FIRST INVESTORS NEW YORK INSURED TAX FREE FUND INC, 485BPOS, 1998-04-29

FIRST INVESTORS NEW YORK INSURED TAX FREE FUND INC
485BPOS, 1998-04-29

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<PAGE>

As filed with the Securities and Exchange Commission on April 29, 1998

Registration No. 2-86489
811-3843

================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

----------

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Post-Effective Amendment No. 18 [X]

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940

Amendment No. 18 [X]

----------

FIRST INVESTORS NEW YORK INSURED TAX FREE FUND, INC.
(Exact name of Registrant as specified in charter)

95 Wall Street
New York, New York 10005
(Address of Principal Executive Offices) (Zip Code)

212-858-8000
(Registrant's Telephone Number, Including Area Code)

Ms. Concetta Durso
Secretary and Vice President
First Investors New York Insured Tax Free Fund, Inc.
95 Wall Street
New York, New York 10005
(Name and Address of Agent for Service)

Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement

It is proposed that this filing will become effective on April 30, 1998 pursuant
to paragraph (b) of Rule 485.

<PAGE>

FIRST INVESTORS NEW YORK INSURED TAX FREE FUND, INC.
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>

N-1A Item No. Location
- ------------- --------

PART A: PROSPECTUS

<S> <C> <C>
1. Cover Page.................................................................. Cover Page
2. Synopsis.................................................................... Fee Table
3. Condensed Financial Information............................................. Financial Highlights
4. General Description of Registrant........................................... Investment Objectives and Policies;
General Information
5. Management of the Fund...................................................... Management
5A. Management's Discussion of
Fund Performance........................................................... Performance Information
6. Capital Stock and Other Securities.......................................... Description of Shares; Dividends and
Other Distributions; Taxes;
Determination of Net Asset Value
7. Purchase of Securities Being Offered........................................ Alternative Purchase Plan; How to Buy
Shares
8. Redemption or Repurchase.................................................... How to Exchange Shares; How to Redeem
Shares; Telephone Transactions
9. Pending Legal Proceedings................................................... Not Applicable

PART B: STATEMENT OF ADDITIONAL INFORMATION

10. Cover Page.................................................................. Cover Page
11. Table of Contents........................................................... Table of Contents
12. General Information and History............................................. General Information
13. Investment Objectives and Policies.......................................... Investment Policies; Investment
Restrictions; State Specific Risk
Factors; Insurance
14. Management of the Fund...................................................... Directors or Trustees and Officers
15. Control Persons and Principal
Holders of Securities..................................................
16. Investment Advisory and Other Services...................................... Management
17. Brokerage Allocation........................................................ Allocation of Portfolio Brokerage
18. Capital Stock and Other Securities.......................................... Determination of Net Asset Value

</TABLE>

<PAGE>

N-1A Item No. Location
- ------------- --------
<S> <C> <C>

19. Purchase, Redemption and Pricing
of Securities Being Offered............................................ Reduced Sales Charges, Additional
Exchange and Redemption Information and
Other Services; Determination of Net
Asset Value
20. Tax Status.................................................................. Taxes
21. Underwriters................................................................ Underwriter
22. Performance Data............................................................ Performance Information
23. Financial Statements........................................................ Financial Statements; Report of
Independent Accountants
</TABLE>

PART C: OTHER INFORMATION

Information required to be included in Part C is set forth under the appropriate
item so numbered, in Part C hereof.

<PAGE>

First Investors New York Insured Tax Free Fund, Inc.
First Investors Multi-State Insured Tax Free Fund
Connecticut Fund, Florida Fund, Georgia Fund, Maryland Fund,
Massachusetts Fund, New Jersey Fund, North Carolina Fund,
Pennsylvania Fund and Virginia Fund

95 Wall Street, New York, New York 10005/1-800-423-4026

This is a Prospectus for First Investors New York Insured Tax Free Fund,
Inc. ("New York Insured") and First Investors Multi-State Insured Tax Free Fund
(collectively, "Tax Free Funds"), each an open-end diversified management
investment company. New York Insured consists of a single investment series and
First Investors Multi-State Insured Tax Free Fund ("Multi-State Insured")
consists of seventeen separate investment series. This Prospectus relates to New
York Insured and the nine series of Multi-State Insured listed above
(singularly, "Fund," and collectively, "Funds"). Each Fund sells two classes of
shares. Investors may select Class A or Class B shares, each with a public
offering price that reflects different sales charges and expense levels. See
"Alternative Purchase Plans."

