FIRST INVESTORS NEW YORK INSURED TAX FREE FUND, INC.
FIRST INVESTORS MULTI-STATE INSURED TAX FREE FUND
Supplement to Statement of Additional Information dated April 29, 1996
The following should be added to "State Specific Risk Factors:"
Risk Factors for the New Jersey Fund. Public agencies within the
State of New Jersey are authorized to issue two general classes of
indebtedness, the interest on which is exempt from Federal income taxation;
general obligation bonds and special obligation or revenue bonds. Both
classes of bonds may be included in the New Jersey Fund's portfolio. The
repayment of principal and interest on general obligation bonds is secured by
the full faith and credit of the issuing entity, backed up by such entity's
taxing authority, without recourse to any specific project or source of
revenue. Special obligation or revenue bonds are typically repaid only from
revenues received in connection with the project for which the bonds are
issued, special excise taxes, or other special revenue sources and are issued
by entities without taxing power. Unless specifically guaranteed, neither
the State of New Jersey, any county, municipality nor any political
subdivisions thereof (except for the issuing entity) are liable for the
payment of principal of or interest on revenue bonds.
General obligation bonds are repaid from revenues obtained through
the issuing entity's general taxing authority. The current political climate
encourages maintaining or even lowering current tax levels. New Jersey law,
however, requires taxes to be levied to repay debt.
Any reduction in the amount of revenue generated by a facility or
project financed by special obligation bonds will affect the issuing entity's
ability to pay debt service on such bonds and no assurance can be given that
sufficient revenues will be obtained from the facility or project to make
such payments, although in some instances repayment may be guaranteed or
otherwise secured.
There are several types of public agencies in New Jersey that are
authorized to issue revenue bonds for essential public purposes, including
utilities authorities, improvement authorities, sewerage authorities, housing
authorities, parking authorities, redevelopment agencies and various other
authorities and agencies. These public agencies have issued bonds for the
construction of hospitals, housing facilities, pollution control facilities,
water and sewage facilities, power and electric facilities, resource recovery
facilities and other public projects or facilities. Certain difficulties may
occur in the construction or operation of such facilities or projects that
would adversely affect the amount of revenues derived therefrom in order to
support the issuing entity's payment obligation on the bonds issued
therefor. Hospital facilities, for example, are subject to changes in
Medicare and Medicaid reimbursement regulations, attempts by Federal and
state legislature to limit costs for health care and management's ability to
complete construction projects on a timely basis as well as to maintain
projected rates of occupancy and utilization. At any given time, there are
several proposals pending on a Federal and state level concerning health care
which may further affect a hospital's debt service obligation
Housing facilities may be subject to increases in operating costs,
management's ability to maintain occupancy levels, rent restrictions and
availability of Federal or state subsidies, while power and electric
facilities and resource recovery facilities may be subject to increased costs
resulting from environmental restrictions, fluctuations in fuel costs, delays
in licensing procedures and the general regulatory framework in which these
facilities operate. All of these entities are constructed and operated under
rigid regulatory guidelines.
The New Jersey Economic Development Authority (the "EDA") is a
major issuer of special obligation bonds on a conduit basis in connection
with its authority, pursuant to New Jersey law, to make loans and extend
credit for the financing of projects for public purposes. The EDA issues the
bonds and loans the proceeds to a borrower who agrees to repay the EDA
amounts sufficient to pay principal and interest on the bonds when the same
becomes due.
Some borrowers that financed facilities with proceeds of industrial
development bonds issued by the EDA have defaulted on their repayment
obligations to the EDA. Since these special obligation bonds were payable
only from money received from the specific projects that were funded or from
other sources pledged by the borrower to support its repayment obligation,
the EDA was unable to pay debt service to the holders of the bonds issued for
the respective projects. However, because each issue of special obligation
bonds depends on its own revenue for repayment, these defaults should not
affect the ability of the EDA to pay debt service on other bonds it issues in
the future on behalf of qualified borrowers.
New Jersey is the ninth largest state in population and fifth
smallest in land area. With an average of 1,042 persons per square mile, it
is the most densely populated of all the states. New Jersey is located at
the center of the megalopolis which extends from Boston to Washington, and
which includes almost one-fourth of the country's population.
New Jersey's economic base is diversified, consisting of a variety
of manufacturing, construction and service industries, supplemented by rural
areas with selective commercial agriculture. New Jersey has the Atlantic
seashore on the east and lakes and mountains in the north and northwest,
which provide recreation for residents as well as for out-of-state visitors.
After enjoying an extraordinary boom during the mid-1980s, New
Jersey as well as the rest of the Northeast slipped into a slowdown well
before the onset of the national recession which officially began in
July 1990 (according to the National Bureau of Economic Research).
Initially, this slowdown was an expected response to New Jersey's tight labor
market and the fewer number of young persons from the "baby boom" generation
born in the late 1960s and early 1970s, entering the labor force.
By the beginning of the national recession, construction activity
had already been declining in New Jersey for nearly two years. As the rapid
acceleration of real estate prices forced many would-be homeowners out of the
market and high non-residential vacancy rates reduced new commitments for
offices and commercial facilities, construction employment began to decline;
also growth had tapered off markedly in the service sectors and the long-term
downtrend of factory employment had accelerated, partly because of a leveling
off of industrial demand nationally. The onset of a recession caused an
acceleration of New Jersey's job losses in construction and manufacturing, as
well as an employment downturn in such previously growing sectors as
wholesale trade, retail trade, finance, utilities, trucking and warehousing;
jobs have also been trimmed in trade, government, finance/insurance/real
estate and transportation/communications/public utilities. Partially
offsetting gains have occurred in health care and other private service
activities.
Although evidence of a recovery in New Jersey is still sparse,
homebuilding, public works, construction activity and retail sales appear to
be improving. The economic recovery, however, is likely to be slow and
uncertain. Some sectors, like commercial and industrial construction, will
undoubtedly lag because of continued excess capacity. Also, employees in
recovering sectors can be expected to remain cautious about hiring until they
become convinced that improved business will be sustained. Other firms, such
as banking institutions will continue to merge or downsize to increase
profitability, which will add to consumer uncertainty. As a result, job
gains will probably come grudgingly and unemployment will recede at a
correspondingly slow pace.
To the extent that any adverse conditions exist in the future that
affect the ability of public agencies within New Jersey to pay debt service
on their obligations, the value of the New Jersey Fund may be immediately and
substantially affected.
May 24, 1995
FITF596
