distributions to Shareholders--The Cash Management Fund declares
distributions daily and pays distributions monthly. Distributions are
declared from the total of net investment income plus or minus all realized
short-term gains and losses on investments. Dividends from net investment
income of each of the other Funds are generally declared daily and paid
monthly and 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 accounting principles generally accepted in the
United States of America. These differences are primarily due to differing
treatments for mortgage-backed securities, capital loss carryforwards and
post-October capital losses.
D. Use of Estimates--The preparation of the financial statements in
conformity with accounting principles generally accepted in the United
States of America 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.
Notes to Financial Statements (continued)
FIRST INVESTORS INCOME FUNDS
March 31, 2006
E. Expense Allocation--Expenses directly charged or attributable to a Fund
are paid from the assets of that Fund. General expenses of the Trust are
allocated among and charged to the assets of each Fund in the Trust on a
fair and equitable basis, which may be based on the relative assets of each
Fund or the nature of the services performed and relative applicability to
each Fund.
F. Other--Security transactions are accounted for on the date the
securities are purchased or sold. Cost is determined, and gains and losses
are based, on the identified cost basis for both financial statement and
federal income tax purposes. Dividend income is recorded on the ex-dividend
date. Interest income and estimated expenses are accrued daily. Bond
discounts and premiums are accreted or amortized using the interest method.
Interest income on zero-coupon bonds and step bonds is accrued daily at the
effective interest rate. For the six months ended March 31, 2006, the Bank
of New York, custodian for the Funds, has provided total credits in the
amount of $42,219 against custodian charges based on the uninvested cash
balances of the Funds. The Funds also reduced expenses through brokerage
service arrangements. For the six months ended March 31, 2006, the Funds
expenses were reduced by $5,992 under these arrangements.
2. Security Transactions--For the six months ended March 31, 2006,
purchases and sales (including pay-downs on Government Fund) of securities
and long-term U.S. Government obligations (excluding short-term U.S.
Government obligations and short-term securities) were as follows:
Long-Term U.S.
Securities Government Obligations
--------------------------- ---------------------------
Cost of Proceeds Cost of Proceeds
Fund Purchases from Sales Purchases from Sales
- ---- ------------ ------------ ------------ ------------
Government $ -- $ -- $48,222,594 $53,733,621
Investment Grade 12,886,384 24,017,928 32,644,175 5,355,678
Income 87,199,713 80,198,715 -- --
At March 31, 2006, aggregate cost and net unrealized depreciation of
securities for federal income tax purposes were as follows:
Gross Gross Net
Aggregate Unrealized Unrealized Unrealized
Fund Cost Appreciation Depreciation Depreciation
- ---- ------------ ------------ ------------ ------------
Government $194,815,552 $ 198,834 $ 3,984,093 $ (3,785,259)
Investment Grade 243,650,965 1,968,009 9,574,727 (7,606,718)
Income 626,216,738 15,582,807 64,340,248 (48,757,441)
3. Advisory Fee and Other Transactions With Affiliates--Certain officers and
trustees of the Trust are officers and directors of the Trust's 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 Investors Federal Savings Bank
("FIFSB"), custodian of the Funds' retirement accounts. Trustees of the Trust
who are not "interested persons" of the Trust as defined in the 1940 Act are
remunerated by the Funds. For the six months ended March 31, 2006, total
trustees fees accrued by the Funds amounted to $30,309.
The Investment Advisory Agreements provide as compensation to FIMCO an
annual fee, payable monthly, at the following rates:
Cash Management Fund--.50% of the Fund's average daily net assets. During
the period October 1, 2005 to March 31, 2006, FIMCO has voluntarily waived
$238,598 in advisory fees to limit the Fund's overall expense ratios to .70%
on Class A shares and 1.45% on Class B shares for the period October 1, 2005
through November 30, 2005, and to .80% on Class A shares and 1.55% on Class
B shares for the period December 1, 2005 through March 31, 2006.
Government Fund--Through January 27, 2006, the rate was 1% on the first $200
million of the Fund's average daily net assets, .75% on the next $300
million, and declined by .03% on each $250 million thereafter, down to .66%
on average daily net assets over $1 billion. Effective January 28, 2006, the
rate was changed to .66% on the first $500 million of the Fund's average
daily net assets, declining by .02% on each $500 million thereafter, down to
..60% on average daily net assets over $1.5 billion. During the period
October 1, 2005 to March 31, 2006, FIMCO has voluntarily waived $375,443 in
advisory fees to limit the Fund's overall expense ratio to 1.10% on Class A
shares and 1.85% on Class B shares.
