UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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: SEPTEMBER 30, 2006
Item 1. Reports to Stockholders
The Annual Report to Stockholders follows
[First Investors Logo]
TAXABLE BOND & MONEY MARKET FUNDS
CASH MANAGEMENT
GOVERNMENT
INVESTMENT GRADE
FUND FOR INCOME
ANNUAL REPORT
September 30, 2006
Portfolio Manager's Letter
CASH MANAGEMENT FUND
Dear Investor:
This is the annual report for the First Investors Cash Management Fund for
the fiscal year ended September 30, 2006. During the period, the Fund's
return on a net asset value basis was 3.9% for Class A shares and 3.1% for
Class B shares, including dividends of 3.8 cents per share on Class A shares
and 3.1 cents per share on Class B shares. The Fund maintained a $1.00 net
asset value for each class of shares throughout the year.
The primary factor that drove the Fund's performance during the reporting
period was the short-term interest rate environment. Short-term interest
rates rose steadily through most of the twelve-month period, as the Federal
Reserve ("the Fed") raised its target federal funds rate by 25 basis points
at each meeting before stopping in August, with the federal funds target
rate at 5.25%.
The Fund effectively used corporate bonds and notes for incremental return,
in addition to floating rate securities and various types of callable
securities. The Fund continued to mitigate credit risk by generally limiting
its corporate security investments to shorter maturities and smaller
position sizes. In addition, though the Fund reduced its holdings in U.S.
government and agency securities, it maintained a significant portion of its
assets in these securities. The Fund also increased its holdings in floating
rate securities, which added marginally to performance.
Although money market funds are relatively conservative vehicles, there can
be no assurance that they will be able to maintain a stable net asset value
of $1.00 per share. Money market mutual funds are neither insured nor
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
Thank you for placing your trust in First Investors. As always, we
appreciate the opportunity to serve your investment needs.
Sincerely,
/S/ MICHAEL J. O'KEEFE
Michael J. O'Keefe
Portfolio Manager
November 1, 2006
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, April 1, 2006, and held for the entire six-month
period ended September 30, 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 the
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 expenses you paid on your account during this period, simply
divide your ending 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 expenses 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 expenses 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.
Board Considerations of Advisory Contracts and Fees
FIRST INVESTORS INCOME FUNDS
At a meeting held on May 18, 2006 ("May Meeting"), the Board of Trustees
("Board"), including a majority of the non-interested or independent
Trustees (hereinafter, "Trustees"), approved the renewal of the investment
advisory agreements (each an "Advisory Agreement") between First Investors
Management Company, Inc. ("FIMCO") and each of the following funds (each a
"Fund" and collectively the "Funds"): Government Fund, Investment Grade
Fund, Fund For Income and Cash Management Fund. In reaching its decisions,
the Board considered information furnished and discussed throughout the year
at regularly scheduled Board meetings as well as information provided
specifically in relation to the renewal of the Advisory Agreements for the
May Meeting.
Information furnished at Board meetings throughout the year included FIMCO's
analysis of each Fund's investment performance, presentations given by
FIMCO's Director of Fixed Income and various reports on compliance and other
services provided by FIMCO and its affiliates. In preparation for the May
Meeting, the independent Trustees requested and received information
compiled by Lipper, Inc. ("Lipper"), an independent provider of investment
company data, on the investment performance over various time periods and
the fees and expenses of each Fund as compared to a comparable group of
funds as determined by Lipper ("Peer Group"). Additionally, in response to
specific requests from the independent Trustees in connection with the May
Meeting, FIMCO furnished, and the Board considered, information concerning
aspects of its operations, including: (1) the nature, extent and quality of
services provided by FIMCO and its affiliates to the Funds, including
investment advisory and administrative services to the Funds; (2)
supplemental investment performance information relating to certain Funds;
(3) the actual management fees paid by each Fund to FIMCO; (4) the costs of
providing services to each Fund and the profitability of FIMCO and its
affiliate, Administrative Data Management Corp. ("ADM"), the Funds'
affiliated transfer agent, from the relationship with each Fund; and (5) any
"fall out" or ancillary benefits accruing to FIMCO or its affiliates as a
result of the relationship with each Fund. FIMCO also provided, and the
Board considered, an analysis of the overall profitability of the First
Investors mutual fund business that included various entities affiliated
with FIMCO. In addition to evaluating, among other things, the written
information provided by FIMCO, the Board also evaluated the answers to
questions posed by the Board to representatives of FIMCO at the May Meeting.
In considering the information and materials described above, the
independent Trustees received assistance from and met separately with
independent legal counsel and were provided with a written description of
their statutory responsibilities and the legal standards that are applicable
to approvals of advisory agreements. Although the Advisory Agreements for
all of the Funds were considered at the same Board
Board Considerations of Advisory Contracts and Fees (continued)
FIRST INVESTORS INCOME FUNDS
meeting, the Trustees addressed each Fund separately during the May Meeting.
In view of the broad scope and variety of factors and information, the
Trustees did not find it practicable to, and did not, assign relative
weights to the specific factors considered in reaching their conclusions and
determinations to approve the continuance of the Advisory Agreements.
Rather, the approval determinations were made on the basis of each Trustee's
business judgment after consideration of all of the factors taken in their
entirety. Although not meant to be all-inclusive, the following discusses
some of the factors relevant to the Board's decisions to approve the
continuance of the Advisory Agreements.
Nature, Extent and Quality of Services
In examining the nature, extent and quality of the services provided by
FIMCO, the Board recognized that FIMCO is dedicated to providing investment
management services exclusively to the Funds and the other funds in the
First Investors fund complex and that, unlike many other mutual fund
managers, FIMCO is not in the business of providing management services to
hedge funds, pension funds or separately managed accounts. As a result, the
Trustees considered that FIMCO's personnel devote substantially all of their
time to serving the funds in the First Investors fund complex.
The Board also recognized that it is FIMCO's philosophy to provide a high
level of personal service to the shareholders of the Funds, that FIMCO
strives to service the needs of a customer base that includes many investors
who have modest incomes and net worths, that the fund complex is small in
size relative to many other fund complexes, that many of the individual
funds in the First Investors fund complex are small in asset size relative
to other funds in the industry, and that the average account size of many of
the First Investors funds is small by comparison to the industry averages.
The Board also considered management's representations that there are
significant costs involved in providing the level of personal service that
the First Investors fund complex attempts to deliver to its customers.
The Board noted that FIMCO has undertaken extensive responsibilities as
manager of the Funds, including: (1) the provision of investment advice to
the Funds; (2) implementing policies and procedures designed to ensure
compliance with each Fund's investment objectives and policies; (3) the
review of brokerage arrangements; (4) oversight of general portfolio
compliance with applicable laws; (5) the provision of certain administrative
services to the Funds, including fund accounting; and (6) the implementation
of Board directives as they relate to the Funds. The Trustees noted that
under the Advisory Agreements with FIMCO, FIMCO provides not only advisory
services but also certain administrative services, such as fund accounting
services, that many other advisers do not provide under their advisory
agreements. The Board also
noted the steps that FIMCO has taken to encourage strong performance,
including increasing the potential performance bonus for the portfolio
managers and analysts who service the Funds and replacing the portfolio
manager of the Investment Grade Fund in an effort to improve its
performance.
The Board also considered the nature, extent and quality of the services
provided to the Funds by FIMCO's affiliates, including transfer agency and
distribution services. The Board took into account the fact that ADM is
dedicated to providing transfer agency services exclusively to the Funds and
the other funds in the First Investors fund complex. As a result, ADM can
tailor its processes and services to satisfy the needs of the Funds'
shareholder base. The Board noted that the Funds' shares are distributed
primarily through First Investors Corporation ("FIC"), which is an affiliate
of FIMCO.
Based on the totality of the information considered, the Trustees concluded
that the Funds were likely to benefit from the nature, extent and quality of
FIMCO's services as well as the services of its affiliates, and that FIMCO
and its affiliates have the ability to continue to provide these services
based on their respective experience, operations and resources.
Investment Performance
The Board placed significant emphasis on the investment performance of each
of the Funds. While consideration was given to performance reports and
discussions held at prior Board meetings, particular attention was given to
the performance information compiled by Lipper as well as the supplemental
performance information relating to certain Funds provided by FIMCO for the
May Meeting. In particular, the Trustees reviewed the performance of the
Funds over the most recent calendar year ("1-year period") and annualized
performance over the most recent three calendar year period ("3-year
period") and five calendar year period ("5-year period"). In this regard,
the Board considered the performance of each Fund on a percentile and
quintile basis as compared to its Peer Group. For purposes of the
performance data provided by Lipper, the first quintile is defined as 20% of
the funds in the applicable Peer Group with the highest performance and the
fifth quintile is defined as 20% of the funds in the applicable Peer Group
with the lowest performance. In reviewing this data, the Board focused
primarily on the 1- to 3-year periods, with the greatest weight being on
whether a Fund's performance was in the top three quintiles versus the
Fund's Peer Group for the 3-year period.
On a Fund-by-Fund basis, the performance reports indicated, and the Board
noted, that the Government Fund and Cash Management Fund were in the third
quintile of their respective Peer Group for both the 1-year period and
3-year period. With regard
Board Considerations of Advisory Contracts and Fees (continued)
FIRST INVESTORS INCOME FUNDS
to the Investment Grade Fund, the performance report showed that the Fund
was in the fifth quintile of its Peer Group for the 1-year period and the
fourth quintile for the 3-year period. The Board considered that FIMCO
assigned a new portfolio manager to the Investment Grade Fund in April of
2006 and that FIMCO has confidence in the new portfolio manager's ability to
manage the Investment Grade Fund. The Board expressed its intention to
continue to closely monitor the Investment Grade Fund's performance in
concert with FIMCO.
With regard to Fund for Income, the performance report showed that the Fund
was in the fifth quintile of its Peer Group for the 1-year period and the
fourth quintile for the 3-year period. The Board considered FIMCO's
explanation that Fund for Income's performance versus its Peer Group in 2005
was primarily due to a bankruptcy of a large position held by the Fund, the
overweighting of two sectors that performed poorly in 2005 and an overly
bearish interest rate outlook. The Board also considered FIMCO's explanation
that the Fund's underperformance compared to its Peer Group for the 3-year
period was due to the performance results for the 1-year period and noted
that data provided by FIMCO showed that Fund for Income's performance placed
it in the third quintile for each of 2002, 2003 and 2004. Finally, the Board
considered FIMCO's explanation of the measures it is taking to enhance Fund
for Income's performance going forward, which includes measures to mitigate
credit risk. The Board expressed its intention to continue to closely
monitor Fund for Income's performance in concert with FIMCO.
Fund Expenses, Costs of Services, Economies of Scale and Related Benefits
Management Fees and Expenses. The Board also gave substantial consideration
to the fees payable under each Fund's Advisory Agreement. The Board reviewed
the information compiled by Lipper comparing each Fund's contractual
management fee rate (at common asset levels) and actual management fee rate
(which included the effect of any fee waivers) as a percentage of average
net assets -- these fee rates include advisory and administrative service
fees -- to other funds in its Peer Group. In this regard, the Board
considered the management fees of each Fund on a quintile basis as compared
to its Peer Group. For purposes of the management fee data provided by
Lipper, the first quintile is defined as 20% of the funds in the applicable
Peer Group with the lowest management fee and the fifth quintile is defined
as 20% of the funds in the applicable Peer Group with the highest management
fee. In reviewing this data, the Board generally focused on whether a Fund's
management fee (actual and contractual) was in the top three quintiles
versus the Fund's Peer Group.
Based on the data provided on management fee rates, on a Fund-by-Fund basis,
the Board noted that: (1) the contractual management fee rate for each Fund
was in the fifth quintile of its respective Peer Group, except for the Cash
Management Fund,
which was in the fourth quintile of its Peer Group; and (2) the actual
management fee rate (after taking into account any applicable fee waivers)
for the Government Fund and Cash Management Fund was in the first three
quintiles of its respective Peer Group, and for the Investment Grade Fund
and Fund for Income, in the fifth quintile of its respective Peer Group. The
Board expressed its intention to continue to evaluate, in conjunction with
FIMCO, the fee waivers for the applicable Funds. The Board also considered
that the fee schedule for Fund for Income was amended effective January 30,
2006 to incorporate additional "breakpoints" (i.e., reductions in the
management fee rate as assets increase), although the Fund is not currently
at an asset level to benefit from such additional breakpoints. With regard
to the Government Fund, the Board considered that the fee schedule for the
Fund was amended effective January 30, 2006 to reduce the contractual
management fee payable by the Fund. With regard to the Investment Grade
Fund, the Board considered that the fee schedule for the Fund was amended
effective January 30, 2006 to incorporate additional breakpoints and that
FIMCO proposed a further amendment to the Fund's fee schedule to reduce the
contractual management fees payable by the Fund effective May 1, 2006.
The Board also reviewed the information compiled by Lipper comparing each
Fund's total expense ratio to other funds in its Peer Group, including on a
quintile basis. For purposes of the expense ratio data provided by Lipper,
the first quintile is defined as 20% of the funds in the applicable Peer
Group with the lowest actual total expense ratio and the fifth quintile is
defined as 20% of the funds in the applicable Peer Group with the highest
actual total expense ratio. The Board noted that the total expense ratio
(Class A Shares) for the most recent calendar year, taking into account
FIMCO's expense waivers (as applicable), was in the fifth quintile of the
respective Peer Group for each Fund except the Cash Management Fund, which
was in the third quintile of its respective Peer Group. The Board took into
account management's explanation that, in the case of Investment Grade Fund
and Government Fund, the Funds' total operating expense ratios were impacted
by their relatively small average account size and/or the fact that a
significant percentage of shareholders hold their shares in retirement
accounts. Furthermore, the Board recognized management's ongoing efforts to
reduce Fund expenses and encouraged management to continue to seek
additional ways to reduce Fund expenses.
The foregoing comparisons assisted the Trustees by providing them with a
basis for evaluating each Fund's management fee and expense ratio on a
relative basis.
Profitability. The Board reviewed the materials it received from FIMCO
regarding its revenues and costs in providing investment management and
certain administrative services to the Funds. In particular, the Board
considered the detailed analysis of FIMCO's profitability with respect to
each Fund, calculated for the year ended
Board Considerations of Advisory Contracts and Fees (continued)
FIRST INVESTORS INCOME FUNDS
December 31, 2005, as well as profitability information relating to the past
five calendar years. The Board also considered FIMCO's expectation that
there are a number of significant regulatory changes on the horizon that may
impose additional responsibilities and costs on FIMCO and its affiliates in
the upcoming year. In reviewing the profitability information, the Trustees
also considered the "fall-out" or ancillary benefits that may accrue to
FIMCO and its affiliates as a result of their relationship with the Funds,
which are discussed below. The Trustees acknowledged that, as a business
matter, FIMCO was entitled to earn reasonable profits for its services to
the Funds. Based on the information provided, the Board also noted that
FIMCO operates the Cash Management Fund at a loss.