New York Insured. The investment objective of New York Insured is to
provide a high level of interest income which is exempt from Federal income tax,
New York State and New York City personal income taxes and is not an item of tax
preference for purposes of the Federal alternative minimum tax ("Tax Preference
Item").

Multi-State Insured. The investment objective of each Fund of Multi-State
Insured is to achieve a high level of interest income which is exempt from
Federal income tax and, to the extent indicated for a particular Fund, from
state and local income taxes for residents of that state and is not a Tax
Preference Item.

Each Fund invests primarily in tax-exempt obligations issued by or on
behalf of the states or a particular state, its municipal governments and public
authorities, as well as tax-exempt obligations issued by territories or
possessions of the United States, the interest on which is exempt from Federal
income tax, the income or other taxes of a particular state and is not a Tax
Preference Item. There can be no assurance that the objective of any Fund will
be realized.

The Funds' municipal bonds are insured as to timely payment of principal
and interest through the issuer or under insurance policies written by
independent insurance companies. Insurance does not protect against fluctuations
in the bonds' market value or each Fund's net asset value per share. For more
information regarding the Funds' insurance coverage, see "Insurance" on page 20.

This Prospectus sets forth concisely the information about the Funds that a
prospective investor should know before investing and should be retained for
future reference. First Investors Management Company, Inc. ("FIMCO" or
"Adviser") serves as investment adviser to the Funds and First Investors
Corporation ("FIC" or "Underwriter") serves as distributor of the Funds' shares.
A Statement of Additional Information ("SAI"), dated April 30, 1998 (which is
incorporated by reference herein), has been filed with the Securities and
Exchange Commission. The SAI is available at no charge upon request to the Funds
at the address or telephone number indicated above.

An investment in these securities is not a deposit or obligation of, or
guaranteed or endorsed by, any bank and is not federally insured or protected by
the Federal Deposit Insurance Corporation, the Federal Reserve Board or any
other government agency.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
DEQUACY A OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

The date of this Prospectus is April 30, 1998

<PAGE>

FEE TABLE

The following table is intended to assist investors in understanding the
expenses associated with investing in each class of shares of a Fund.

Shareholder Transaction Expenses

<TABLE>
<CAPTION>
Class A Class B
Shares Shares
------ ------
<S> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)................................ 6.25% None
Deferred Sales Load
(as a percentage of the lower of original purchase
price or redemption proceeds)...................................... None* 4% in the first year;
declining to 0%
after the sixth year
</TABLE>

Annual Fund Operating Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Management Total Fund
Fees(1) + 12b-1 Fees(2) Other Expenses(3) Operating Expenses(4)
---------------- ---------------- ------------------ ---------------------
Class A Class B Class A Class B Class A Class B Class A Class B
Shares Shares Shares Shares Shares Shares Shares Shares
------ ------- ------ ------- ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
New York Insured 0.65% 0.65% 0.30% 1.00% 0.16% 0.16% 1.11% 1.81%
Connecticut Fund 0.50 0.50 0.20+ 1.00 0.10+ 0.10+ 0.80+ 1.60+
Florida Fund 0.50 0.50 0.20+ 1.00 0.10+ 0.10+ 0.80+ 1.60+
Georgia Fund 0.20 0.20 0.20+ 1.00 -0-+ -0-+ 0.40+ 1.20+
Maryland Fund 0.30 0.30 0.20+ 1.00 -0-+ -0-+ 0.50+ 1.30+
Massachusetts Fund 0.50 0.50 0.20+ 1.00 0.10+ 0.10+ 0.80+ 1.60+
New Jersey Fund 0.60 0.60 0.20+ 1.00 0.15 0.15 0.95+ 1.75+
North Carolina Fund 0.20 0.20 0.20+ 1.00 -0-+ -0-+ 0.40+ 1.20+
Pennsylvania Fund 0.50 0.50 0.20+ 1.00 0.14 0.14 0.84+ 1.64+
Virginia Fund 0.50 0.50 0.20+ 1.00 0.10+ 0.10+ 0.80+ 1.60+
</TABLE>

- ------------------------
* A contingent deferred sales charge of 1.00% will be assessed on certain
redemptions of Class A shares that are purchased without a sales charge.
See "How to Buy Shares."