Investment Grade Fund--Through January 27, 2006, the rate was .75% on the
first $300 million of the Fund's average daily net assets, .72% on the next
$200 million, .69% on the next $250 million, and .66% on average daily net
assets over $750 million. Effective January 28, 2006, the rate was changed
to .75% on the first $250 million of the Fund's average daily net assets,
..72% on the next $250 million, .69% on the next $250 million, .66% on the
next $500 million, declining by .02% on each $500 million thereafter, down
to .60% on average daily net assets over $2.25 billion. During the period
October 1, 2005 to March 31, 2006, FIMCO has voluntarily waived $263,154 in
advisory fees to limit the Fund's overall expense ratio to 1.10% on Class A
shares and 1.85% on Class B shares.
Fund For Income--Through January 27, 2006, the rate was .75% on the first $250
million of the Fund's average daily net assets, and declined by .03% on each
Notes to Financial Statements (continued)
FIRST INVESTORS INCOME FUNDS
March 31, 2006
$250 million thereafter, down to .66% on average daily net assets over
$750 million. Effective January 28, 2006, the rate was changed to .75% on
the first $250 million of the Fund's average daily net assets, .72% on the
next $250 million, 69% on the next $250 million, .66% on the next $500
million, declining by .02% on each $500 million thereafter, down to .60% on
average daily net assets over $2.25 billion.
For the six months ended March 31, 2006, total advisory fees accrued to
FIMCO by the Funds were $4,341,639 of which $877,195 was waived as noted
above.
For the six months ended March 31, 2006, FIC, as underwriter, received
$2,260,288 in commissions from the sale of shares of the Funds after
allowing $21,149 to other dealers. Shareholder servicing costs included
$990,334 in transfer agent fees accrued to ADM and $193,484 in retirement
accounts custodian fees accrued to FIFSB.
Pursuant to Distribution Plans adopted under Rule 12b-1 of the 1940 Act,
each Fund, other than the Cash Management Fund, is authorized to pay FIC a
fee up to .30% of the average daily net assets of the Class A shares on an
annual basis, payable monthly. Each Fund, including the Cash Management
Fund, is authorized to pay FIC a fee up to 1% of the average daily net
assets of the Class B shares on an annual basis, 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 that Fund. For
the six months ended March 31, 2006, the fees paid under the distribution
plans by Government Fund and Investment Grade Fund were limited to .25% on
Class A shares and 1% on Class B shares. The distribution fees paid by Cash
Management Fund were limited to .75% on Class B shares.
4. Restricted Securities--Certain restricted securities are exempt from the
registration requirements under Rule 144A of the Securities Act of 1933 and
may only be sold to qualified institutional investors. At March 31, 2006,
Cash Management Fund held one 144A security with a value of $2,000,000
representing 1.1% of the Fund's net assets, Investment Grade Fund held
eight 144A securities with an aggregate value of $12,739,435 representing
5.3% of the Fund's net assets and Fund For Income held thirty-two 144A
securities with an aggregate value of $71,703,781 representing 12.1% of the
Fund's net assets. Certain restricted securities are exempt from the
registration requirements under Section 4(2) of the Securities Act of 1933
and may only be sold to qualified investors. At March 31, 2006, Cash
Management Fund held five Section 4(2) securities with an aggregate value
of $21,192,449 representing 12.0% of the Fund's net assets. These
securities are valued as set forth in Note 1A.
5. High Yield Credit Risk-- The investments of Fund For Income in high yield
securities whether rated or unrated may be considered speculative and subject
to greater market fluctuations and risks of loss of income and
principal than lower-yielding, higher-rated, fixed-income securities. The
risk of loss due to default by the issuer may be significantly greater for
holders of high-yielding securities, because such securities are generally
unsecured and are often subordinated to other creditors of the issuer.