Economies of Scale. With respect to whether economies of scale are realized
by FIMCO as a Fund's assets increase and the extent to which any economies
of scale are reflected in the level of management fee rates charged, the
Board considered that the Advisory Agreement fee schedule for each Fund,
except the Cash Management Fund, includes breakpoints to account for
management economies of scale. The Board noted that Fund for Income has
reached an asset size at which the Fund and its shareholders are benefiting
from reduced management fee rates due to breakpoints in its fee schedule.
With regard to the Government Fund and Investment Grade Fund, the Board
recognized that, although these Funds have not reached a size at which they
can take advantage of the breakpoints contained in their fee schedule, each
schedule is structured so that when the assets of these Funds grow,
economies of scale may be shared for the benefit of shareholders. With
respect to the Cash Management Fund, the Board concluded that the fee
structure is appropriate at current asset levels and also noted that FIMCO
operates the Fund at a loss at current asset levels.
"Fall Out" or Ancillary Benefits. The Board considered the "fall-out" or
ancillary benefits that may accrue to FIMCO as a result of its relationship
with the Funds. In that regard, the Board considered ADM's fees and
profitability and the income received by FIC and FIMCO's affiliated bank as
a result of FIMCO's management of the First Investors funds. After review of
this information, the Board concluded that the benefits accruing to FIMCO
and its affiliates by virtue of their relationship to the Funds are fair and
reasonable.
After evaluation of the comparative performance, fee and expense information
and the profitability, ancillary benefits and other considerations as
described above, and in light of the nature, extent and quality of services
to be provided by FIMCO, the Board concluded that the level of fees paid to
FIMCO with respect to each Fund is reasonable.
* * *
In summary, based on the various considerations discussed above, the Board
determined that approval of the Advisory Agreement with respect to each Fund
was in the best interests of that Fund. As a result, the Board, including a
majority of the independent Trustees, approved each Advisory Agreement.
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 2 for a detailed explanation of the information
presented in these examples.
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Beginning Ending
Account Account Expenses Paid
Value Value During Period
(4/1/06) (9/30/06) (4/1/06-9/30/06)*
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Expense Example -- Class A Shares
Actual $1,000.00 $1,021.54 $4.05
Hypothetical
(5% annual return before expenses) $1,000.00 $1,021.06 $4.05
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Expense Example --
Class B Shares
Actual $1,000.00 $1,017.71 $7.84
Hypothetical
(5% annual return before expenses) $1,000.00 $1,017.30 $7.84
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* Expenses are equal to the annualized expense ratio of .80% for Class A
shares and 1.55% for Class B shares, multiplied by the average account
value over the period, multiplied by 183/365 (to reflect the one-half year
period). Expenses paid during the period are net of expenses waived.
Portfolio Composition
BY SECTOR
(BAR CHART DATA:)
Corporate Notes 55.4%
U.S. Government Agency Obligations 25.0%
Floating Rate Notes 12.6%
Certificates of Deposit 3.9%
Bankers' Acceptances 3.1%
Portfolio holdings and allocations are subject to change. Percentages are as
of September 30, 2006, and are based on the total value of investments.
Portfolio of Investments
CASH MANAGEMENT FUND
September 30, 2006
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Amount
Invested
For Each
Principal Interest $10,000 of
Amount Security Rate* Value Net Assets
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CORPORATE NOTES--55.6%
$5,000M AIG Funding, Inc., 11/6/06 5.23% $4,973,112 $245
1,773M Bank of America Corp., 10/15/06 5.06 1,772,693 87
7,000M Becton, Dickinson & Co., 10/13/06 5.21 6,986,786 344
5,200M ChevronTexaco Funding Corp., 10/6/06 5.20 5,195,469 256
1,105M Cleveland Electric Illuminating Co. &
Toledo Edison Co., 7/1/07
(Ambac Insured) 5.65 1,116,811 55
7,000M Coca-Cola Co., 10/20/06 + 5.20 6,979,690 344
5,000M Concentrate Manufacturing Co.
of Ireland, 10/10/06 + 5.19 4,992,790 246
6,000M Gannett Co., Inc., 10/27/06 + 5.20 5,976,573 295
5,000M General Electric Capital Corp., 11/16/06 5.23 4,965,815 245
5,500M Hershey Foods Corp., 10/13/06 + 5.20 5,489,629 271
1,600M Kimberly Clark Worldwide, 10/26/06 + 5.21 1,593,969 79
7,000M Madison Gas & Electric Co., 10/13/06 5.21 6,986,802 344
500M McDonald's Corp., 4/30/07 5.32 500,154 25
2,000M Merrill Lynch & Co., Inc., 10/23/06 5.21 1,993,307 98
4,000M Minnesota Mining &
Manufacturing Co., 12/20/06 5.19 3,953,283 195
6,000M National Rural Utilities Cooperative
Finance Corp., 10/26/06 5.25 5,977,233 295
5,000M New Jersey Natural Gas Co., 10/5/06 5.23 4,996,360 246
5,000M Northwest Natural Gas Co., 10/2/06 + 5.28 4,998,522 246
7,000M Paccar Financial Corp., 10/31/06 5.25 6,968,350 344
3,500M Pitney Bowes, Inc., 10/16/06 + 5.21 3,491,876 172
4,000M Prudential Funding Corp., 10/11/06 5.22 3,993,584 197
6,500M Stanley Works, 10/2/06 + 5.23 6,498,103 320
6,000M Toyota Motor Credit Corp., 10/10/06 5.24 5,991,239 295
6,500M Wal-Mart Stores, Inc., 10/3/06 + 5.21 6,497,159 320
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Total Value of Corporate Notes (cost $112,889,309) 112,889,309 5,564
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Portfolio of Investments (continued)
CASH MANAGEMENT FUND
September 30, 2006
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Amount
Invested
For Each
Principal Interest $10,000 of
Amount Security Rate* Value Net Assets
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U.S. GOVERNMENT AGENCY
OBLIGATIONS--25.1%
Fannie Mae:
$719M 12/26/06 4.77% $714,375 $35
678M 12/29/06 5.20 672,936 33
1,850M 2/12/07 5.00 1,840,009 91
859M 4/18/07 5.39 848,965 42
Federal Home Loan Bank:
4,358M 10/11/06 5.15 4,351,131 214
3,000M 10/13/06 5.15 2,994,409 148
2,100M 10/16/06 4.71 2,098,104 103
750M 11/3/06 5.16 749,132 37
1,000M 11/28/06 4.93 996,956 49
1,410M 1/29/07 5.45 1,410,000 69
400M 3/14/07 5.05 397,296 20
2,000M 3/28/07 5.23 1,998,006 98
1,000M 4/27/07 5.34 997,710 49
2,150M 4/30/07 5.23 2,122,319 105
705M 6/19/07 5.64 703,441 35
1,000M 7/30/07 5.47 988,189 49
3,200M 8/1/07 5.50 3,200,896 158
2,500M 10/2/07 5.50 2,500,000 123
2,900M 10/12/07 5.37 2,900,000 143
Freddie Mac:
2,500M 11/3/06 4.51 2,500,034 123
2,150M 11/9/06 4.67 2,149,587 106
2,250M 11/10/06 5.48 2,246,559 111
2,000M 11/22/06 5.12 1,994,431 98
1,000M 12/11/06 4.71 995,641 49
3,000M 12/29/06 4.75 3,000,000 148
1,000M 4/12/07 4.50 998,506 49
1,295M 4/13/07 5.15 1,295,000 64
1,950M 5/11/07 5.30 1,950,000 96
1,350M 6/22/07 5.41 1,350,000 66
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Total Value of U.S. Government Agency Obligations
(cost $50,963,632) 50,963,632 2,511
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Amount
Invested
For Each
Principal Interest $10,000 of
Amount Security Rate* Value Net Assets
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FLOATING RATE NOTES--12.6%
$3,900M Advanced Packaging Corp., 10/1/36
(LOC; Fifth Third Bank) 5.33% $3,900,000 $192
2,000M Federal Home Loan Bank, 12/22/06 4.00 1,996,701 99
6,250M International Business Machines Corp.,
6/28/07 5.36 6,252,570 308
Merrill Lynch & Co., Inc.:
1,480M 12/22/06 5.54 1,480,651 73
1,500M 5/29/07 5.37 1,500,000 74
5,750M US Bank, NA, 1/25/07 5.45 5,750,000 283
4,750M Wachovia Bank, NA, 12/4/06 5.34 4,750,000 234
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Total Value of Floating Rate Notes (cost $25,629,922) 25,629,922 1,263
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CERTIFICATES OF DEPOSIT--4.0%
3,000M Citibank, NA, 10/2/06 5.45 3,000,011 148
5,000M First Tennessee Bank, 10/25/06 5.43 5,000,000 247
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Total Value of Certificates of Deposit (cost $8,000,011) 8,000,011 395
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BANKERS' ACCEPTANCES--3.2%
4,430M Bank of America, NA, 10/16/06 5.19 4,419,333 218
2,000M Wachovia Bank, 1/24/07 5.30 1,965,520 97
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Total Value of Bankers' Acceptances (cost $6,384,853) 6,384,853 315
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Total Value of Investments (cost $203,867,727)++ 100.5% 203,867,727 10,048
Excess of Liabilities Over Other Assets (.5) (976,982) (48)
- --------------------------------------------------------------------------------------------------------
Net Assets 100.0% $202,890,745 $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
September 30, 2006.
+ Security exempt from registration under Section 4(2) of the Securities
Act of 1933 (see Note 4).
++ Aggregate cost for federal income tax purposes is the same.
See notes to financial statements
Portfolio Manager's Letter
GOVERNMENT FUND
Dear Investor:
This is the annual report for the First Investors Government Fund for the
fiscal year ended September 30, 2006. During the period, the Fund's return
on a net asset value basis was 3.0% for Class A shares and 2.3% for Class B
shares, including dividends of 48.8 cents per share on Class A shares and
40.0 cents per share on Class B shares.
The Fund invests primarily in Government National Mortgage Association
(GNMA) mortgage-backed bonds. The primary factors that drove the Fund's
performance were rising interest rates and the flattening of the yield
curve.
Short- and long-term interest rates rose during the reporting period,
continuing the prior year's trend. The yield of the two-year U.S. Treasury
note increased from 4.17% to 4.69%, and the yield of the ten-year U.S.
Treasury note rose from 4.33% to 4.63%. While rising interest rates
decreased the value of the Fund's securities, the Fund benefited on a
relative basis from an underweight position versus the Merrill Lynch GNMA
Index in 5% coupon mortgage-backed bonds, which are the most sensitive to
changes in interest rates.
The yield curve flattened as short-term interest rates rose more than
long-term rates. The flatter yield curve caused higher coupon
mortgage-backed bonds to underperform. Consequently, the Fund's overweight
in 7% and 71/2% coupon mortgage-backed bonds hurt performance.
Despite rising rates and the flatter yield curve, mortgage-backed bonds were
the best performing high grade taxable fixed income sector for the second
consecutive reporting year, outperforming the Treasury, agency and corporate
bond markets.
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
and Portfolio Manager
November 1, 2006
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 2 for a detailed explanation of the information
presented in these examples.
- -----------------------------------------------------------------------------------
Beginning Ending
Account Account Expenses Paid
Value Value During Period
(4/1/06) (9/30/06) (4/1/06-9/30/06)*
- -----------------------------------------------------------------------------------
Expense Example -- Class A Shares
Actual $1,000.00 $1,023.40 $5.58
Hypothetical
(5% annual return before expenses) $1,000.00 $1,019.55 $5.57
- -----------------------------------------------------------------------------------
Expense Example -- Class B Shares
Actual $1,000.00 $1,020.36 $9.37
Hypothetical
(5% annual return before expenses) $1,000.00 $1,015.79 $9.35
- -----------------------------------------------------------------------------------
* 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 183/365 (to reflect the one-half year
period). Expenses paid during the period are net of expenses waived.
Portfolio Composition
BY SECTOR
(BAR CHART DATA:)
Government National Mortgage Association 83.9%
Fannie Mae 11.1%
Portfolio holdings and allocations are subject to change. Percentages are as
of September 30, 2006, and are based on the total value of investments.
Cumulative Performance Information
GOVERNMENT FUND
Comparison of change in value of $10,000 investment in the First Investors
Government Fund (Class A shares) and the Merrill Lynch GNMA Master Index.
First Investors Government Fund
Graph Plot Points
for the periods Ended 9/30/06
Merrill Lynch
Government GNMA
Fund Index
Dec-96 9,425 10,000
Dec-97 10,220 10,954
Sep-98 10,837 11,631
Sep-99 10,891 11,922
Sep-00 11,586 12,847
Sep-01 12,801 14,399
Sep-02 13,590 15,496
Sep-03 14,008 16,085
Sep-04 14,430 16,732
Sep-05 14,755 17,314
Sep-06 15,201 18,013
(INSET BOX IN CHART READS:)
Average Annual Total Returns*
Class A Shares N.A.V. Only S.E.C. Standardized
One Year 3.02% (2.87%)
Five Years 3.50% 2.27%
Ten Years 5.18% 4.55%
S.E.C. 30-Day Yield 4.07%
Class B Shares
One Year 2.32% (1.68%)
Five Years 2.72% 2.36%
Ten Years 4.58% 4.58%
S.E.C. 30-Day Yield 3.58%
The graph compares a $10,000 investment in the First Investors Government
Fund (Class A shares) beginning 12/31/96 with a theoretical investment in
the Merrill Lynch GNMA Master Index (the "Index"). The Index is a market
capitalization-weighted index, including generic-coupon GNMA mortgages,
with at least $150 million principal amounts outstanding. Every issue
included in the Index is trader-priced, and the Index follows consistent
and realistic availability limits, including only those securities with
sufficient amounts outstanding. It is not possible to invest directly in
this Index. In addition, the Index does not take into account fees and
expenses that an investor would incur in purchasing securities in this
Index. For purposes of the graph and the accompanying table, unless
otherwise indicated, it has been assumed that the maximum sales charge was
deducted from the initial $10,000 investment in the Fund and all dividends
and distributions were reinvested. Class B shares performance may be
greater than or less than that shown in the line graph above for Class A
shares based on differences in sales loads and fees paid by shareholders
investing in the different classes.