+ Net of waiver and/or reimbursement.

(1) Management Fees have been restated for New York Insured to reflect current
fees. For the fiscal year ended December 31, 1997, the Adviser waived
Management Fees as follows: in excess of 0.50% for Connecticut Fund,
Florida Fund, Massachusetts Fund, Pennsylvania Fund and Virginia Fund; in
excess of 0.20% for Georgia Fund and North Carolina Fund; in excess of
0.30% for Maryland Fund; and in excess of 0.60% for New Jersey Fund. Absent
the waiver, such fees would have been 0.75% for each of these Funds. The
Adviser will continue to waive such fees for a minimum period ending
December 31, 1998 and will Management Fees in excess of 0.65% for New York
Insured for a minimum period ending December 31, 1998.

(2) The Underwriter has agreed through December 31, 1998 to cap its right to
claim Class A 12b-1 Fees at the annual rates listed above for all the
Funds, other than New York Insured. Multi-State Insured's Class A
Distribution Plan provides for 12b-1 Fees in the total amount of up to
0.30% on an annual basis.

(3) For the fiscal year ended December 31, 1997, the Adviser reimbursed all the
Funds, other than New York Insured, New Jersey Fund and Pennsylvania Fund,
for certain Other Expenses. Absent such reimbursement, Other Expenses for

<PAGE>

each class of shares would have been 0.22% for Connecticut Fund, 0.16% for
Florida Fund, 0.38% for Georgia Fund, 0.23% for Maryland Fund, 0.20% for
Massachusetts Fund, 0.28% for North Carolina Fund and 0.21% for Virginia
Fund. The Adviser will reimburse all Other Expenses for Georgia Fund,
Maryland Fund and North Carolina Fund and Other Expenses in excess of 0.10%
for Connecticut Fund, Florida Fund, Massachusetts Fund and Virginia Fund
for a minimum period ending December 31, 1998.

(4) If certain fees and expenses had not been waived or reimbursed, Total Fund
Operating Expenses for Class A shares would have been 1.22% for New York
Insured, 1.17% for Connecticut Fund, 1.11% for Florida Fund, 1.33% for
Georgia Fund, 1.18% for Maryland Fund, 1.15% for Massachusetts Fund, 1.11%
for New Jersey Fund, 1.23% for North Carolina Fund, 1.10% for Pennsylvania
Fund, and 1.16% for Virginia Fund; and for Class B shares would have been
1.92% for New York Insured, 1.97% for Connecticut Fund, 1.91% for Florida
Fund, 2.13% for Georgia Fund, 1.98% for Maryland Fund, 1.95% for
Massachusetts Fund, 1.91% for New Jersey Fund, 2.03% for North Carolina
Fund, 1.90% for Pennsylvania Fund, and 1.96% for Virginia Fund. Each Fund
has an expense offset arrangement that may reduce the Fund's custodian fee
based on the amount of cash maintained by the Fund with its custodian. Any
such fee reductions are not reflected under Total Fund Operating Expenses.

For a more complete description of the various costs and expenses, see
"Investment Objectives and Policies--Insurance," "Alternative Purchase Plans,"
"How to Buy Shares," "How to Redeem Shares," "Management" and "Distribution
Plans." Due to the imposition of Rule 12b-1 fees, it is possible that long-term
shareholders of a Fund may pay more in total sales charges than the economic
equivalent of the maximum front-end sales charge permitted by the rules of the
National Association of Securities Dealers, Inc.

The Example below is based on Class A and Class B expense data for each
Fund's fiscal year ended December 31, 1997, except that certain Operating
Expenses have been restated as noted above.