6. Capital--The Trust is authorized to issue an unlimited number of shares
of beneficial interest without par value. The Trust consists of the Funds
listed on the cover page, each of which is a separate and distinct series
of the Trust. Each Fund has designated two classes of shares, Class A
shares and Class B shares (each, a "Class"). Each share of each Class has
an equal beneficial interest in the assets, has identical voting, dividend,
liquidation and other rights and is subject to the same terms and
conditions except that expenses allocated to a Class may be borne solely by
that Class as determined by the Trustees and a Class may have exclusive
voting rights with respect to matters affecting only that Class. Cash
Management Fund's Class A and Class B shares are sold without an initial
sales charge; however, its Class B shares may only be acquired through an
exchange of Class B shares from another First Investors eligible Fund or
through the reinvestment of dividends on Class B shares and are generally
subject to a contingent deferred sales charge at the rate of 4% in the
first year and declining to 0% over a six-year period, which is payable to
FIC as underwriter of the Trust. The Class A and Class B shares sold by the
other Funds have 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 5.75% 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 to each class.
7. Fund Reorganizations--At the close of business on January 27, 2006,
First Investors Cash Management Fund, Inc., First Investors Government
Fund, Inc., First Investors Fund For Income, Inc. and First Investors
Series Fund (Investment Grade Fund) were reorganized into corresponding
series of the Trust pursuant to an Agreement and Plan of Conversion and
Termination (the "Reorganizations") that was approved by each Fund's
shareholders. The Reorganizations were accomplished through tax-free
exchanges of shares, which had no impact on net assets, operations, and
number of shares outstanding.
Financial Highlights
FIRST INVESTORS INCOME FUNDS
The following table sets forth the per share operating performance data for
a share outstanding, total return, ratios to average net assets and other
supplemental data for each fiscal year ended September 30, except as
otherwise indicated.
- ---------------------------------------------------------------------------------------------------------------------------------
P E R S H A R E D A T A
------------------------------------------------------------------------------------------------------------------
Less Distributions
Investment Operations from
---------------------------------------- -------------------------
Net Asset Net Realized Net Asset
Value, Net and Unrealized Total from Net Net Value,
Beginning Investment Gain (Loss) on Investment Investment Realized Total End of
of Period Income Investments Operations Income Gain Distributions Period
- ---------------------------------------------------------------------------------------------------------------------------------
CASH MANAGEMENT FUND
- --------------------
Class A
- -------
2001 $ 1.00 $.050 -- $.050 $.050 -- $.050 $ 1.00
2002 1.00 .014 -- .014 .014 -- .014 1.00
2003 1.00 .006 -- .006 .006 -- .006 1.00
2004 1.00 .005 -- .005 .005 -- .005 1.00
2005 1.00 .019 -- .019 .019 -- .019 1.00
2006 (a) 1.00 .017 -- .017 .017 -- .017 1.00
Class B
- -------
2001 1.00 .040 -- .040 .040 -- .040 1.00
2002 1.00 .006 -- .006 .006 -- .006 1.00
2003 1.00 .001 -- .001 .001 -- .001 1.00
2004 1.00 -- -- -- -- -- -- 1.00
2005 1.00 .012 -- .012 .012 -- .012 1.00
2006 (a) 1.00 .013 -- .013 .013 -- .013 1.00
- ---------------------------------------------------------------------------------------------------------------------------------
GOVERNMENT FUND
- ---------------
Class A
- -------
2001 $10.94 $ .64 $ .48 $1.12 $ .65 -- $ .65 $11.41
2002 11.41 .59 .09 .68 .59 -- .59 11.50
2003 11.50 .54 (.19) .35 .54 -- .54 11.31
2004 11.31 .51 (.18) .33 .51 -- .51 11.13
2005 11.13 .50 (.25) .25 .50 -- .50 10.88
2006 (a) 10.88 .25 (.18) .07 .24 -- .24 10.71
Class B
- -------
2001 10.93 .55 .49 1.04 .56 -- .56 11.41
2002 11.41 .50 .09 .59 .51 -- .51 11.49
2003 11.49 .45 (.19) .26 .45 -- .45 11.30