* Average Annual Total Return figures (for the periods ended 9/30/06)
include the reinvestment of all dividends and distributions. "N.A.V. Only"
returns are calculated without sales charges. The Class A "S.E.C.
Standardized" returns shown are based on the maximum sales charge of 5.75%
(prior to 6/17/02, the maximum sales charge was 6.25%). The Class B
"S.E.C. Standardized" returns are adjusted for the applicable deferred
sales charge (maximum of 4% in the first year). During the periods shown,
some of the expenses of the Fund were waived or assumed. If such expenses
had been paid by the Fund, the Class A "S.E.C. Standardized" Average
Annual Total Return for One Year, Five Years and Ten Years would have been
(3.11%), 1.85% and 4.13%, respectively, and the S.E.C. 30-Day Yield for
September 2006 would have been 4.05%. The Class B "S.E.C. Standardized"
Average Annual Total Return for One Year, Five Years and Ten Years would
have been (1.93%), 1.92% and 4.15%, respectively, and the S.E.C. 30-Day
Yield for September 2006 would have been 3.55%. Results represent past
performance and do not indicate future results. The graph and the returns
shown do not reflect the deduction of taxes that a shareholder would pay
on distributions or the redemption of fund shares. Investment return and
principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than the original cost.
Merrill Lynch GNMA Master Index figures are from Merrill Lynch & Co. and
all other figures are from First Investors Management Company, Inc.
Portfolio of Investments
GOVERNMENT FUND
September 30, 2006
- --------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- --------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED CERTIFICATES--96.3%
Fannie Mae--11.2%
$22,710M 5.5%, 4/1/2033 - 9/1/2035 $22,422,771 $1,123
- --------------------------------------------------------------------------------------------------------
Government National Mortgage
Association I Program--85.1%
19,272M 5%, 6/15/2033 - 3/15/2036 18,746,085 938
54,303M 5.5%, 3/15/2033 - 4/15/2036 53,996,104 2,704
59,300M 6%, 3/15/2031 - 6/15/2036 60,112,281 3,010
25,308M 6.5%, 10/15/2028 - 8/15/2036 26,079,957 1,306
7,171M 7%, 4/15/2032 - 8/15/2035 7,423,187 372
3,458M 7.5%, 7/15/2023 - 6/15/2034 3,599,363 180
- --------------------------------------------------------------------------------------------------------
169,956,977 8,510
- --------------------------------------------------------------------------------------------------------
Total Value of Mortgage-Backed Certificates
(cost $195,052,597) 192,379,748 9,633
- --------------------------------------------------------------------------------------------------------
SHORT-TERM U.S. GOVERNMENT
OBLIGATIONS--5.2%
U.S. Treasury Bills:
4,000M 4.2%, 10/12/06 3,994,399 200
5,200M 4.61%, 10/12/06 5,192,000 260
1,100M 4.615%, 10/19/06 1,097,319 55
- --------------------------------------------------------------------------------------------------------
Total Value of Short-Term U.S. Government Obligations
(cost $10,283,718) 10,283,718 515
- --------------------------------------------------------------------------------------------------------
Total Value of Investments (cost $205,336,315) 101.5% 202,663,466 10,148
Excess of Liabilities Over Other Assets (1.5) (2,964,174) (148)
- --------------------------------------------------------------------------------------------------------
Net Assets 100.0% $199,699,292 $10,000
========================================================================================================
See notes to financial statements
Portfolio Manager's Letter
INVESTMENT GRADE FUND
Dear Investor:
This is the annual report for the First Investors Investment Grade Fund for
the fiscal year ended September 30, 2006. During the period, the Fund's
return on a net asset value basis was 2.7% for Class A shares and 1.9% for
Class B shares, including dividends of 48.9 cents per share on Class A
shares and 41.7 cents per share on Class B shares.
The most important drivers of the Fund's performance during the reporting
period were an increase in Treasury yields as well as a widening of credit
spreads between corporate and government bonds.
Despite a 150 basis point increase in the federal funds rate, the Treasury
market witnessed a more moderate increase in rates as the yield of the
two-year note rose only 48 basis points to 4.68% and the 30-year note rose
only 19 basis points to 4.76%. This apparently orderly increase in yields
masks the volatility in rates that occurred from the beginning of the
reporting period through June, when the two-year yield climbed as high as
5.27%.
Despite concerns about the absolute levels of spreads to Treasuries and
increased issuance of debt, corporate spreads traded in a narrow band during
the past year. As measured by the benchmark, the Merrill Lynch Corporate
Bond Index, spreads ranged from a low of 87 in February of 2006 to a high of
100 in late December of 2005. They started the reporting period at 89 and
ended at 98.
The Fund anticipated that longer-term interest rates would rise in response
to the Federal Reserve's continued tightening of short-term rates and lead
to market depreciation of longer-term securities. As a result, the Fund held
a greater percentage of cash and fewer long duration bonds than the
benchmark. While this strategy helped early in the reporting period, it hurt
during the strong rally in the third quarter in long-dated securities.
Since becoming the Fund's portfolio manager in April, I've made some changes
that have benefited the Fund. Specifically, the Fund's exposure to both
mortgage-backed and high yield bonds was increased in lieu of holding cash.
Additionally, the Fund now has a greater percentage of bonds with longer
maturities than it did in the spring. As noted above, long duration assets
outperformed shorter dated assets during the past six months.
Thank you for placing your trust in First Investors. As always, we
appreciate the opportunity to serve your investment needs.
Sincerely,
/S/ MARTIN F. FETHERSTON, CFA
Martin F. Fetherston, CFA
Portfolio Manager*
November 1, 2006
* Mr. Fetherston became the Fund's Portfolio Manager on April 3, 2006.
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 2 for a detailed explanation of the information
presented in these examples.
- -------------------------------------------------------------------------------------------------
Beginning Ending
Account Account Expenses Paid
Value Value During Period
(4/1/06) (9/30/06) (4/1/06-9/30/06)*
- -------------------------------------------------------------------------------------------------
Expense Example --
Class A Shares
Actual $1,000.00 $1,034.54 $5.61
Hypothetical
(5% annual return before expenses) $1,000.00 $1,019.55 $5.57
- -------------------------------------------------------------------------------------------------
Expense Example --
Class B Shares
Actual $1,000.00 $1,030.63 $9.42
Hypothetical
(5% annual return before expenses) $1,000.00 $1,015.79 $9.35
- -------------------------------------------------------------------------------------------------
* 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 183/365 (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 21.4%
U.S. Government Agency Obligations 10.5%
U.S. Government Obligations 10.5%
Industrials 9.4%
Mortgage-Backed Securities 9.3%
Consumer Discretionary 8.2%
Utilities 7.7%
Consumer Staples 5.9%
Materials 5.1%
Health Care 3.8%
Portfolio holdings and allocations are subject to change. Percentages are as
of September 30, 2006, and are based on the total value of investments.
Cumulative Performance Information
INVESTMENT GRADE FUND
Comparison of change in value of $10,000 investment in the First Investors
Investment Grade Fund (Class A shares) and the Merrill Lynch U.S. Corporate
Master Index.
First Investors Investment Grade Fund
Graph Plot Points
for the periods Ended 9/30/06
Investment Merrill Lynch
Grade U.S. Corporate
Fund Master Index
Dec-96 9,425 10,000
Dec-97 10,282 11,039
Sep-98 11,134 11,887
Sep-99 10,888 11,764
Sep-00 11,436 12,431
Sep-01 12,686 14,116
Sep-02 13,509 15,186
Sep-03 14,717 16,862
Sep-04 15,242 17,646
Sep-05 15,502 18,155
Sep-06 15,918 18,784
(INSET BOX IN CHART READS:)
Average Annual Total Returns*
Class A Shares N.A.V. Only S.E.C. Standardized
One Year 2.69% (3.26%)
Five Years 4.64% 3.40%
Ten Years 5.67% 5.04%
S.E.C. 30-Day Yield 4.28%
Class B Shares
One Year 1.92% (2.08%)
Five Years 3.85% 3.50%
Ten Years 5.10% 5.10%
S.E.C. 30-Day Yield 3.79%
The graph compares a $10,000 investment in the First Investors Investment
Grade Fund (Class A shares) beginning 12/31/96 with a theoretical
investment in the Merrill Lynch U.S. Corporate Master Index (the "Index").
The Index includes publicly issued, fixed-rate, nonconvertible investment
grade dollar-denominated, S.E.C.-registered corporate debt. All issues
have at least one year to maturity and an outstanding par value of at
least $250 million. It is not possible to invest directly in this Index.
In addition, the Index does not take into account fees and expenses that
an investor would incur in purchasing securities in this Index. For
purposes of the graph and the accompanying table, unless otherwise
indicated, it has been assumed that the maximum sales charge was deducted
from the initial $10,000 investment in the Fund and all dividends and
distributions were reinvested. Class B shares performance may be greater
than or less than that shown in the line graph above for Class A shares
based on differences in sales loads and fees paid by shareholders
investing in the different classes.
* Average Annual Total Return figures (for the periods ended 9/30/06)
include the reinvestment of all dividends and distributions. "N.A.V. Only"
returns are calculated without sales charges. The Class A "S.E.C.
Standardized" returns shown are based on the maximum sales charge of 5.75%
(prior to 6/17/02, the maximum sales charge was 6.25%). The Class B
"S.E.C. Standardized" returns are adjusted for the applicable deferred
sales charge (maximum of 4% in the first year). During the periods shown,
some of the expenses of the Fund were waived or assumed. If such expenses
had been paid by the Fund, the Class A "S.E.C. Standardized" Average
Annual Total Return for One Year, Five Years and Ten Years would have been
(3.42%), 3.20% and 4.79%, respectively, and the S.E.C. 30-Day Yield for
September 2006 would have been 4.19%. The Class B "S.E.C. Standardized"
Average Annual Total Return for One Year, Five Years and Ten Years would
have been (2.25%), 3.28% and 4.84%, respectively, and the S.E.C. 30-Day
Yield for September 2006 would have been 3.70%. Results represent past
performance and do not indicate future results. The graph and the returns
shown do not reflect the deduction of taxes that a shareholder would pay
on distributions or the redemption of fund shares. Investment return and
principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than the original cost.
Merrill Lynch U.S. Corporate Master Index figures are from Merrill Lynch &
Co. and all other figures are from First Investors Management Company,
Inc.
Portfolio of Investments
INVESTMENT GRADE FUND
September 30, 2006
- ---------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ---------------------------------------------------------------------------------------------------------
CORPORATE BONDS--65.2%
Aerospace/Defense--2.1%
$1,700M Boeing Co., 7.25%, 2025 $2,025,655 $79
Honeywell International, Inc.:
1,050M 7.5%, 2010 1,126,890 44
975M 6.125%, 2011 1,015,470 40
400M Precision Castparts Corp., 5.6%, 2013 398,344 16
717M TRW, Inc., 7.125%, 2009 745,533 29
- ---------------------------------------------------------------------------------------------------------
5,311,892 208
- ---------------------------------------------------------------------------------------------------------
Automotive--.7%
1,700M Daimler Chrysler NA Holdings Corp., 5.75%, 2009 1,708,029 67
- ---------------------------------------------------------------------------------------------------------
Chemicals--1.3%
1,700M Air Products & Chemicals, Inc., 4.125%, 2010 1,633,882 64
1,700M Cabot Corp., 5.25%, 2013 + 1,660,393 65
- ---------------------------------------------------------------------------------------------------------
3,294,275 129
- ---------------------------------------------------------------------------------------------------------
Consumer Durables--.6%
1,650M Black & Decker Corp., 4.75%, 2014 1,546,050 61
- ---------------------------------------------------------------------------------------------------------
Consumer Non-Durables--2.2%
2,250M Avon Products, Inc., 4.2%, 2018 1,979,912 78
710M Colgate-Palmolive Co., 5.98%, 2012 739,710 29
1,600M Newell Rubbermaid, Inc., 6.75%, 2012 1,694,070 66
1,350M Procter & Gamble Co., 4.85%, 2015 1,312,139 52
- ---------------------------------------------------------------------------------------------------------
5,725,831 225
- ---------------------------------------------------------------------------------------------------------
Energy--2.3%
2,000M Nexen, Inc., 5.05%, 2013 1,940,740 76
1,700M ONEOK, Inc., 5.51%, 2008 1,701,205 67
2,220M Phillips Petroleum Co., 7.125%, 2028 2,303,401 90
- ---------------------------------------------------------------------------------------------------------
5,945,346 233
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ---------------------------------------------------------------------------------------------------------
Financial--7.1%
$875M American General Finance Corp., 8.125%, 2009 $941,673 $37
900M Caterpillar Financial Services Corp., 4.6%, 2014 861,190 34
2,100M CIT Group, Inc., 7.75%, 2012 2,327,760 91
ERAC USA Finance Enterprise Co.:
1,775M 7.35%, 2008 + 1,831,477 72
1,170M 8%, 2011 + 1,281,632 50
1,363M Ford Motor Credit Co., 9.75%, 2010 + 1,408,403 55
General Electric Capital Corp.:
700M 8.5%, 2008 738,139 29
1,000M 5.45%, 2013 1,013,548 40
2,125M General Motors Acceptance Corp., 7.75%, 2010 2,178,935 86
2,000M Goldman Sachs Group, Inc., 6.45%, 2036 2,047,780 80
1,825M Household Finance Corp., 6.5%, 2008 1,871,727 73
1,700M Lehman Brothers Holdings, Inc., 5.75%, 2011 1,720,947 67
- ---------------------------------------------------------------------------------------------------------
18,223,211 714
- ---------------------------------------------------------------------------------------------------------
Financial Services--10.9%
1,700M Bank of America Corp., 7.4%, 2011 1,841,561 72
2,000M Citigroup, Inc., 6%, 2033 2,030,846 80
1,750M Comerica Bank, 7.125%, 2013 1,787,079 70
1,200M First Union National Bank, 7.8%, 2010 1,305,241 51
1,000M Fleet Capital Trust II, 7.92%, 2026 1,043,043 41
1,500M Florida Windstorm Underwriting Assoc.,
7.125%, 2019 + 1,695,212 67
625M Greenpoint Bank, 9.25%, 2010 711,671 28
1,700M Hibernia Corp., 5.35%, 2014 1,659,316 65
1,880M Independence Community Bank Corp.,
4.9%, 2010 1,841,928 72
1,700M JPMorgan Chase & Co., 5.6%, 2011 1,730,342 68
2,125M MetLife, Inc., 5.7%, 2035 2,072,043 81
1,200M National City Bank of Pennsylvania,
7.25%, 2011 1,310,202 51
1,505M Nationsbank Corp., 7.8%, 2016 1,755,838 69