EXAMPLE

You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each time period:

<TABLE>
<CAPTION>
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
New York Insured
Class A........................................... $73 $96 $120 $189
Class B........................................... 58 87 118 194*

Connecticut Fund
Class A........................................... 70 86 104 155
Class B........................................... 56 80 107 169*

Florida Fund
Class A........................................... 70 86 104 155
Class B........................................... 56 80 107 169*

Georgia Fund
Class A........................................... 66 75 84 110
Class B........................................... 52 68 86 123*

</TABLE>

3
<PAGE>

Maryland Fund
Class A........................................... 67 78 89 121
Class B........................................... 53 71 91 135*

Massachusetts Fund
Class A........................................... 70 86 104 155
Class B........................................... 56 80 107 169*

New Jersey Fund
Class A........................................... 72 91 112 172
Class B........................................... 58 85 115 185*

North Carolina Fund
Class A........................................... 66 75 84 110
Class B........................................... 52 68 86 123*

Pennsylvania Fund
Class A........................................... 71 88 106 160
Class B........................................... 57 82 109 173*

Virginia Fund
Class A........................................... 70 86 104 155
Class B........................................... 56 80 107 169*
</TABLE>

You would pay the following expenses on the same $1,000 investment,
assuming (1) 5% annual return and (2) no redemption at the end of each time
period:

Connecticut Fund
Class A........................................... 70 86 104 155
Class B........................................... 16 50 87 169*

Florida Fund
Class A........................................... 70 86 104 155
Class B........................................... 16 50 87 169*

Georgia Fund
Class A........................................... 66 75 84 110
Class B........................................... 12 38 66 123*

</TABLE>

4
<PAGE>

Maryland Fund
Class A........................................... 67 78 89 121
Class B........................................... 13 41 71 135*

Massachusetts Fund
Class A........................................... 70 86 104 155
Class B........................................... 16 50 87 169*

New Jersey Fund
Class A........................................... 72 91 112 172
Class B........................................... 18 55 95 185*

North Carolina Fund
Class A........................................... 66 75 84 110
Class B........................................... 12 38 66 123*

Pennsylvania Fund
Class A........................................... 71 88 106 160
Class B........................................... 17 52 89 173*

Virginia Fund
Class A........................................... 70 86 104 155
Class B........................................... 16 50 87 169*
</TABLE>

* Assumes conversion to Class A shares eight years after purchase.

The expenses in the Example should not be considered a representation by
the Funds of past or future expenses. Actual expenses in future years may be
greater or less than those shown.

5
<PAGE>

[This Page Intentionally Left Blank]

6
<PAGE>

FINANCIAL HIGHLIGHTS

The table on the following pages 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 period indicated. Additional
performance information is contained in the Tax Free Funds' Annual Reports which
may be obtained without charge by contacting the applicable Tax Free Fund at
1-800-423-4026. The table has been derived from financial statements which have
been audited by Tait, Weller & Baker, independent certified public accountants,
whose report thereon appears in the SAI. This information should be read in
conjunction with the Financial Statements and Notes thereto, which also appear
in the SAI, available at no charge upon request to the Funds.

7
<PAGE>

Net
Realized
Net Asset and
Value Net Unrealized Total from Net
---------- Invest- Gain (Loss) Invest- Invest- Net Total
Beginning ment on ment ment Realized Distri-
of Period Income Investments Operations Income Gain butions
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FIRST INVESTORS NEW YORK
INSURED TAX FREE FUND, INC.
Class A
1988 . . . . . . . . . . . . 13.15 .902 .388 1.290 .930 -- .930
1989 . . . . . . . . . . . . 13.51 .901 .339 1.240 .880 -- .880
1990 . . . . . . . . . . . . 13.87 .889 (.119) .770 .890 -- .890
1991 . . . . . . . . . . . . 13.75 .881 .574 1.455 .875 -- .875
1992 . . . . . . . . . . . . 14.33 .844 .386 1.230 .840 -- .840
1993 . . . . . . . . . . . . 14.72 .809 .608 1.417 .820 .137 .957
1994 . . . . . . . . . . . . 15.18 .758 (1.510) (.752) .768 -- .768
1995 . . . . . . . . . . . . 13.66 .738 1.331 2.069 .740 .059 .799
1996 . . . . . . . . . . . . 14.93 .719 (.298) .421 .720 .091 .811
1997 . . . . . . . . . . . . 14.54 .709 .395 1.104 .708 .076 .784
Class B
1/12/95*to 12/31/95 . . . . 13.76 .616 1.232 1.848 .619 .059 .678
1996 . . . . . . . . . . . . 14.93 .617 (.306) .311 .620 .091 .711
1997 . . . . . . . . . . . . 14.53 .608 .406 1.014 .608 .076 .684