2004 11.30 .43 (.18) .25 .43 -- .43 11.12
2005 11.12 .41 (.25) .16 .41 -- .41 10.87
2006 (a) 10.87 .21 (.18) .03 .20 -- .20 10.70
- ---------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
R A T I O S / S U P P L E M E N T A L D A T A
------------------------------------------------------------------------------------------------
Ratio to Average Net
Ratio to Average Net Assets Before Expenses
Assets** Waived or Assumed
----------------------- -----------------------
Net Assets Net Net Portfolio
Total End of Period Investment Investment Turnover
Return* (in millions) Expenses Income Expenses Income (Loss) Rate
- ------------------------------------------------------------------------------------------------------------------
CASH MANAGEMENT FUND
- --------------------
Class A
- -------
2001 4.63% $204 .80% 4.52% .99% 4.33% --
2002 1.38 193 .80 1.38 .90 1.28 --
2003 .62 179 .78 .62 .97 .43 --
2004 .50 171 .70 .50 1.05 .15 --
2005 1.94 162 .70 1.90 1.04 1.56 --
2006 (a) 1.70 174 .76+ 3.39+ 1.05+ 3.10+ --
Class B
- -------
2001 3.85 4 1.55 3.77 1.74 3.58 --
2002 .63 6 1.55 .63 1.65 .53 --
2003 .05 6 1.34 .06 1.53 (.13) --
2004 -- 5 1.20 -- 1.55 (.35) --
2005 1.18 3 1.45 1.15 1.79 .81 --
2006 (a) 1.32 3 1.51+ 2.64+ 1.80+ 2.35+ --
- ------------------------------------------------------------------------------------------------------------------
GOVERNMENT FUND
- ---------------
Class A
- -------
2001 10.49% $137 1.10% 5.70% 1.53% 5.27% 59%
2002 6.16 168 1.10 5.21 1.56 4.75 75
2003 3.08 184 1.10 4.69 1.58 4.21 65
2004 3.01 179 1.10 4.59 1.56 4.13 60
2005 2.25 182 1.10 4.49 1.57 4.02 48
2006 (a) .67 183 1.10+ 4.55+ 1.49+ 4.16+ 25
Class B
- -------
2001 9.77 6 1.85 4.95 2.28 4.52 59
2002 5.29 16 1.85 4.46 2.31 4.00 75
2003 2.33 21 1.85 3.94 2.33 3.46 65
2004 2.25 17 1.85 3.84 2.31 3.38 60
2005 1.48 15 1.85 3.74 2.32 3.27 48
2006 (a) .27 14 1.85+ 3.80+ 2.24+ 3.41+ 25
- ------------------------------------------------------------------------------------------------------------------
Financial Highlights (continued)
FIRST INVESTORS INCOME FUNDS
- ---------------------------------------------------------------------------------------------------------------------------------
P E R S H A R E D A T A
------------------------------------------------------------------------------------------------------------------
Less Distributions
Investment Operations from
---------------------------------------- -------------------------
Net Asset Net Realized Net Asset
Value, Net and Unrealized Total from Net Net Value,
Beginning Investment Gain (Loss) on Investment Investment Realized Total End of
of Period Income Investments Operations Income Gain Distributions Period
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTMENT GRADE FUND
- ---------------------
Class A
- -------
2001 $ 9.53 $ .61 $ .41 $1.02 $ .63 -- $ .63 $ 9.92
2002++ 9.92 .55 .07 .62 .58 -- .58 9.96
2003 9.96 .51 .35 .86 .54 -- .54 10.28
2004 10.28 .47 (.11) .36 .53 -- .53 10.11
2005 10.11 .45 (.28) .17 .52 -- .52 9.76
2006 (a) 9.76 .25 (.32) (.07) .25 -- .25 9.44
Class B
- -------
2001 9.54 .54 .41 .95 .56 -- .56 9.93
2002++ 9.93 .48 .06 .54 .51 -- .51 9.96
2003 9.96 .43 .36 .79 .47 -- .47 10.28
2004 10.28 .38 (.11) .27 .45 -- .45 10.10
2005 10.10 .34 (.24) .10 .45 -- .45 9.75
2006 (a) 9.75 .18 (.29) (.11) .21 -- .21 9.43
- ---------------------------------------------------------------------------------------------------------------------------------
FUND FOR INCOME
- ---------------
Class A
- -------
2001 $ 3.63 $ .33 $ (.68) $(.35) $ .35 -- $ .35 $ 2.93
2002++ 2.93 .26 (.29) (.03) .26 -- .26 2.64
2003 2.64 .24 .41 .65 .24 -- .24 3.05
2004 3.05 .23 .13 .36 .23 -- .23 3.18
2005 3.18 .23 (.11) .12 .23 -- .23 3.07
2006 (a) 3.07 .11 (.07) .04 .11 -- .11 3.00
Class B
- -------
2001 3.61 .31 (.67) (.36) .33 -- .33 2.92
2002++ 2.92 .24 (.30) (.06) .23 -- .23 2.63
2003 2.63 .23 .41 .64 .22 -- .22 3.05
2004 3.05 .21 .12 .33 .20 -- .20 3.18
2005 3.18 .21 (.13) .08 .20 -- .20 3.06
2006 (a) 3.06 .10 (.06) .04 .10 -- .10 3.00
- ---------------------------------------------------------------------------------------------------------------------------------
* Calculated without sales charges.