1,298M Republic NY Corp., 7.75%, 2009 1,382,783 54
2,000M Royal Bank of Scotland Group PLC, 5%, 2014 1,951,746 77
900M U.S. Bank NA, 6.3%, 2014 954,997 37
2,565M Washington Mutual, Inc., 5.95%, 2013 2,621,879 103
- ---------------------------------------------------------------------------------------------------------
27,695,727 1,086
- ---------------------------------------------------------------------------------------------------------
Portfolio of Investments (continued)
INVESTMENT GRADE FUND
September 30, 2006
- ---------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ---------------------------------------------------------------------------------------------------------
Food/Beverage/Tobacco--3.0%
$1,700M Altria Group, Inc., 7%, 2013 $1,856,159 $73
910M Bottling Group, LLC, 5%, 2013 894,597 35
1,980M Bunge Limited Finance Corp., 5.875%, 2013 1,972,892 78
1,745M Conagra Foods, Inc., 6.75%, 2011 1,844,081 72
1,000M Pepsi Bottling Group, Inc., 7%, 2029 1,154,203 45
- ---------------------------------------------------------------------------------------------------------
7,721,932 303
- ---------------------------------------------------------------------------------------------------------
Food/Drug--1.3%
1,550M Delhaize America, Inc., 8.125%, 2011 1,671,346 66
Safeway, Inc.:
510M 7%, 2007 517,957 20
450M 9.3%, 2007 454,219 18
700M 6.5%, 2011 723,229 28
- ---------------------------------------------------------------------------------------------------------
3,366,751 132
- ---------------------------------------------------------------------------------------------------------
Forest Products/Containers--2.1%
International Paper Co.:
1,690M 6.75%, 2011 1,796,460 71
1,800M 5.85%, 2012 1,841,602 72
1,725M Sappi Papier Holding AG, 6.75%, 2012 + 1,657,333 65
- ---------------------------------------------------------------------------------------------------------
5,295,395 208
- ---------------------------------------------------------------------------------------------------------
Gaming/Leisure--1.8%
1,225M Hilton Hotels Corp., 7.2%, 2009 1,272,469 50
750M MGM Mirage, Inc., 8.5%, 2010 801,563 32
750M Park Place Entertainment Corp., 9.375%, 2007 759,375 30
1,700M Starwood Hotels & Resorts, 7.375%, 2007 1,719,125 67
- ---------------------------------------------------------------------------------------------------------
4,552,532 179
- ---------------------------------------------------------------------------------------------------------
Health Care--3.9%
1,700M Abbott Laboratories, 5.875%, 2016 1,764,342 69
564M Baxter International, Inc., 5.9%, 2016 580,326 23
1,880M Becton, Dickinson & Co., 7.15%, 2009 1,985,917 78
2,500M Fisher Scientific International, Inc., 6.75%, 2014 2,556,250 100
1,130M Tenet Healthcare Corp., 6.375%, 2011 998,638 39
1,830M Wyeth, 6.7%, 2011 1,947,797 77
- ---------------------------------------------------------------------------------------------------------
9,833,270 386
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ---------------------------------------------------------------------------------------------------------
Manufacturing--2.8%
$1,112M Hanson Australia Funding, Ltd., 5.25%, 2013 $1,073,776 $42
646M Hanson PLC, 7.875%, 2010 696,232 27
Ingersoll-Rand Co.:
1,600M 4.75%, 2015 1,531,680 60
875M 9%, 2021 1,145,563 45
United Technologies Corp.:
900M 6.5%, 2009 928,427 37
1,600M 7.125%, 2010 1,715,384 67
- ---------------------------------------------------------------------------------------------------------
7,091,062 278
- ---------------------------------------------------------------------------------------------------------
Media-Broadcasting--2.1%
Comcast Cable Communications, Inc.:
705M 8.375%, 2007 717,054 28
2,000M 7.125%, 2013 2,159,136 85
2,000M Cox Communications, Inc., 4.625%, 2013 1,861,614 73
700M PanAmSat Corp., 6.375%, 2008 701,750 28
- ---------------------------------------------------------------------------------------------------------
5,439,554 214
- ---------------------------------------------------------------------------------------------------------
Media-Diversified--1.9%
575M AOL Time Warner, Inc., 6.875%, 2012 608,702 24
500M News America, Inc., 5.3%, 2014 491,041 19
1,000M Time Warner, Inc., 9.125%, 2013 1,166,608 46
Viacom, Inc.:
500M 8.625%, 2012 563,860 22
360M 8.875%, 2014 416,281 16
1,700M Walt Disney Co., 5.7%, 2011 1,733,631 68
- ---------------------------------------------------------------------------------------------------------
4,980,123 195
- ---------------------------------------------------------------------------------------------------------
Metals/Mining--1.1%
1,300M Alcoa, Inc., 6%, 2012 1,340,163 52
1,350M Thiokol Corp., 6.625%, 2008 1,371,429 54
- ---------------------------------------------------------------------------------------------------------
2,711,592 106
- ---------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts--3.4%
1,654M Archstone-Smith Trust, 7.9%, 2016 1,842,002 72
AvalonBay Communities, Inc.:
1,900M 7.5%, 2010 2,054,947 81
200M 6.625%, 2011 210,823 8
- ---------------------------------------------------------------------------------------------------------
Portfolio of Investments (continued)
INVESTMENT GRADE FUND
September 30, 2006
- ---------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ---------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts (continued)
$1,350M Duke Weeks Realty Corp., 7.75%, 2009 $1,439,396 $56
1,005M EOP Operating LP, 8.1%, 2010 1,092,208 43
1,900M Mack-Cali Realty LP, 7.75%, 2011 2,057,067 81
- ---------------------------------------------------------------------------------------------------------
8,696,443 341
- ---------------------------------------------------------------------------------------------------------
Retail-General Merchandise--.4%
900M Lowe's Cos., Inc., 8.25%, 2010 992,652 39
- ---------------------------------------------------------------------------------------------------------
Telecommunications--2.5%
1,200M Deutsche Telekom AG, 8%, 2010 1,310,124 51
GTE Corp.:
1,359M 6.84%, 2018 1,440,442 57
500M 7.9%, 2027 521,448 20
1,325M Sprint Capital Corp., 6.375%, 2009 1,357,773 53
800M Verizon New York, Inc., 6.875%, 2012 835,219 33
750M Vodafone AirTouch PLC, 7.75%, 2010 804,816 32
- ---------------------------------------------------------------------------------------------------------
6,269,822 246
- ---------------------------------------------------------------------------------------------------------
Transportation--3.2%
1,700M Burlington Northern Santa Fe Corp., 4.3%, 2013 1,601,094 63
Canadian National Railway Co.:
850M 7.375%, 2031 1,038,446 40
1,700M 6.25%, 2034 1,831,774 72
565M FedEx Corp., 5.5%, 2009 569,002 22
800M Norfolk Southern Corp., 7.7%, 2017 936,410 37
1,700M Union Pacific Corp., 7.375%, 2009 1,791,504 70
300M Union Pacific Railroad, 7.28%, 2011 325,342 13
- ---------------------------------------------------------------------------------------------------------
8,093,572 317
- ---------------------------------------------------------------------------------------------------------
Utilities--7.7%
1,350M Carolina Power & Light, Inc., 5.15%, 2015 1,322,035 52
Consumers Energy Co.:
735M 6.375%, 2008 743,563 29
1,800M 6.875%, 2018 1,971,065 77
1,450M Dominion Resources, Inc., 5%, 2013 1,400,522 55
720M DPL, Inc., 6.875%, 2011 761,561 30
795M El Paso Energy Corp., 7.375%, 2012 811,894 32
1,550M Florida Power & Light Co., 5.85%, 2033 1,583,275 62
1,700M Georgia Power Co., 5.8%, 2035 1,655,819 65
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ---------------------------------------------------------------------------------------------------------
Utilities (continued)
$1,325M Jersey Central Power & Light Co., 5.625%, 2016 $1,321,735 $52
850M Kinder Morgan Finance Co., 5.35%, 2011 827,461 32
NiSource Finance Corp.:
900M 7.875%, 2010 971,702 38
600M 5.4%, 2014 581,559 23
1,400M OGE Energy Corp., 5%, 2014 1,345,914 53
1,350M PP&L Capital Funding, Inc., 8.375%, 2007 1,376,572 54
775M PSI Energy, Inc., 8.85%, 2022 1,008,481 39
1,510M Public Service Electric & Gas Co., 6.75%, 2016 1,651,108 65
400M South Carolina Electric & Gas Co., 6.7%, 2011 424,141 17
- ---------------------------------------------------------------------------------------------------------
19,758,407 775
- ---------------------------------------------------------------------------------------------------------
Waste Management--.8%
500M Allied Waste NA, Inc., 5.75%, 2011 481,875 19
1,400M Waste Management, Inc., 6.875%, 2009 1,455,397 57
- ---------------------------------------------------------------------------------------------------------
1,937,272 76
- ---------------------------------------------------------------------------------------------------------
Total Value of Corporate Bonds (cost $165,056,449) 166,190,740 6,518
- ---------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--10.5%
1,166M FDA Queens LP, 6.99%, 2017 + 1,268,370 50
10,090M U.S. Treasury Bonds, 4.5%, 2036 9,671,426 379
U.S. Treasury Notes:
5,000M 4.875%, 2009 5,030,470 197
4,170M 4.875%, 2011 4,217,730 166
6,300M 5.125%, 2016 6,537,239 256
- ---------------------------------------------------------------------------------------------------------
Total Value of U.S. Government Obligations (cost $26,168,562) 26,725,235 1,048
- ---------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
OBLIGATIONS--10.5%
Fannie Mae:
2,600M 5.25%, 2008 2,600,042 102
2,600M 5.4%, 2009 2,600,619 102
1,287M 5%, 2016 1,248,999 49
2,600M 6%, 2016 2,609,646 102
3,700M 5%, 2017 3,589,729 141
- ---------------------------------------------------------------------------------------------------------
Portfolio of Investments (continued)
INVESTMENT GRADE FUND
September 30, 2006
- ---------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ---------------------------------------------------------------------------------------------------------
$2,000M Federal Farm Credit Bank, 6%, 2015 $1,998,378 $78
Federal Home Loan Bank:
1,330M 4%, 2008 1,302,868 51
1,900M 4.91%, 2012 1,857,263 73
1,000M 7.23%, 2015 1,077,096 42
3,400M 5.5%, 2036 3,588,023 141
Freddie Mac:
760M 5.5%, 2015 757,848 30
2,300M 5.2%, 2019 2,241,092 88
1,250M 6.5%, 2020 1,251,300 49
- ---------------------------------------------------------------------------------------------------------
Total Value of U.S. Government Agency Obligations
(cost $26,550,183) 26,722,903 1,048
- ---------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED CERTIFICATES--9.3%
Fannie Mae--5.8%
5,666M 6%, 1/1/2036 5,704,012 224
4,824M 6.5%, 5/1/2036 4,914,439 193
4,072M 6.5%, 6/1/2036 4,148,427 162
- ---------------------------------------------------------------------------------------------------------
14,766,878 579
- ---------------------------------------------------------------------------------------------------------
Freddie Mac--3.5%
3,604M 5.5%, 6/1/2036 3,555,680 139
1,185M 5.5%, 9/1/2036 1,169,298 46
4,199M 6%, 2/1/2036 4,221,880 166
- ---------------------------------------------------------------------------------------------------------
8,946,858 351
- ---------------------------------------------------------------------------------------------------------
Total Value of Mortgage-Backed Certificates (cost $23,622,858) 23,713,736 930
- ---------------------------------------------------------------------------------------------------------
PASS THROUGH CERTIFICATES--1.3%
Transportation
578M American Airlines, Inc., 7.377%, 2019 532,630 21
1,276M Continental Airlines, Inc., 8.388%, 2020 1,244,714 49
1,322M FedEx Corp., 7.5%, 2018 1,471,146 58
- ---------------------------------------------------------------------------------------------------------
Total Value of Pass Through Certificates (cost $3,346,013) 3,248,490 128
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ---------------------------------------------------------------------------------------------------------
SHORT-TERM U.S. GOVERNMENT
OBLIGATIONS--1.9%
$5,000M Federal Home Loan Bank,
5.15%, 10/13/06 (cost $4,990,681) $4,990,681 $195
- ---------------------------------------------------------------------------------------------------------
SHORT-TERM CORPORATE NOTES--1.5%
4,000M New Jersey Natural Gas Co., 5.22%,
10/4/06 (cost $3,997,677) 3,997,677 156
- ---------------------------------------------------------------------------------------------------------
Total Value of Investments (cost $253,732,423) 100.2% 255,589,462 10,023
Excess of Liabilities Over Other Assets (.2) (581,277) (23)
- ---------------------------------------------------------------------------------------------------------
Net Assets 100.00% $255,008,185 $10,000
=========================================================================================================
+ Security exempt from registation under Rule 144A of the Securities Act of 1933 (see Note 4).
See notes to financial statements
Portfolio Managers' Letter
FUND FOR INCOME
Dear Investor:
This is the annual report for the First Investors Fund For Income for the
fiscal year ended September 30, 2006. During the period, the Fund's return
on a net asset value basis was 5.4% for Class A shares and 4.6% for Class B
shares, including dividends of 21.8 cents per share on Class A shares and
19.6 cents per share on Class B shares.
The most important factors driving the Fund's performance during the
reporting period were the overall performance of the high yield market and
the Fund's individual security selections.
The high yield market had relatively good returns during the reporting
period compared to other fixed income sectors. After starting on a weak
note, the market recovered in November and into calendar year 2006 following
the release of economic statistics indicating that the U.S. economy
continued to remain on track. As the year progressed, economic and credit
trends generally remained favorable, but the markets were focused on the
actions of the Federal Reserve ("the Fed"). Investors were divided on
whether the Fed needed to keep raising rates to fight inflation or if it had
gone far enough and risked pushing the economy into recession. In June, the
Fed paused for the first time in over two years and the high yield market
responded with approval.
The Fund's underperformance relative to the Credit Suisse High Yield Index
II was attributable primarily to security selection. The most significant
negative contributor was the investment in Dana Corporation, which filed for
bankruptcy. Dana, an auto parts supplier, faced a liquidity crisis as
lenders looked to reduce exposure to the automotive sector. Acute care
hospital operator HCA declined after announcing it would undergo a leveraged
buyout, which will increase the company's level of debt. Holdings in
diagnostic imaging provider Insight Health declined on concerns about future
profitability following the passage of the Deficit Reduction Act of 2005,
which reduced Medicare reimbursement for MRIs. Integrated Electrical
Services declined in the face of liquidity problems brought on by increased
bonding requirements. Adelphia Communications traded off as the bankruptcy
process has taken longer and been more contentious than anticipated.