FIRST INVESTORS MULTI-STATE
INSURED TAX FREE FUND
CONNECTICUT FUND
Class A
10/8/90* to 12/31/90 . . . . $11.17 $.034 $(.014) $ .020 $ -- $ -- $ --
1991 . . . . . . . . . . . . 11.19 .630 .449 1.079 .625 .004 .629
1992 . . . . . . . . . . . . 11.64 .669 .401 1.070 .660 -- .660
1993 . . . . . . . . . . . . 12.05 .615 1.053 1.668 .625 .043 .668
1994 . . . . . . . . . . . . 13.05 .609 (1.480) (.871) .609 -- .609
1995 . . . . . . . . . . . . 11.57 .617 1.333 1.950 .620 -- .620
1996 . . . . . . . . . . . . 12.90 .619 (.202) .417 .617 -- .617
1997 . . . . . . . . . . . . 12.70 .613 .471 1.084 .614 -- .614
Class B
1/12/95* to 12/31/95 . . . . 11.67 .512 1.242 1.754 .524 -- .524
1996 . . . . . . . . . . . . 12.90 .522 (.204) .318 .518 -- .518
1997 . . . . . . . . . . . . 12.70 .516 .470 .986 .516 -- .516
</TABLE>

* Commencement of operations of Class A shares or date Class B shares first
offered.

** Calculated without sales charges.

+ Annualized.

++ Net of expenses waived or assumed by the investment adviser and/or the
transfer agent.

8
<PAGE>

- ----------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
-----------------------------------------------------------------------------------------------
Ratio to Average Net
Ratio to Average Assets Before Expenses
Net Assets ++ Waived or Assumed
----------------------- ------------------------
- -----------
Net Asset
Value Net Net Portfolio
- ----------- Total Net Assets Investment Investment Turnover
End of Return ** End of Period Expenses Income Expenses Income Rate
Period (%) (in thousands) (%) (%) (%) (%) (%)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
13.51 10.10 121,017 1.26 6.77 N/A N/A 21
13.87 9.43 150,154 1.14 6.57 N/A N/A 13
13.75 5.81 156,022 1.23 6.53 N/A N/A 33
14.33 10.89 162,296 1.24 6.29 N/A N/A 25
14.72 8.84 181,389 1.29 5.84 N/A N/A 46
15.18 9.82 211,967 1.27 5.35 N/A N/A 31
13.66 (5.03) 193,916 1.28 5.30 N/A N/A 55
14.93 15.45 215,259 1.23 5.10 N/A N/A 53
14.54 2.95 203,496 1.23 4.93 N/A N/A 53
14.86 7.82 195,273 1.17 4.86 1.22 4.81 24

14.93 13.66 1,156 2.00+ 4.34+ N/A N/A 53
14.53 2.18 2,242 1.93 4.23 N/A N/A 53
14.86 7.16 3,602 1.87 4.16 1.92 4.11 24

$11.19 7.71+ $ 625 -- 1.75+ 1.46+ .28+ 0
11.64 9.92 5,050 .06 5.83 1.60 4.28 35
12.05 9.49 10,828 .33 5.73 1.20 4.86 46
13.05 14.10 17,202 .80 4.83 1.15 4.48 29
11.57 (6.75) 14,848 .87 5.01 1.22 4.66 63
12.90 17.18 16,725 .85 4.98 1.20 4.63 26
12.70 3.37 15,203 .81 4.92 1.23 4.50 15
13.17 8.77 16,151 .80 4.78 1.17 4.41 14

12.90 15.28 857 1.71+ 4.12+ 2.07+ 3.76+ 26
12.70 2.57 1,505 1.61 4.12 2.02 3.71 15
13.17 7.95 2,891 1.60 3.98 1.97 3.61 14