** Net of expenses waived or assumed (Note 3).
+ Annualized
++ Prior to October 1, 2001, the Investment Grade Fund and the Fund for
Income did not amortize premiums on debt securities. The per share data
and ratios prior to October 1, 2001 have not been restated. The
cumulative effect of this accounting change had no impact on the net
assets of the Funds.
(a) For the period October 1, 2005 to March 31, 2006.
See notes to financial statements
- ------------------------------------------------------------------------------------------------------------------
R A T I O S / S U P P L E M E N T A L D A T A
------------------------------------------------------------------------------------------------
Ratio to Average Net
Ratio to Average Net Assets Before Expenses
Assets** Waived or Assumed
----------------------- -----------------------
Net Assets Net Net Portfolio
Total End of Period Investment Investment Turnover
Return* (in millions) Expenses Income Expenses Income Rate
- ------------------------------------------------------------------------------------------------------------------
INVESTMENT GRADE FUND
- ---------------------
Class A
- -------
2001 10.93% $ 65 1.10% 6.22% 1.28% 6.04% 21%
2002++ 6.48 102 1.10 5.63 1.33 5.40 13
2003 8.94 144 1.10 4.85 1.35 4.60 6
2004 3.57 170 1.10 4.49 1.32 4.27 9
2005 1.70 203 1.10 4.21 1.31 4.00 11
2006 (a) (.74) 215 1.10+ 4.28+ 1.33+ 4.05+ 13
Class B
- -------
2001 10.15 13 1.84 5.48 2.02 5.30 21
2002++ 5.61 23 1.85 4.88 2.08 4.65 13
2003 8.17 31 1.85 4.10 2.10 3.85 6
2004 2.74 30 1.85 3.74 2.07 3.52 9
2005 .97 28 1.85 3.46 2.06 3.25 11
2006 (a) (1.11) 26 1.85+ 3.53+ 2.08+ 3.30+ 13
- ------------------------------------------------------------------------------------------------------------------
FUND FOR INCOME
- ---------------
Class A
- -------
2001 (10.20)% 418 1.30% 9.81% N/A N/A 18%
2002++ (1.52) 397 1.35 8.90 N/A N/A 20
2003 25.78 509 1.34 8.38 N/A N/A 31
2004 12.06 561 1.29 7.35 N/A N/A 37
2005 3.79 571 1.30 7.33 N/A N/A 39
2006 (a) 1.44 559 1.33+ 7.39+ N/A N/A 14
Class B
- -------
2001 (10.62) 22 2.00 9.11 N/A N/A 18
2002++ (2.33) 24 2.05 8.20 N/A N/A 20
2003 25.24 37 2.04 7.68 N/A N/A 31
2004 11.22 40 1.99 6.65 N/A N/A 37
2005 2.68 37 2.00 6.63 N/A N/A 39
2006 (a) 1.38 34 2.03+ 6.69+ N/A N/A 14
- ------------------------------------------------------------------------------------------------------------------
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees of
First Investors Income Funds
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of the Cash Management Fund,
Government Fund, Investment Grade Fund and Fund For Income, (each a series
of First Investors Income Funds) as of March 31, 2006, the related
statements of operations, the statements of changes in net assets and the
financial highlights for each of the periods indicated thereon. These
financial statements and financial highlights are the responsibility of the
Funds' 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 the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements and financial highlights are free of
material misstatement. We were not engaged to perform an audit of the
Funds' internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Funds' control over financial reporting. Accordingly, we express no such
opinion. 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 March 31, 2006, by
correspondence with the custodian and brokers. 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 Cash Management Fund, Government Fund, Investment Grade Fund and Fund
For Income, as of March 31, 2006, and the results of their operations,
changes in their net assets and their financial highlights for the periods
presented, in conformity with accounting principles generally accepted in
the United States of America.
Tait, Weller & Baker LLP
Philadelphia, Pennsylvania
May 2, 2006
FIRST INVESTORS INCOME FUNDS
Trustees Shareholder Information
- ----------------------- -----------------------
Charles R. Barton, III Investment Adviser
First Investors Management Company, Inc.