Aiding the Fund's relative performance were investments in cable television
providers Charter Communications and Cablevision Systems Corporation, the
supermarket chain Ingles Markets, and the continued overweight of the
chemical sector in anticipation of continued strong cyclical results. Cable
television providers Charter Communications and Cablevision reported
improved operating results. Additionally, Charter benefited from a debt
exchange. An investment in both the debt and equity of Ingles Markets
paid off as the supermarket chain reported strong results throughout the
year. Chemical suppliers Texas Petrochemicals and Huntsman Corporation
posted strong results as the chemical cycle moved toward a peak.
Thank you for placing your trust in First Investors. As always, we
appreciate the opportunity to serve your investment needs.
Sincerely,
/S/ RICHARD T. BOURKE
Richard T. Bourke
Co-Portfolio Manager
/S/ GREG MILLER
Greg Miller
Co-Portfolio Manager
November 1, 2006
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 2 for a detailed explanation of the information
presented in these examples.
- -------------------------------------------------------------------------------------------------
Beginning Ending
Account Account Expenses Paid
Value Value During Period
(4/1/06) (9/30/06) (4/1/06-9/30/06)*
- -------------------------------------------------------------------------------------------------
Expense Example --
Class A Shares
Actual $1,000.00 $1,039.07 $6.59
Hypothetical
(5% annual return before expenses) $1,000.00 $1,018.60 $6.53
- -------------------------------------------------------------------------------------------------
Expense Example --
Class B Shares
Actual $1,000.00 $1,032.12 $10.14
Hypothetical
(5% annual return before expenses) $1,000.00 $1,015.09 $10.05
- -------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio of 1.29% for Class A
shares and 1.99% for Class B shares, multiplied by the average account
value over the period, multiplied by 183/365 (to reflect the one-half year
period).
Portfolio Composition
TOP TEN SECTORS
(BAR CHART DATA:)
Consumer Discretionary 23.9%
Consumer Staples 22.5%
Materials 14.4%
Energy 13.4%
Industrials 8.9%
Health Care 8.2%
Financials 2.9%
Telecommunications 2.7%
Information Technology 0.8%
Utilities 0.1%
Portfolio holdings and allocations are subject to change. Percentages are as
of September 30, 2006, and are based on the total value of investments.
Cumulative Performance Information
FUND FOR INCOME
Comparison of change in value of $10,000 investment in the First Investors
Fund For Income (Class A shares) and the Credit Suisse High Yield Index II.
First Investors Fund For Income
Graph Plot Points
for the periods Ended 9/30/05
Income CSFB
Fund Index
Dec-96 9,425 10,000
Dec-97 10,618 11,263
Sep-98 10,670 11,026
Sep-99 11,004 11,462
Sep-00 11,275 11,682
Sep-01 10,125 11,106
Sep-02 9,971 11,423
Sep-03 12,542 14,627
Sep-04 14,053 16,575
Sep-05 14,586 17,621
Sep-06 15,374 18,988
(INSET BOX IN CHART READS:)
Average Annual Total Returns*
Class A Shares N.A.V. Only S.E.C. Standardized
One Year 5.40% (.74%)
Five Years 8.71% 7.42%
Ten Years 5.38% 4.75%
S.E.C. 30-Day Yield 6.88%
Class B Shares
One Year 4.64% .64%
Five Years 7.89% 7.59%
Ten Years 4.81% 4.81%
S.E.C. 30-Day Yield 6.61%
The graph compares a $10,000 investment in the First Investors Fund For
Income (Class A shares) beginning 12/31/96 with a theoretical investment
in the Credit Suisse High Yield Index II (the "Index"). The Index is
designed to measure the performance of the high yield bond market. As of
9/30/06, the Index consisted of 1,354 different issues, most of which were
cash pay, also included in the Index were zero-coupon bonds, step bonds,
payment-in-kind bonds and bonds which were in default. As of 9/30/06,
approximately 2.81% of the market value of the Index was in default. The
bonds included in the Index have an average maturity of 7.21 years, an
average duration of 4.38 years and an average coupon of 8.41%. It is not
possible to invest directly in this Index. In addition, the Index does not
take into account fees and expenses that an investor would incur in
purchasing securities in the Index. For purposes of the graph and the
accompanying table, unless otherwise indicated, it has been assumed that
the maximum sales charge was deducted from the initial $10,000 investment
in the Fund and all dividends and distributions were reinvested. Class B
shares performance may be greater than or less than that shown in the line
graph above for Class A shares based on differences in sales loads and
fees paid by shareholders investing in the different classes.
* Average Annual Total Return figures (for the periods ended 9/30/06)
include the reinvestment of all dividends and distributions. "N.A.V. Only"
returns are calculated without sales charges. The Class A "S.E.C.
Standardized" returns shown are based on the maximum sales charge of 5.75%
(prior to 6/17/02, the maximum sales charge was 6.25%). The Class B
"S.E.C. Standardized" returns are adjusted for the applicable deferred
sales charge (maximum of 4% in the first year). Results represent past
performance and do not indicate future results. The graph and the returns
shown do not reflect the deduction of taxes that a shareholder would pay
on distributions or the redemption of fund shares. Investment return and
principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than the original cost.
The issuers of the high yield bonds, in which the Fund primarily invests,
pay higher interest rates because they have a greater likelihood of
financial difficulty, which could result in their inability to repay the
bonds fully when due. Prices of high yield bonds are also subject to
greater fluctuations. Credit Suisse High Yield Index II figures are from
Credit Suisse Corporation and all other figures are from First Investors
Management Company, Inc.
Portfolio of Investments
FUND FOR INCOME
September 30, 2006
- ---------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ---------------------------------------------------------------------------------------------------------
CORPORATE BONDS--93.7%
Aerospace/Defense--3.4%
$4,775M Alliant Techsystems, Inc., 6.75%, 2016 $4,715,312 $81
DRS Technologies, Inc.:
5,250M 6.875%, 2013 5,210,625 89
1,000M 6.625%, 2016 987,500 17
5,508M Dyncorp International, LLC, 9.5%, 2013 5,728,320 98
1,747M GenCorp, Inc., 9.5%, 2013 1,825,615 31
1,600M L-3 Communications Corp., 7.625%, 2012 1,656,000 28
- ---------------------------------------------------------------------------------------------------------
20,123,372 344
- ---------------------------------------------------------------------------------------------------------
Automotive--5.7%
2,700M Accuride Corp., 8.5%, 2015 2,524,500 43
Asbury Automotive Group, Inc.:
3,500M 9%, 2012 3,600,625 62
5,400M 8%, 2014 5,359,500 92
500M Avis Budget Car Rental, LLC, 7.75%, 2016 + 485,000 8
4,208M Cambridge Industries Liquidating Trust, 2007 ++ ** 2,630 --
5,450M Dana Corp., 9%, 2011 ++ 3,597,000 61
Delco Remy International, Inc.:
5,800M 11%, 2009 2,813,000 48
3,250M 9.375%, 2012 1,470,625 25
4,350M General Motors Acceptance Corp., 6.75%, 2014 4,253,260 73
500M Tenneco Automotive, Inc., 8.625%, 2014 496,250 8
4,693M TRW Automotive, Inc., 9.375%, 2013 5,021,510 86
3,600M United Components, Inc., 9.375%, 2013 3,582,000 61
- ---------------------------------------------------------------------------------------------------------
33,205,900 567
- ---------------------------------------------------------------------------------------------------------
Chemicals--10.5%
1,940M BCP Crystal US Holdings Corp., 9.625%, 2014 2,114,600 36
3,500M Equistar Chemicals LP, 10.625%, 2011 3,771,250 65
3,650M Ethyl Corp., 8.875%, 2010 3,814,250 65
6,550M Huntsman International, LLC, 7.375%, 2015 + 6,648,250 114
Huntsman, LLC:
1,636M 11.625%, 2010 1,815,960 31
2,765M 11.5%, 2012 3,159,013 54
7,000M IMC Global, Inc., 10.875%, 2013 7,840,000 134
8,000M Lyondell Chemical Co., 10.875%, 2009 8,180,000 140
4,375M Millennium America, Inc., 9.25%, 2008 4,528,125 77
3,500M Nell AF S.a.r.l., 8.375%, 2015 + 3,491,250 60
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ---------------------------------------------------------------------------------------------------------
Chemicals (continued)
$4,900M Omnova Solutions, Inc., 11.25%, 2010 $5,285,875 $90
1,000M PQ Corp., 7.5%, 2013 955,000 16
5,526M Terra Capital, Inc., 11.5%, 2010 6,037,155 103
3,900M Tronox Worldwide, LLC, 9.5%, 2012 4,021,875 69
- ---------------------------------------------------------------------------------------------------------
61,662,603 1,054
- ---------------------------------------------------------------------------------------------------------
Consumer Non-Durables--3.9%
1,700M Broder Brothers Co., 11.25%, 2010 1,666,000 29
4,000M GFSI, Inc., 11%, 2011 + 3,860,000 66
Levi Strauss & Co.:
4,600M 10.26%, 2012 *** 4,761,000 81
4,000M 9.75%, 2015 4,170,000 71
7,200M Playtex Products, Inc., 9.375%, 2011 7,560,000 129
1,150M Remington Arms Co., 10.5%, 2011 1,063,750 18
- ---------------------------------------------------------------------------------------------------------
23,080,750 394
- ---------------------------------------------------------------------------------------------------------
Energy--13.1%
5,275M Basic Energy Services, Inc., 7.125%, 2016 + 5,116,750 88
7,000M Bluewater Finance, Ltd., 10.25%, 2012 7,122,500 122
Chesapeake Energy Corp.:
1,800M 7.5%, 2014 1,829,250 31
8,850M 6.625%, 2016 8,584,500 147
4,350M Compagnie Generale de Geophysique,
7.5%, 2015 4,328,250 74
4,250M Delta Petroleum Corp., 7%, 2015 3,931,250 67
4,075M Dresser, Inc., 9.375%, 2011 4,283,844 73
13,750M El Paso Production Holding Co., 7.75%, 2013 14,128,125 241
1,800M Energy Partners, Ltd., 8.75%, 2010 1,858,500 32
Giant Industries, Inc.:
5,493M 11%, 2012 5,959,905 102
4,150M 8%, 2014 4,513,125 77
1,350M Hilcorp Energy I, LP, 9%, 2016 + 1,400,625 24
250M Hornbeck Offshore Services, Inc., 6.125%, 2014 234,688 4
Pacific Energy Partners, LP:
1,000M 7.125%, 2014 1,025,000 18
250M 6.25%, 2015 247,500 4
2,650M POGO Producing Co., 6.875%, 2017 2,540,688 43
- ---------------------------------------------------------------------------------------------------------
Portfolio of Investments (continued)
FUND FOR INCOME
September 30, 2006
- ---------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ---------------------------------------------------------------------------------------------------------
Energy (continued)
Stone Energy Corp.:
$5,340M 8.17%, 2010 + *** $5,319,975 $91
900M 6.75%, 2014 904,500 15
3,490M Tesoro Corp., 6.25%, 2012 + 3,380,938 58
- ---------------------------------------------------------------------------------------------------------
76,709,913 1,311
- ---------------------------------------------------------------------------------------------------------
Financial Services--1.8%
2,175M Saxon Capital, Inc., 12%, 2014 + 3,026,787 52
7,600M Targeted Return Index Securities Trust,
7.548%, 2016 + 7,616,234 130
- ---------------------------------------------------------------------------------------------------------
10,643,021 182
- ---------------------------------------------------------------------------------------------------------
Food/Beverage/Tobacco--1.4%
1,000M Constellation Brands, Inc., 7.25%, 2016 1,016,250 17
Land O'Lakes, Inc.:
1,800M 9%, 2010 1,917,000 33
725M 8.75%, 2011 758,531 13
1,800M Pierre Foods, Inc., 9.875%, 2012 1,836,000 31
2,250M Southern States Cooperative, Inc., 10.5%, 2010 + 2,368,125 41
- ---------------------------------------------------------------------------------------------------------
7,895,906 135
- ---------------------------------------------------------------------------------------------------------
Food/Drug--1.1%
6,250M Ingles Markets, Inc., 8.875%, 2011 6,546,875 112
- ---------------------------------------------------------------------------------------------------------
Forest Products/Containers--1.3%
2,150M Jefferson Smurfit Corp., 8.25%, 2012 2,069,375 35
2,000M Tekni-Plex, Inc., 8.75%, 2013 + 1,985,000 34
3,275M Verso Paper Holdings, LLC, 9.24%, 2014 + *** 3,324,125 57
- ---------------------------------------------------------------------------------------------------------
7,378,500 126
- ---------------------------------------------------------------------------------------------------------
Gaming/Leisure--7.1%
4,250M Circus & Eldorado/Silver Legacy,
10.125%, 2012 4,489,062 77
2,200M Herbst Gaming, Inc., 8.125%, 2012 2,257,750 38
4,500M Isle of Capri Casinos, Inc., 7%, 2014 4,297,500 73
5,220M Mandalay Resort Group, 6.375%, 2011 5,128,650 88
6,960M MGM Mirage, Inc., 6.625%, 2015 6,716,400 115
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ---------------------------------------------------------------------------------------------------------
Gaming/Leisure (continued)
Park Place Entertainment Corp.:
$3,500M 9.375%, 2007 $3,543,750 $60
5,000M 7%, 2013 5,146,865 88
9,745M Speedway Motorsports, Inc., 6.75%, 2013 9,696,275 166