</TABLE>

9
<PAGE>

- ---------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
----------------------------------------------------------------------------------------
Less Distributions
Income from Investment Operations from
------------------------------------- -------------------
Net
Realized
Net Asset and
Value Net Unrealized Total from Net
---------- Invest- Gain (Loss) Invest- Invest- Net Total
Beginning ment on ment ment Realized Distri-
of Period Income Investments Operations Income Gain butions
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FIRST INVESTORS MULTI-STATE
INSURED TAX FREE FUND

FLORIDA FUND
Class A
10/5/90* to 12/31/90 . . . . $11.17 $.018 $ (.058) $(.040) $ -- $ -- $ --
1991 . . . . . . . . . . . . 11.13 .658 .582 1.240 .640 .030 .670
1992 . . . . . . . . . . . . 11.70 .702 .508 1.210 .700 -- .700
1993 . . . . . . . . . . . . 12.21 .664 1.032 1.696 .671 .095 .766
1994 . . . . . . . . . . . . 13.14 .642 (1.346) (.704) .646 -- .646
1995 . . . . . . . . . . . . 11.79 .640 1.527 2.167 .647 -- .647
1996 . . . . . . . . . . . . 13.31 .623 (.198) .425 .625 -- .625
1997 . . . . . . . . . . . . 13.11 .624 .547 1.171 .624 .037 .661
Class B
1/12/95*to 12/31/95 . . . . . 11.87 .529 1.460 1.989 .549 -- .549
1996 . . . . . . . . . . . . . 13.31 .530 (.204) .326 .526 -- .526
1997 . . . . . . . . . . . . 13.11 .531 .552 1.083 .526 .037 .563

GEORGIA FUND
Class A
5/1/92* to 12/31/92 . . . . . $11.17 $.267 $.233 $.500 $.250 $ -- $.250
1993 . . . . . . . . . . . . 11.42 .603 1.091 1.694 .619 .005 .624
1994 . . . . . . . . . . . . 12.49 .584 (1.165) (.581) .579 -- .579
1995 . . . . . . . . . . . . 11.33 .653 1.387 2.040 .650 -- .650
1996 . . . . . . . . . . . . 12.72 .639 (.161) .478 .648 -- .648
1997 . . . . . . . . . . . . 12.55 .639 .578 1.217 .637 -- .637
Class B
1/12/95* to 12/31/95 . . . . 11.42 .529 1.303 1.832 .542 -- .542
1996 . . . . . . . . . . . . 12.71 .563 (.183) .380 .550 -- .550
1997 . . . . . . . . . . . . 12.54 .524 .584 1.108 .538 -- .538
</TABLE>

* Commencement of operations of Class A shares or date Class B shares first
offered.

** Calculated without sales charges.

+ Annualized.

++ Net of expenses waived or assumed by the investment adviser and/or the
transfer agent.

10
<PAGE>

- ----------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
-----------------------------------------------------------------------------------------------
Ratio to Average Net
Ratio to Average Assets Before Expenses
Net Assets ++ Waived or Assumed
----------------------- ------------------------
- -----------
Net Asset
Value Net Net Portfolio
- ----------- Total Net Assets Investment Investment Turnover
End of Return ** End of Period Expenses Income Expenses Income Rate
Period (%) (in thousands) (%) (%) (%) (%) (%)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$11.13 (1.48)+ $ 1,339 -- 1.20+ 1.03+ .17+ 0
11.70 11.45 6,891 .06 6.12 1.12 5.06 70
12.21 10.67 12,678 .29 5.97 1.17 5.10 65
13.14 14.19 21,397 .45 5.20 1.10 4.55 53
11.79 (5.39) 19,765 .62 5.24 1.19 4.67 98
13.31 18.77 22,229 .75 5.05 1.15 4.65 68
13.11 3.34 23,299 .83 4.80 1.16 4.47 55
13.62 9.18 23,840 .80 4.71 1.11 4.40 19

13.31 17.06 299 1.68+ 4.12+ 2.09+ 3.70+ 68
13.11 2.56 549 1.62 4.01 1.95 3.68 55
13.63 8.38 837 1.60 3.91 1.91 3.60 19

$11.42 6.75+ $ 365 -- 4.45+ 3.32+ 1.13+ 53
12.49 15.16 1,469 .13 4.96 1.84 3.24 50
11.33 (4.69) 2,065 .20 4.99 1.93 3.26 78
12.72 18.40 3,047 .20 5.41 1.42 4.20 45
12.55 3.94 3,269 .38 5.17 1.44 4.11 37
13.13 10.00 3,152 .40 5.03 1.33 4.10 21