Stefan L. Geiringer 95 Wall Street
New York, NY 10005
Robert M. Grohol
Underwriter
Kathryn S. Head First Investors Corporation
95 Wall Street
Arthur M. Scutro, Jr. New York, NY 10005
James M. Srygley Custodian
The Bank of New York
John T. Sullivan One Wall Street
New York, NY 10005
Robert F. Wentworth
Transfer Agent
Officers Administrative Data Management Corp.
- ----------------------- Raritan Plaza I - 8th Floor
Kathryn S. Head Edison, NJ 08837-3620
President
Independent Registered
Larry R. Lavoie Public Accounting Firm
Chief Compliance Officer Tait, Weller & Baker LLP
1818 Market Street
Joseph I. Benedek Philadelphia, PA 19103
Treasurer
Legal Counsel
Mark S. Spencer Kirkpatrick & Lockhart
Assistant Treasurer Nicholson Graham LLP
1800 Massachusetts Avenue, N.W.
Carol Lerner Brown Washington, DC 20036
Assistant Secretary
FIRST INVESTORS INCOME FUNDS
Shareholder Information
- -----------------------
The Cash Management Fund is a money market fund and seeks to maintain a
stable net asset value of $1.00 per share. However, there can be no
assurance that the Fund will be able to do so or achieve its investment
objective. An investment in the Fund is neither insured nor guaranteed by
the Federal Deposit Insurance Corporation (FDIC) or any other government
agency.
It is the Funds' practice to mail only one copy of their annual and
semi-annual reports to all family members who reside in the same household.
Additional copies of the reports will be mailed if requested by any
shareholder in writing or by calling 800-423-4026. The Funds 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 Trust's prospectus.
The Statement of Additional Information includes additional information
about the Trust's trustees and is available, without charge, upon request
in writing or by calling 800-423-4026.
A description of the policies and procedures that the Funds use to vote
proxies relating to a portfolio's securities is available, without charge,
upon request by calling toll free 800-423-4026 or can be viewed online or
downloaded from the EDGAR database on the Securities and Exchange
Commission's ("SEC") internet website at http://www.sec.gov. In addition,
information regarding how the Funds voted proxies relating to portfolio
securities during the most recent 12-month period ended June 30, is
available, without charge, upon request in writing or by calling
800-423-4026 and on the SEC's internet website at http://www.sec.gov.
The Funds file their complete schedule of portfolio holdings with the SEC
on Form N-Q for the first and third quarters of each fiscal year. The
Funds' Form N-Q is available on the SEC's website at http://www.sec.gov;
and may also be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room
may be obtained by calling 800-SEC-0330. The schedule of portfolio holdings
is also available, without charge, upon request in writing or by calling
800-423-4026.
Item 2. Code of Ethics
Not applicable
Item 3. Audit Committee Financial Expert
Not applicable
Item 4. Principal Accountant Fees and Services
Not applicable
Item 5. Audit Committee of Listed Registrants
Not applicable
Item 6. Schedule of Investments
Schedule of investments is included as part of
the report to stockholders filed under Item 1
of this Form.
Item 7. Disclosure of Proxy Voting Policies & Procedures for
Closed-End Management Investment Companies
Not applicable
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not applicable
Item 9. Purchases of Equity Securities by Closed-End Management
Investment Companies and Affiliated Purchasers
Not applicable
Item 10. Submission of Matters to a Vote of Security Holders
There were no material changes to the procedure by which shareholders
may recommend nominees to the Registrant's Board of Trustees.
Item 11. Controls and Procedures
(a) The Registrant's Principal Executive Officer and Principal
Financial Officer have concluded that the Registrant's disclosure controls
and procedures (as defined in Rule 30a-3(c) under the Investment Company
Act of 1940, as amended) are effective, based on their evaluation of these
disclosure controls and procedures as of a date within 90 days of the
filing date of this report.
(b) There were no changes in the Registrant's internal controls over
financial reporting that occurred during the second fiscal quarter of the
period covered by this report that has materially affected, or is reasonably
likely to materially affect, the Registrant's internal control over
financial reporting.
Item 12. Exhibits
(a)(1) Code of Ethics - Not applicable
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 - Filed herewith
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 - Filed herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
First Investors Income Funds
(Registrant)
By /S/ KATHRYN S. HEAD
Kathryn S. Head
President and Principal Executive Officer
Date: June 7, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
First Investors Income Funds
(Registrant)
By /S/ JOSEPH I. BENEDEK
Joseph I. Benedek
Treasurer and Principal Financial Officer
Date: June 7, 2006