500M Station Casinos, Inc., 6.875%, 2016 471,250 8
- ---------------------------------------------------------------------------------------------------------
41,747,502 713
- ---------------------------------------------------------------------------------------------------------
Health Care--8.0%
3,150M Alliance Imaging, Inc., 7.25%, 2012 2,961,000 51
4,000M Encore Medical IHC, Inc., 9.75%, 2012 4,420,000 76
3,480M Fisher Scientific International, Inc.,
6.125%, 2015 3,471,300 59
4,400M Genesis Health Ventures, Inc., 9.75%, 2008 ++ ** 2,750 --
HCA, Inc.:
1,730M 6.75%, 2013 1,468,338 25
8,720M 6.5%, 2016 7,019,600 120
4,000M Insight Health Services Corp., 9.875%, 2011 1,390,000 24
1,800M MedQuest, Inc., 11.875%, 2012 1,579,500 27
4,000M Omnicare, Inc., 6.875%, 2015 3,905,000 67
900M Res-Care, Inc., 7.75%, 2013 902,250 15
Tenet Healthcare Corp.:
12,400M 6.375%, 2011 10,958,500 187
2,250M 9.25%, 2015 2,176,875 37
6,820M Triad Hospitals, Inc., 7%, 2013 6,658,025 114
- ---------------------------------------------------------------------------------------------------------
46,913,138 802
- ---------------------------------------------------------------------------------------------------------
Housing--3.9%
4,360M Beazer Homes USA, Inc., 6.875%, 2015 3,967,600 68
6,100M Builders FirstSource, Inc., 9.66%, 2012 *** 6,008,500 103
900M NTK Holdings, Inc., 0%-10.75%, 2014 # 625,500 11
7,700M Ply Gem Industries, Inc., 9%, 2012 6,179,250 105
William Lyon Homes, Inc.:
4,500M 7.625%, 2012 3,656,250 62
2,700M 10.75%, 2013 2,497,500 43
- ---------------------------------------------------------------------------------------------------------
22,934,600 392
- ---------------------------------------------------------------------------------------------------------
Portfolio of Investments (continued)
FUND FOR INCOME
September 30, 2006
- ---------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ---------------------------------------------------------------------------------------------------------
Information Technology--.8%
$3,000M Exodus Communications, Inc., 10.75%, 2009 ++** $1,875 $--
Iron Mountain, Inc.:
1,000M 8.625%, 2013 1,027,500 18
1,000M 6.625%, 2016 945,000 16
1,300M Sanmina - SCI Corp., 8.125%, 2016 1,280,500 22
Xerox Corp.:
500M 6.4%, 2016 500,000 9
1,000M 6.75%, 2017 1,020,000 17
- ---------------------------------------------------------------------------------------------------------
4,774,875 82
- ---------------------------------------------------------------------------------------------------------
Investment/Finance Companies--1.0%
5,500M LaBranche & Co., Inc., 11%, 2012 5,912,500 101
- ---------------------------------------------------------------------------------------------------------
Manufacturing--2.2%
1,740M Case New Holland, Inc., 7.125%, 2014 1,755,225 30
334M Columbus McKinnon Corp., 10%, 2010 363,225 6
2,500M Itron, Inc., 7.75%, 2012 2,587,500 45
2,600M Stewart & Stevenson, LLC, 10%, 2014 + 2,645,500 45
Wolverine Tube, Inc.:
3,500M 7.375%, 2008 + 2,992,500 51
2,500M 10.5%, 2009 2,212,500 38
- ---------------------------------------------------------------------------------------------------------
12,556,450 215
- ---------------------------------------------------------------------------------------------------------
Media-Broadcasting--4.8%
5,250M Block Communications, Inc., 8.25%, 2015 + 5,145,000 88
Clear Channel Communications, Inc.:
2,820M 5.5%, 2014 2,624,145 45
6,100M 4.9%, 2015 5,397,762 92
5,000M Nexstar Finance Holding, LLC,
0% - 11.375%, 2013 # 4,200,000 72
450M Nexstar Finance, Inc., 7%, 2014 411,750 7
3,000M Sinclair Broadcasting Group, Inc., 8%, 2012 3,056,250 52
Young Broadcasting, Inc.:
2,920M 10%, 2011 2,741,150 47
4,900M 8.75%, 2014 4,189,500 72
- ---------------------------------------------------------------------------------------------------------
27,765,557 475
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ---------------------------------------------------------------------------------------------------------
Media-Cable TV--9.8%
$8,745M Adelphia Communications Corp., 10.25%, 2011 ++ $5,706,112 $98
6,250M Atlantic Broadband Finance, LLC, 9.375%, 2014 6,140,625 105
6,900M Cablevision Systems Corp., 8%, 2012 7,020,750 120
Charter Communications Holdings, LLC:
8,500M 10%, 2009 7,820,000 134
2,000M 10.25%, 2010 1,750,000 30
8,250M 11.75%, 2011 6,641,250 113
2,000M 8%, 2012 + 2,025,000 35
4,625M CSC Holdings, Inc., 8.125%, 2009 4,815,781 82
8,690M Echostar DBS Corp., 6.375%, 2011 8,483,612 145
Mediacom LLC/Mediacom Capital Corp.:
4,000M 7.875%, 2011 3,970,000 68
2,000M 9.5%, 2013 2,055,000 35
1,000M Quebecor Media, Inc., 7.75%, 2016 1,006,250 17
- ---------------------------------------------------------------------------------------------------------
57,434,380 982
- ---------------------------------------------------------------------------------------------------------
Media-Diversified--3.2%
5,200M Cenveo, Inc., 7.875%, 2013 4,953,000 85
MediaNews Group, Inc.:
2,625M 6.875%, 2013 2,441,250 42
1,750M 6.375%, 2014 1,553,125 27
1,500M R.H. Donnelley Financial Corp., 10.875%, 2012 + 1,657,500 28
Six Flags, Inc.:
2,500M 8.875%, 2010 2,406,250 41
1,800M 9.625%, 2014 1,611,000 27
3,400M Universal City Development Partners, Ltd.,
11.75%, 2010 3,680,500 63
250M Universal City Florida Holding Co.,
10.24%, 2010 *** 258,125 4
- ---------------------------------------------------------------------------------------------------------
18,560,750 317
- ---------------------------------------------------------------------------------------------------------
Metals/Mining--1.0%
1,750M Metals USA, Inc., 11.125%, 2015 1,925,000 33
3,910M Russell Metals, Inc., 6.375%, 2014 3,714,500 63
- ---------------------------------------------------------------------------------------------------------
5,639,500 96
- ---------------------------------------------------------------------------------------------------------
Portfolio of Investments (continued)
FUND FOR INCOME
September 30, 2006
- ---------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ---------------------------------------------------------------------------------------------------------
Retail-General Merchandise--3.2%
$9,000M Gregg Appliances, Inc., 9%, 2013 $8,257,500 $141
GSC Holdings Corp.:
1,800M 9.38%, 2011 *** 1,881,000 32
1,700M 8%, 2012 1,759,500 30
6,100M Neiman Marcus Group, Inc., 10.375%, 2015 6,618,500 113
- ---------------------------------------------------------------------------------------------------------
18,516,500 316
- ---------------------------------------------------------------------------------------------------------
Services--3.7%
Allied Waste NA, Inc.:
3,450M 5.75%, 2011 3,324,937 57
1,847M 9.25%, 2012 1,978,599 34
1,800M 7.875%, 2013 1,849,500 32
6,000M 7.375%, 2014 5,940,000 101
1,680M Hydrochem Industrial Services, Inc.,
9.25%, 2013 + 1,671,600 28
United Rentals, Inc.:
2,700M 6.5%, 2012 2,619,000 45
4,350M 7%, 2014 4,110,750 70
- ---------------------------------------------------------------------------------------------------------
21,494,386 367
- ---------------------------------------------------------------------------------------------------------
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 1,223,115 21
1,750M Overseas Shipholding Group, Inc., 8.25%, 2013 1,820,000 31
500M Titan Petrochemicals Group, Ltd., 8.5%, 2012 + 440,000 8
- ---------------------------------------------------------------------------------------------------------
3,483,115 60
- ---------------------------------------------------------------------------------------------------------
Utilities--.0%
250M Reliant Energy, Inc., 6.75%, 2014 239,063 4
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Amount
Invested
Principal For Each
Amount $10,000 of
or Shares Security Value Net Assets
- ---------------------------------------------------------------------------------------------------------
Wireless Communications--2.2%
$8,000M Nextel Communications, Inc., 5.95%, 2014 $7,836,160 $134
5,200M Rogers Wireless, Inc., 6.375%, 2014 5,206,500 89
- ---------------------------------------------------------------------------------------------------------
13,042,660 223
- ---------------------------------------------------------------------------------------------------------
Total Value of Corporate Bonds (cost $574,192,872) 548,263,921 9,370
- ---------------------------------------------------------------------------------------------------------
COMMON STOCKS--1.7%
Automotive--.0%
37,387* Safelite Glass Corporation - Class "B" + ** 140,575 2
2,523* Safelite Realty Corporation ** 19,654 --
- ---------------------------------------------------------------------------------------------------------
160,229 2
- ---------------------------------------------------------------------------------------------------------
Chemicals--.9%
14,634* Texas Petrochemicals Corporation ** 290,851 5
180,613* Texas Petrochemicals Corporation ** 4,786,244 82
- ---------------------------------------------------------------------------------------------------------
5,077,095 87
- ---------------------------------------------------------------------------------------------------------
Food/Drug--.5%
111,700 Ingles Markets, Inc. 2,946,646 50
- ---------------------------------------------------------------------------------------------------------
Telecommunications--.3%
16,049 Deutsche Telekom AG (ADR) 254,698 4
5,409* RCN Corporation 153,062 3
9,300* RCN Corporation ** 93 --
11,620* TelCove, Inc. + ** 1,119,796 19
2,533* Viatel Holding (Bermuda), Ltd. ** 6 --
18,224* World Access, Inc. 20 --
- ---------------------------------------------------------------------------------------------------------
1,527,675 26
- ---------------------------------------------------------------------------------------------------------
Total Value of Common Stocks (cost $9,800,507) 9,711,645 165
- ---------------------------------------------------------------------------------------------------------
Portfolio of Investments (continued)
FUND FOR INCOME
September 30, 2006
- ---------------------------------------------------------------------------------------------------------
Amount
Invested
Warrants or For Each
Principal $10,000 of
Amount Security Value Net Assets
- ---------------------------------------------------------------------------------------------------------
WARRANTS--.1%
Aerospace/Defense--.0%
3,000* DeCrane Aircraft Holdings, Inc.
(expiring 9/30/08) + ** $30 $--
- ---------------------------------------------------------------------------------------------------------
Automotive--.0%
61,084* Safelite Glass Corporation - Class "B"
(expiring 9/29/07) + ** 611 --
- ---------------------------------------------------------------------------------------------------------
Telecommunications--.1%
3,500* GT Group Telecom, Inc. (expiring 2/1/10) + ** -- --
9,045* TelCove, Inc. (expiring 4/8/08) + ** 573,724 10
- ---------------------------------------------------------------------------------------------------------
573,724 10
- ---------------------------------------------------------------------------------------------------------
Total Value of Warrants (cost $2,395,215) 574,365 10
- ---------------------------------------------------------------------------------------------------------
SHORT-TERM CORPORATE NOTES--1.2%
ChevronTexaco Funding Corp.:
$6,000M 5.2%, 10/10/06 5,991,330 102
1,200M 5.22%, 10/17/06 1,197,041 21
- ---------------------------------------------------------------------------------------------------------
Total Value of Short-Term Corporate Notes (cost $7,188,371) 7,188,371 123
- ---------------------------------------------------------------------------------------------------------
SHORT-TERM U.S. GOVERNMENT AGENCY
OBLIGATIONS--.8%
5,000M Federal Home Loan Bank, 5.15%, 10/13/06
(cost $4,990,681) 4,990,681 85
- ---------------------------------------------------------------------------------------------------------
Total Value of Investments (cost $598,567,646) 97.5% 570,728,983 9,753
Other Assets, Less Liabilities 2.5 14,427,749 247
- ---------------------------------------------------------------------------------------------------------
Net Assets 100.00% $585,156,732 $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 September 30, 2006.
# Denotes a stepbond (a zero coupon bond that converts to a fixed interest
rate at a designated future date).
See notes to financial statements
Portfolio Composition (Unaudited)
FUND FOR INCOME
The dollar weighted average of credit ratings of all bonds held by the Fund
during the fiscal year ended September 30, 2006 and the dollar weighted
average of the total of the Fund's investments in zero coupon bonds and step
bonds during the 2006 fiscal year, computed on a monthly basis, are set
forth below. This information reflects the average composition of the Fund's
assets during the 2006 fiscal year and is not necessarily representative of
the Fund as of the end of its 2006 fiscal year, the current fiscal year or
at any other time in the future.