12.71 16.34 97 1.00+ 4.61+ 2.22+ 3.40+ 45
12.54 3.13 151 1.19 4.36 2.25 3.30 37
13.11 9.07 203 1.20 4.23 2.13 3.30 21

</TABLE>

11
<PAGE>

MARYLAND FUND
Class A
10/8/90* to 12/31/90 . . . . $11.17 $.021 $.189 $.210 $ -- $ -- $ --
1991 . . . . . . . . . . . . 11.38 .628 .287 .915 .615 -- .615
1992 . . . . . . . . . . . . 11.68 .669 .426 1.095 .665 -- .665
1993 . . . . . . . . . . . . 12.11 .653 1.083 1.736 .660 .036 .696
1994 . . . . . . . . . . . . 13.15 .644 (1.373) (.729) .651 -- .651
1995 . . . . . . . . . . . . 11.77 .668 1.348 2.016 .666 -- .666
1996 . . . . . . . . . . . . 13.12 .650 (.235) .415 .655 -- .655
1997 . . . . . . . . . . . . 12.88 .652 .549 1.201 .651 -- .651
Class B
1/12/95*to 12/31/95 . . . . . 11.85 .561 1.279 1.840 .570 -- .570
1996 . . . . . . . . . . . . . 13.12 .555 (.249) .306 .556 -- .556
1997 . . . . . . . . . . . . 12.87 .551 .556 1.107 .547 -- .547

MASSACHUSETTS FUND
Class A
1988 . . . . . . . . . . . . 10.01 .753 .547 1.300 .770 -- .770
1989 . . . . . . . . . . . . 10.54 .725 .345 1.070 .730 -- .730
1990 . . . . . . . . . . . . 10.88 .748 (.038) .710 .750 -- .750
1991 . . . . . . . . . . . . 10.84 .732 .468 1.200 .730 -- .730
1992 . . . . . . . . . . . . 11.31 .687 .399 1.086 .676 .010 .686
1993 . . . . . . . . . . . . 11.71 .653 .716 1.369 .660 .139 .799
1994 . . . . . . . . . . . . 12.28 .627 (1.267) (.640) .630 -- .630
1995 . . . . . . . . . . . . 11.01 .612 1.227 1.839 .613 .016 .629
1996 . . . . . . . . . . . . 12.22 .603 (.256) .347 .602 .045 .647
1997 . . . . . . . . . . . . 11.92 .601 .356 .957 .603 .074 .677
Class B
1/12/95*to 12/31/95 . . . . . 11.09 .508 1.155 1.663 .527 .016 .543
1996 . . . . . . . . . . . . . 12.21 .514 (.263) .251 .506 .045 .551
1997 . . . . . . . . . . . . . 11.91 .508 .353 .861 .507 .074 .581
</TABLE>

* Commencement of operations of Class A shares or date Class B shares first
offered.

** Calculated without sales charges.

+ Annualized.

++ Net of expenses waived or assumed by the investment adviser and/or the
transfer agent.

12
<PAGE>

- ----------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
-----------------------------------------------------------------------------------------------
Ratio to Average Net
Ratio to Average Assets Before Expenses
Net Assets + Waived or Assumed
----------------------- ------------------------
Net Asset
Value Net Net Portfolio
- ----------- Total Net Assets Investment Investment Turnover
End of Return ** End of Period Expenses Income Expenses Income Rate
Period (%) (in thousands) (%) (%) (%) (%) (%)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$11.38 8.08+ $ 403 -- 1.69+ 2.88+ (1.19)+ 0
11.68 8.30 1,543 .05 5.74 1.88 3.92 26
12.11 9.64 3,575 .20 5.72 1.38 4.55 38
13.15 14.62 6,643 .45 5.16 1.28 4.33 50
11.77 (5.59) 6,904 .45 5.27 1.34 4.37 44
13.12 17.50 8,666 .48 5.32 1.24 4.55 49
12.88 3.33 10,118 .51 5.10 1.24 4.37 13
13.43 9.59 10,705 .50 5.01 1.18 4.33 35