- ----------------------------------------------------------------------------
Comparable Quality of
Rated by Unrated Securities to
Moody's Bonds Rated by Moody's
- ----------------------------------------------------------------------------
AAA 0.67% 0.00%
Baa2 1.00 0.00
Baa3 2.52 0.00
Ba1 3.07 0.00
Ba2 10.28 0.00
Ba3 7.09 0.00
B1 6.31 0.00
B2 16.84 0.00
B3 26.58 0.00
Caa1 9.84 0.00
Caa2 3.70 0.25
Caa3 0.32 0.00
Ca 3.07 0.03
C 0.00 1.84
- ----------------------------------------------------------------------------
Step Bonds 1.23%
Zero Coupon Bonds 0.07%
See notes to financial statements
Statements of Assets and Liabilities
FIRST INVESTORS INCOME FUNDS
September 30, 2006
- ------------------------------------------------------------------------------------------------------------------------------
CASH INVESTMENT
MANAGEMENT GOVERNMENT GRADE INCOME
- ------------------------------------------------------------------------------------------------------------------------------
Assets
Investments in securities:
At identified cost $203,867,727 $205,336,315 $253,732,423 $598,567,646
============ ============ ============ ============
At value (Note 1A) $203,867,727 $202,663,466 $255,589,462 $570,728,983
Cash 1,324,120 469,438 348,881 686,591
Receivables:
Interest 779,560 892,239 3,732,502 13,347,003
Shares sold -- 421,351 601,143 432,622
Investment securities sold -- -- -- 1,293,413
Other assets 32,971 37,428 11,814 263,971
------------ ------------ ------------ ------------
Total Assets 206,004,378 204,483,922 260,283,802 586,752,583
------------ ------------ ------------ ------------
Liabilities
Payables:
Investment securities purchased 2,500,000 4,296,079 4,706,627 --
Dividends payable 6,577 40,698 113,545 553,258
Shares redeemed 431,786 277,465 283,506 565,593
Accrued advisory fees 67,723 96,366 112,638 337,266
Accrued shareholder servicing costs 55,317 33,652 41,663 90,991
Accrued expenses 52,230 40,370 17,638 48,743
------------ ------------ ------------ ------------
Total Liabilities 3,113,633 4,784,630 5,275,617 1,595,851
------------ ------------ ------------ ------------
Net Assets $202,890,745 $199,699,292 $255,008,185 $585,156,732
============ ============ ============ ============
Net Assets Consist of:
Capital paid in $202,890,745 $211,738,516 $264,961,251 $766,345,694
Undistributed net investment income (deficit) -- 140,734 (3,181,735) 1,231,134
Accumulated net realized loss on investments -- (9,507,109) (8,628,370) (154,581,433)
Net unrealized appreciation (depreciation) in value of investments -- (2,672,849) 1,857,039 (27,838,663)
------------ ------------ ------------ ------------
Total $202,890,745 $199,699,292 $255,008,185 $585,156,732
============ ============ ============ ============
Net Assets:
Class A $200,380,886 $186,422,159 $231,192,172 $554,532,443
Class B $2,509,859 $13,277,133 $23,816,013 $30,624,289
Shares outstanding (Note 6):
Class A 200,380,886 17,409,284 24,291,100 184,530,792
Class B 2,509,859 1,240,258 2,505,148 10,204,013
Net asset value and redemption price per share--Class A $1.00* $10.71 $9.52 $3.01
============ ============ ============ ============
Maximum offering price per share--Class A
(Net asset value/9425)** N/A $11.36 $10.10 $3.19
============ ============ ============ ============
Net asset value and offering price per share--Class B (Note 6) $1.00 $10.71 $9.51 $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
Year Ended September 30, 2006
- ------------------------------------------------------------------------------------------------------------------------------
CASH INVESTMENT
MANAGEMENT GOVERNMENT GRADE INCOME
- ------------------------------------------------------------------------------------------------------------------------------
Investment Income
Income (Note 1F):
Interest $8,287,660 $10,243,477 $13,021,967 $50,399,182
Dividends -- -- -- 86,140(a)
------------ ------------ ------------ ------------
Total income 8,287,660 10,243,477 13,021,967 50,485,322
------------ ------------ ------------ ------------
Expenses (Notes 1 and 3):
Advisory fees 895,701 1,509,453 1,699,208 4,276,885
Distribution plan expenses - Class A -- 453,320 532,951 1,662,136
Distribution plan expenses - Class B 19,762 142,805 257,410 332,738
Shareholder servicing costs 667,941 399,583 506,495 1,172,022
Professional fees 39,477 49,259 41,260 99,871
Registration fees 52,928 52,871 54,821 54,686
Custodian fees 38,786 28,947 18,492 38,247
Reports to shareholders 64,457 41,673 58,423 145,684
Trustees' fees 8,287 9,000 10,898 27,194
Other expenses 43,774 61,553 49,438 143,193
------------ ------------ ------------ ------------
Total expenses 1,831,113 2,748,464 3,229,396 7,952,656
Less: Expenses waived (397,104) (465,732) (388,666) --
Expenses paid indirectly (9,833) (24,336) (20,422) (40,569)
------------ ------------ ------------ ------------
Net expenses 1,424,176 2,258,396 2,820,308 7,912,087
------------ ------------ ------------ ------------
Net investment income 6,863,484 7,985,081 10,201,659 42,573,235
------------ ------------ ------------ ------------
Realized and Unrealized Gain (Loss) on Investments (Note 2):
Net realized loss on investments -- (1,053,822) (1,697,495) (24,922,862)
Net unrealized appreciation (depreciation) of investments -- (1,213,735) (2,079,190) 12,744,718
------------ ------------ ------------ ------------
Net loss on investments -- (2,267,557) (3,776,685) (12,178,144)
------------ ------------ ------------ ------------
Net Increase in Net Assets Resulting from Operations $6,863,484 $5,717,524 $6,424,974 $30,395,091
============ ============ ============ ============
(a) Net of $3,080 foreign taxes withheld
See notes to financial statements
Statements of Changes in Net Assets
FIRST INVESTORS INCOME FUNDS
- ----------------------------------------------------------------------------------------------------------------------------------
CASH MANAGEMENT GOVERNMENT
---------------------------- ----------------------------
Year Ended September 30 2006 2005 2006 2005
- ----------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations
Net investment income $6,863,484 $3,196,616 $7,985,081 $7,311,559
Net realized gain (loss) on investments -- -- (1,053,822) 631,796
Net unrealized appreciation (depreciation) of investments -- -- (1,213,735) (3,730,063)
------------ ------------ ------------ ------------
Net increase in net assets resulting from operations 6,863,484 3,196,616 5,717,524 4,213,292
------------ ------------ ------------ ------------
Dividends to Shareholders
Net investment income - Class A (6,783,444) (3,155,474) (8,240,446) (8,125,876)
Net investment income - Class B (80,040) (41,142) (537,292) (602,132)
------------ ------------ ------------ ------------
Total dividends (6,863,484) (3,196,616) (8,777,738) (8,728,008)
------------ ------------ ------------ ------------
Share Transactions *
Class A:
Proceeds from shares sold 257,607,283 225,191,078 30,565,693 25,491,260
Reinvestment of dividends 6,697,930 3,105,081 7,208,291 6,993,703
Cost of shares redeemed (226,043,737) (237,177,113) (30,230,638) (25,500,703)
------------ ------------ ------------ ------------
38,261,476 (8,880,954) 7,543,346 6,984,260
------------ ------------ ------------ ------------
Class B:
Proceeds from shares sold 3,043,930 2,334,919 2,185,110 1,753,391
Reinvestment of dividends 75,499 37,941 499,852 561,459
Cost of shares redeemed (3,792,293) (4,412,048) (4,647,314) (3,303,272)
------------ ------------ ------------ ------------
(672,864) (2,039,188) (1,962,352) (988,422)
------------ ------------ ------------ ------------
Net increase (decrease) from share transactions 37,588,612 (10,920,142) 5,580,994 5,995,838
------------ ------------ ------------ ------------
Net increase (decrease) in net assets 37,588,612 (10,920,142) 2,520,780 1,481,122
Net Assets
Beginning of year 165,302,133 176,222,275 197,178,512 195,697,390
------------ ------------ ------------ ------------
End of year+ $202,890,745 $165,302,133 $199,699,292 $197,178,512
============ ============ ============ ============
+Includes undistributed net investment income (deficit) of $-- $-- $140,734 $39,006
============ ============ ============ ============
*Shares Issued and Redeemed
Class A:
Sold 257,607,283 225,191,078 2,853,699 2,313,120
Issued for dividends reinvested 6,697,930 3,105,081 673,757 634,924
Redeemed (226,043,737) (237,177,113) (2,823,408) (2,314,243)
------------ ------------ ------------ ------------
Net increase (decrease) in Class A shares outstandin 38,261,476 (8,880,954) 704,048 633,801
============ ============ ============ ============
Class B:
Sold 3,043,930 2,334,919 204,003 159,145
Issued for dividends reinvested 75,499 37,941 46,721 51,004
Redeemed (3,792,293) (4,412,048) (434,613) (299,862)
------------ ------------ ------------ ------------
Net decrease in Class B shares outstanding (672,864) (2,039,188) (183,889) (89,713)
============ ============ ============ ============
Statements of Changes in Net Assets (continued)
FIRST INVESTORS INCOME FUNDS
- ------------------------------------------------------------------------------------------------------------------------------
INVESTMENT GRADE INCOME
---------------------------- ---------------------------
Year Ended September 30 2006 2005 2006 2005
- ------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations
Net investment income $10,201,659 $8,848,078 $42,573,235 $44,586,837
Net realized gain (loss) on investments (1,697,495) (267,229) (24,922,862) (6,651,104)
Net unrealized appreciation (depreciation) of investments (2,079,190) (5,240,595) 12,744,718 (17,110,814)
------------ ------------ ------------ ------------
Net increase in net assets resulting from operations 6,424,974 3,340,254 30,395,091 20,824,919
------------ ------------ ------------ ------------
Dividends to Shareholders
Net investment income - Class A (10,975,640) (9,743,057) (40,228,929) (41,327,828)
Net investment income - Class B (1,132,856) (1,311,803) (2,178,739) (2,541,843)
------------ ------------ ------------ ------------
Total dividends (12,108,496) (11,054,860) (42,407,668) (43,869,671)
------------ ------------ ------------ ------------
Share Transactions *
Class A:
Proceeds from shares sold 60,013,611 58,265,215 50,444,587 67,802,783
Reinvestment of dividends 9,351,362 8,182,635 30,767,790 31,078,336
Cost of shares redeemed (36,660,785) (25,999,627) (86,314,638) (66,983,667)
------------ ------------ ------------ ------------
32,704,188 40,448,223 (5,102,261) 31,897,452
------------ ------------ ------------ ------------
Class B:
Proceeds from shares sold 3,201,697 3,767,335 3,015,926 5,395,191
Reinvestment of dividends 1,004,830 1,150,885 1,609,592 1,872,646
Cost of shares redeemed (8,046,954) (5,209,093) (9,915,612) (9,509,080)
------------ ------------ ------------ ------------
(3,840,427) (290,873) (5,290,094) (2,241,243)
------------ ------------ ------------ ------------
Net increase (decrease) from share transactions 28,863,761 40,157,350 (10,392,355) 29,656,209
------------ ------------ ------------ ------------
Net increase (decrease) in net assets 23,180,239 32,442,744 (22,404,932) 6,611,457
Net Assets
Beginning of year 231,827,946 199,385,202 607,561,664 600,950,207
------------ ------------ ------------ ------------
End of year+ $255,008,185 $231,827,946 $585,156,732 $607,561,664
============ ============ ============ ============
+Includes undistributed net investment income (deficit) of $(3,181,735) $(3,989,344) $1,231,134 $552,379
============ ============ ============ ============
*Shares Issued and Redeemed
Class A:
Sold 6,319,955 5,849,008 16,823,867 21,460,627
Issued for dividends reinvested 986,091 822,105 10,263,990 9,902,008
Redeemed (3,865,698) (2,611,201) (28,800,606) (21,309,546)
------------ ------------ ------------ ------------
Net increase (decrease) in Class A shares outstanding 3,440,348 4,059,912 (1,712,749) 10,053,089
============ ============ ============ ============
Class B:
Sold 337,660 378,111 1,007,871 1,709,202
Issued for dividends reinvested 105,988 115,677 537,485 596,997
Redeemed (850,003) (522,612) (3,310,888) (3,031,130)
------------ ------------ ------------ ------------
Net decrease in Class B shares outstanding (406,355) (28,824) (1,765,532) (724,931)
============ ============ ============ ============
See notes to financial statements
Notes to Financial Statements
FIRST INVESTORS INCOME FUNDS
September 30, 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. Debt securities may be priced based upon estimates of
value furnished by a pricing service approved by the Trust's Board of
Trustees ("the Board"). In formulating such estimates of value, 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 September 30, 2006, the Fund For Income
held sixteen securities that were fair valued by the Funds' Valuation
Committee with an aggregate value of $6,940,944, representing 1.2% 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, 2006, capital loss carryovers were as follows:
Year Capital Loss Carryovers Expire
---------------------------------------------------------------------------------------------------------------------
Fund Total 2007 2008 2009 2010 2011 2012 2013 2014
- ---- ------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Government $7,678,925 $-- $1,017,364 $2,144,197 $-- $54,921 $2,120,906 $1,600,894 $740,643
Investment
Grade 4,248,148 -- -- 1,715,940 27,419 407,283 1,356,376 14 741,116
Income 130,545,431 842,581 1,832,458 13,810,649 18,563,112 52,099,335 25,740,298 10,200,012 7,456,986
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.
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.
Notes to Financial Statements (continued)
FIRST INVESTORS INCOME FUNDS
September 30, 2006
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 year ended September 30, 2006, the Bank of
New York, custodian for the Funds, has provided total credits in the amount
of $89,168 against custodian charges based on the uninvested cash balances
of the Funds. The Funds also reduced expenses through brokerage service
arrangements. For the year ended September 30, 2006, the Funds expenses
were reduced by $5,992 under these arrangements.
2. Security Transactions--For the year ended September 30, 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 $-- $-- $83,244,166 $82,482,450
Investment Grade 74,471,850 94,004,185 126,511,154 76,676,679
Income 164,198,211 154,433,529 -- --
At September 30, 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 $205,336,315 $598,693 $3,271,542 $(2,672,849)
Investment Grade 256,935,245 3,376,155 4,721,938 (1,345,783)
Income 600,460,062 15,733,948 45,465,026 (29,731,078)
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 year ended September 30, 2006, total trustees fees accrued
by the Funds amounted to $55,379.
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 September 30, 2006, FIMCO has voluntarily
waived $397,104 in advisory fees to limit the Fund's overall expense ratio
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
September 30, 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 September 30, 2006, FIMCO has
voluntarily waived $465,732 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. For the period January 28, 2006 through April 30,
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. Effective May 1, 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 September 30, 2006,
FIMCO has voluntarily waived $388,666 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 $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
Notes to Financial Statements (continued)
FIRST INVESTORS INCOME FUNDS
September 30, 2006
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 year ended September 30, 2006, total advisory fees accrued to FIMCO
by the Funds were $8,381,247 of which $1,251,502 was waived as noted above.
For the year ended September 30, 2006, FIC, as underwriter, received
$4,278,713 in commissions from the sale of shares of the Funds after
allowing $65,233 to other dealers. Shareholder servicing costs included
$2,102,504 in transfer agent fees accrued to ADM and $383,753 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 year ended September 30, 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. For the year ended
September 30, 2006, total distribution plan fees accrued to FIC by the
Funds amounted to $3,401,122.
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 September 30,
2006, Investment Grade Fund held seven 144A securities with an aggregate
value of $10,802,820 representing 4.2% of the Fund's net assets and Fund
For Income held twenty-six 144A securities with an aggregate value of
$66,434,895 representing 11.4% 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 September 30, 2006, Cash Management Fund held nine Section 4(2)
securities with an aggregate value of $46,518,311 representing 22.9% 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 term 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. Tax Components of Capital and Distributions to Shareholders--The tax
character of distributions declared for the years ended September 30, 2006
and September 30, 2005 consisted entirely of ordinary income as follows:
Distributions Declared
from Ordinary Income
---------------------------------
Fund in 2006 in 2005
- ---- -------------- --------------
Cash Management $6,863,484 $3,196,616
Government 8,777,738 8,728,008
Investment Grade 12,108,496 11,054,860
Income 42,407,668 43,869,671
Notes to Financial Statements (continued)
FIRST INVESTORS INCOME FUNDS
September 30, 2006
As of September 30, 2006, the components of distributable earnings on a tax
basis were:
Undistributed Capital Other Total
Ordinary Loss Accumulated Unrealized Distributable
Fund Income Carryover Losses Depreciation Deficit
- ---- -------------- -------------- -------------- -------------- --------------
Government $140,734 $(7,678,925) $(1,828,184) $(2,672,849) $(12,039,224)
Investment Grade 21,086 (4,248,148) (4,380,221) (1,345,783) (9,953,066)
Income 2,992,497 (130,545,431) (23,904,950) (29,731,078) (181,188,962)
Other accumulated losses consist primarily of post-October loss deferrals.
For the year ended September 30, 2006, the following reclassifications were
made to reflect permanent differences between book and tax reporting:
Accumulated Undistributed
Net Realized Net Investment
Fund Gain Income
- ---- -------------- ----------------
Government $(894,385) $894,385
Investment Grade (2,714,447) 2,714,447
Income (513,188) 513,188
8. 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.
9. New Accounting Pronouncements--In July 2006, the Financial Accounting
Standards Board ("FASB") released FASB Interpretation No. 48 "Accounting
for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 provides guidance for
how uncertain tax positions should be recognized, measured, presented and
disclosed in the financial statements. FIN 48 requires the evaluation of
tax positions taken or expected to be taken in the course of preparing the
Funds' tax returns to determine whether the tax positions are
"more-likely-than-not" of being sustained by the applicable tax authority.
Tax positions not deemed to meet the more-likely-than-not threshold would
be recorded as a tax benefit or expense in the current year. Adoption of
FIN 48 is required for fiscal years beginning after December 15, 2006 and
is to be applied to all open tax years as of the effective date. FIMCO
believes that the adoption of FIN 48 will have no impact on the financial
statements of the Funds.
In September 2006, the FASB issued Statement on Financial Accounting
Standards ("SFAS") No. 157, "Fair Value Measurements." This standard
establishes a single authoritative definition of fair value, sets out a
framework for measuring fair value and requires additional disclosures
about fair value measurements. SFAS No. 157 applies to fair value
measurements already required or permitted by existing standards. SFAS No.
157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007 and interim periods within those fiscal years. The
changes to current generally accepted accounting principles from the
application of this Statement relate to the definition of fair value, the
methods used to measure fair value, and the expanded disclosures about fair
value measurements. As of September 30, 2006, FIMCO does not believe the
adoption of SFAS No. 157 will impact the financial statement amounts of the
Funds, however, additional disclosures may be required about the inputs
used to develop the measurements and the effect of certain of the
measurements on changes in net assets for the period.
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.
- ---------------------------------------------------------------------------------------------------------------------------------
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 Year Income Investments Operations Income Gain Distributions Year
- ---------------------------------------------------------------------------------------------------------------------------------
CASH MANAGEMENT FUND
- --------------------
Class A
- -------
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 1.00 .038 -- .038 .038 -- .038 1.00
Class B
- -------
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 1.00 .031 -- .031 .031 -- .031 1.00
- ---------------------------------------------------------------------------------------------------------------------------------
GOVERNMENT FUND
- ---------------
Class A
- -------
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 10.88 .45 (.13) .32 .49 -- .49 10.71
Class B
- -------
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 10.87 .36 (.12) .24 .40 -- .40 10.71
- ---------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
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 Year Investment Investment Turnover
Return* (in millions) Expenses Income Expenses Income (Loss) Rate
- ------------------------------------------------------------------------------------------------------------------
CASH MANAGEMENT FUND
- --------------------
Class A
- -------
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 3.89 200 .78 3.85 1.01 3.62 --
Class B
- -------
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 3.11 3 1.53 3.10 1.76 2.87 --
- ------------------------------------------------------------------------------------------------------------------
GOVERNMENT FUND
- ---------------
Class A
- -------
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 3.02 186 1.10 4.14 1.35 3.89 43
Class B
- -------
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 2.32 13 1.85 3.39 2.10 3.14 43
- ------------------------------------------------------------------------------------------------------------------
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 Year Income Investments Operations Income Gain Distributions Year
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTMENT GRADE FUND
- ---------------------
Class A
- -------
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 9.76 .44 (.19) .25 .49 -- .49 9.52
Class B
- -------
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 9.75 .30 (.12) .18 .42 -- .42 9.51
- ---------------------------------------------------------------------------------------------------------------------------------
FUND FOR INCOME
- ---------------
Class A
- -------
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 3.07 .22 (.06) .16 .22 -- .22 3.01
Class B
- -------
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 3.06 .20 (.06) .14 .20 -- .20 3.00
- ---------------------------------------------------------------------------------------------------------------------------------
* Calculated without sales charges.
** Net of expenses waived or assumed (Note 3).
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 Year Investment Investment Turnover
Return* (in millions) Expenses Income Expenses Income Rate
- ------------------------------------------------------------------------------------------------------------------
INVESTMENT GRADE FUND
- ---------------------
Class A
- -------
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 2.69 231 1.10 4.35 1.27 4.18 74
Class B
- -------
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 1.92 24 1.85 3.60 2.02 3.43 74
- ------------------------------------------------------------------------------------------------------------------
FUND FOR INCOME
- ---------------
Class A
- -------
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 5.40 555 1.31 7.28 N/A N/A 28
Class B
- -------
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 4.64 31 2.01 6.58 N/A N/A 28
- ------------------------------------------------------------------------------------------------------------------
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 September 30, 2006, the related
statements of operations for the year then ended, the statements of changes
in net assets for each of the two years in the period then ended and the
financial highlights for each of the five years in the period then ended.
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. The Funds are not required to have, nor were we
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 September 30, 2006, by correspondence with the
custodian and brokers. Where brokers have not replied to our confirmation
request, we have carried out other appropriate auditing procedures. 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 September 30, 2006, and the results of their operations
for the year then ended, the statements of changes in net assets for each
of the two years in the period then ended and their financial highlights
for each of the five years in the period then ended, in conformity with
accounting principles generally accepted in the United States of America.
Tait, Weller & Baker LLP
Philadelphia, Pennsylvania
November 3, 2006
FIRST INVESTORS INCOME FUNDS
Trustees and Officers*
Position(s)
Held with Principal Number of Other
Funds and Occupation(s) Portfolios in Trusteeships
Name, Year of Birth Length of During Past Fund Complex Directorships
and Address Service 5 Years Overseen Held
- ----------- ------- ------- -------- ----
DISINTERESTED TRUSTEES
Charles R. Barton, III 1965 Trustee President of 50 None
c/o First Investors since 1/1/2006 Noe Pierson
Management Company, Inc. Corporation; Board
95 Wall Street Member of the
New York, NY 10005 Barton Group, LLC
Stefan L. Geiringer 1934 Trustee Founder/Partner 50 None
c/o First Investors since 1/1/2006 of Real Time
Management Company, Inc. Energy Solutions,
95 Wall Street Inc. since 2005;
New York, NY 10005 Founder/Owner of
SLG, Inc. since
2005; Senior Vice
President of Pepco
Energy Services
from 2003-2005;
Founder/Owner and
President of North
Atlantic Utilities,
Inc. from 1987-2003
Robert M. Grohol 1932 Trustee None/Retired 50 None
c/o First Investors since 8/18/05;
Management Company, Inc. Director/Trustee
95 Wall Street of predecessor
New York, NY 10005 funds since
6/30/00
Arthur M. Scutro, Jr. 1941 Trustee Retired; formerly 50 None
c/o First Investors since 1/1/2006 Senior Vice
Management Company, Inc. President of
95 Wall Street UBS PaineWebber
New York, NY 10005 from 1985-2001
James M. Srygley 1932 Trustee Retired; 50 None
c/o First Investors since 8/18/05; Owner
Management Company, Inc. Director/Trustee Hampton
95 Wall Street of predecessor Properties
New York, NY 10005 funds since
1/19/95
Robert F. Wentworth 1929 Trustee None/Retired 50 None
c/o First Investors since 8/18/05;
Management Company, Inc. Director/Trustee
95 Wall Street of predecessor
New York, NY 10005 funds since
10/15/92
FIRST INVESTORS INCOME FUNDS
Trustees and Officers* (continued)
Position(s)
Held with Principal Number of Other
Funds and Occupation(s) Portfolios in Trusteeships
Name, Year of Birth Length of During Past Fund Complex Directorships
and Address Service 5 Years Overseen Held
- ----------- ------- ------- -------- ----
INTERESTED TRUSTEES**
Kathryn S. Head 1955 Trustee Chairman, Officer 50 None
c/o First Investors and President and Director of
Management Company, Inc. since 8/18/05; First Investors
Raritan Plaza I Director/Trustee Corporation;
Edison, NJ 08837 of predecessor First Investors
funds since Consolidated
3/17/94; Corporation;
President of First Investors
predecessor Management
funds since Company, Inc.;
2001 Administrative Data
Management Corp.;
First Investors
Federal Savings
Bank; School
Financial
Management
Services, Inc.;
and other affiliated
companies***
John T. Sullivan 1932 Trustee Director of 50 None
c/o First Investors since 8/18/05; First Investors
Management Company, Inc. Director/Trustee Corporation,
95 Wall Street of predecessor First Investors
New York, NY 10005 funds since Consolidated
9/20/79 Corporation,
First Investors
Management
Company, Inc.,
Administrative Data
Management Corp.,
and other affiliated
companies***
Formerly
Of Counsel
Hawkins,
Delafield &
Wood.
* Each Trustee serves for an indefinite term with the Funds, until
his/her successor is elected.
** Ms. Head is an interested trustee because (a) she indirectly owns
more than 5% of the voting stock of the adviser and principal
underwriter of the Funds, (b) she is an officer, director and employee
of the adviser and principal underwriter of the Funds, and (c) she is
an officer of the Funds. Mr. Sullivan is an interested trustee because
he is a director and he indirectly owns securities issued by the
adviser and principal underwriter of the Funds.
*** Other affiliated companies consist of: First Investors Realty
Company, Inc., First Investors Life Insurance Company, First Investors
Leverage Corporation, Route 33 Realty Corporation, First Investors
Credit Funding Corporation, N.A.K. Realty Corporation, Real Property
Development Corporation, First Investors Credit Corporation and First
Investors Resources, Inc.
FIRST INVESTORS INCOME FUNDS
Trustees and Officers* (continued)
Position(s)
Held with Principal Number of Other
Funds and Occupation(s) Portfolios in Trusteeships
Name, Year of Birth Length of During Past Fund Complex Directorships
and Address Service 5 Years Overseen Held
- ----------- ------- ------- -------- ----
OFFICER(S) WHO ARE NOT TRUSTEES
Joseph I. Benedek 1957 Treasurer Treasurer 50 None
c/o First Investors since 8/18/05; and Principal
Management Company, Inc. Treasurer of Accounting
Raritan Plaza I predecessor fund Officer
Edison, NJ 08837 since 1988
Larry R. Lavoie 1947 Chief Compliance General Counsel 50 None
c/o First Investors Officer since of First Investors
Management Company, Inc. 8/18/05; Corporation
95 Wall Street Chief Compliance and its affiliates;
New York, NY 10005 Officer of Director of
predecessor funds First Investors
since 2004 Corporation
and various
affiliates
FIRST INVESTORS INCOME FUNDS
Shareholder Information
- -----------------------
Investment Adviser
First Investors Management Company, Inc.
95 Wall Street
New York, NY 10005
Underwriter
First Investors Corporation
95 Wall Street
New York, NY 10005
Custodian
The Bank of New York
One Wall Street
New York, NY 10286
Transfer Agent
Administrative Data Management Corp.
Raritan Plaza I - 8th Floor
Edison, NJ 08837-3620
Independent Registered
Public Accounting Firm
Tait, Weller & Baker LLP
1818 Market Street
Philadelphia, PA 19103
Legal Counsel
Kirkpatrick & Lockhart
Nicholson Graham LLP
1601 K Street, N.W.
Washington, DC 20006
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 Fund will ensure
that separate reports are sent to any shareholder who subsequently changes
his or her mailing address.
This report is authorized for distribution only to existing shareholders,
and, if given to prospective shareholders, must be accompanied or preceded
by the Trusts' 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.
NOTES
NOTES
NOTES
NOTES
Item 2. Code of Ethics
As of September 30, 2006, the Registrant has adopted a code of ethics
that applies to the Registrant's President/Principal Executive Officer
and Treasurer/Principal Financial Officer. For the year ended
September 30, 2006, there were no amendments to any provision of its
code of ethics, nor were there any waivers granted from a provision
of the code of ethics. A copy of the Registrant's code of ethics is
filed under Item 12(a)(1).
Item 3. Audit Committee Financial Expert
The Registrant's Board has determined that it has at least one "audit
committee financial expert" serving on its audit committee. Robert F.
Wentworth is the "audit committee financial expert" and is considered
to be "independent" as defined in Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services
Fiscal Year Ended
September 30,
-----------------
2006 2005
---- ----
(a) Audit Fees
First Investors Income Funds $ 92,500 $ 88,300
(b) Audit-Related Fees
First Investors Income Funds $ 0 $ 0
(c) Tax Fees
First Investors Income Funds $ 13,800 $ 13,400
Nature of fees: tax returns preparation and tax compliance
(d) All Other Fees
First Investors Income Funds $ 0 $ 0
(e)(1) Audit committee's pre-approval policies
The Audit Committee has adopted a charter under which it has the duties,
among other things:
(a) to pre-approve, and to recommend to the full Board, the
selection, retention or termination of the independent auditors to provide
audit, review or attest services to the Funds and, in connection therewith,
evaluate the independence of the auditors and to obtain the auditors'
specific representations as to their independence;
(b) to pre-approve all non-audit services to be provided to
the Funds by the independent auditor;
(c) to pre-approve all non-audit services to be provided by
the Funds' independent auditor to the Funds' investment adviser or to any
entity that controls, is controlled by or is under common control with the
Funds investment adviser ("adviser affiliate") and that provides ongoing
services to the Funds, if the engagement relates directly to the operations
and financial reporting of the Funds;
(d) to establish, if deemed necessary or appropriate as an
alternative to Audit Committee pre-approval of services to be provided by
the independent auditor as required by paragraphs (b) and (c) above,
policies and procedures to permit such services to be pre-approved by other
means, such as by action of a designated member and members of the Audit
Committee, subject to subsequent Committee review and oversight;
(e) to consider whether the non-audit services provided by the
Funds' independent auditors to the Funds' investment adviser or any adviser
affiliate that provides ongoing services to the Funds, which services were
not pre-approved by the Audit Committee, are compatible with maintaining the
auditors' independence;
(f) to review and approve the fees proposed to be charged to the
Funds by the auditors for each audit and non-audit service;
(e)(2) None, or 0%, of the services relating to the Audit-Related Fees,
Tax Fees and All Other Fees paid by the Registrant and Related Entities
disclosed above were approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X (which permits audit committee
approval after the start of the engagement with respect to services other
than audit review or attest services, if certain conditions are satisfied).
(f) Not Applicable
(g) Aggregate non-audit fees billed by the Registrant's accountant
for services rendered to the Registrant and the Registrant's investment
adviser or any entity controlling, controlled by, or under common
control with the adviser that provides ongoing services to the
Registrant for the two fiscal years ended September 30, 2006 and 2005
were $71,000 and $68,000, respectively.
(h) Not Applicable
Item 5. Audit Committee of Listed Registrants
Not applicable
Item 6. Schedule of Investments
Schedule is included as part of the report to
shareholders 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 Directors/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 - Filed herewith
(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: December 6, 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: December 6, 2006