13.12 15.82 423 1.38+ 4.42+ 2.19+ 3.61+ 49
12.87 2.45 1,021 1.31 4.30 2.05 3.57 13
13.43 8.81 1,782 1.30 4.21 1.98 3.53 35

10.54 13.40 2,901 .10 7.33 1.29 6.14 31
10.88 10.43 8,292 .10 6.78 1.03 5.85 11
10.84 6.85 12,760 .06 7.01 .99 6.09 22
11.31 11.45 17,608 .28 6.66 .99 5.94 4
11.71 9.90 20,067 .70 5.99 1.17 5.52 28
12.28 11.93 23,653 .90 5.37 1.15 5.12 32
11.01 (5.30) 20,838 .95 5.45 1.20 5.20 64
12.22 17.07 23,180 .90 5.22 1.15 4.97 40
11.92 2.99 22,543 .86 5.08 1.18 4.76 45
12.20 8.27 22,852 .80 5.01 1.15 4.66 28

12.21 15.28 314 1.76+ 4.36+ 2.01+ 4.10+ 40
11.91 2.16 519 1.66 4.28 1.98 3.96 45
12.19 7.41 783 1.60 4.21 1.95 3.86 28

</TABLE>

13
<PAGE>

NEW JERSEY FUND
Class A
9/13/88* to 12/31/88 . . . . $11.13 $.083 $ .117 $ .200 $ -- $ -- $ --
1989 . . . . . . . . . . . . 11.33 .797 .373 1.170 .770 -- .770
1990 . . . . . . . . . . . . 11.73 .787 .013 .800 .800 -- .800
1991 . . . . . . . . . . . . 11.73 .762 .548 1.310 .750 -- .750
1992 . . . . . . . . . . . . 12.29 .716 .439 1.155 .716 .059 .775
1993 . . . . . . . . . . . . 12.67 .680 .947 1.627 .684 .103 .787
1994 . . . . . . . . . . . . 13.51 .659 (1.448) (.789) .661 -- .661
1995 . . . . . . . . . . . . 12.06 .648 1.291 1.939 .652 .097 .749
1996 . . . . . . . . . . . . 13.25 .636 (.245) .391 .636 .015 .651
1997 . . . . . . . . . . . . 12.99 .630 .427 1.057 .629 .118 .648
Class B
1/12/95* to 12/31/95 . . . . 12.14 .526 1.199 1.725 .528 .097 .625
1996 . . . . . . . . . . . . 13.24 .533 (.253) .280 .535 .015 .550
1997 . . . . . . . . . . . . 12.97 .525 .433 .958 .530 .118 .648

NORTH CAROLINA FUND
Class A
5/4/92* to 12/31/92 . . . . $11.17 $.272 $.188 $.460 $.260 $ -- $.260
1993 . . . . . . . . . . . . 11.37 .595 .962 1.557 .604 .043 .647
1994 . . . . . . . . . . . . 12.28 .594 (1.380) (.786) .594 -- .594
1995 . . . . . . . . . . . . 10.90 .608 1.391 1.999 .609 -- .609
1996 . . . . . . . . . . . . 12.29 .590 (.159) .431 .591 -- .591
1997 . . . . . . . . . . . . 12.13 .597 .530 1.127 .597 -- .597
Class B
1/12/95*to 12/31/95 . . . . . 10.99 .492 1.307 1.799 .499 -- .499
1996 . . . . . . . . . . . . . 12.29 .496 (.161) .335 .495 -- .495
1997 . . . . . . . . . . . . 12.13 .497 .534 1.031 .501 -- .501
</TABLE>

* Commencement of operations of Class A shares or date Class B shares first
offered.

** Calculated without sales charges.

+ Annualized.

++ Net of expenses waived or assumed by the investment adviser and/or the
transfer agent.

14
<PAGE>

- ----------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
-----------------------------------------------------------------------------------------------
Ratio to Average Net
Ratio to Average Assets Before Expenses
Net Assets + Waived or Assumed
----------------------- ------------------------
Net Asset
Value Net Net Portfolio
- ----------- Total Net Assets Investment Investment Turnover
End of Return ** End of Period Expenses Income Expenses Income Rate
Period (%) (in thousands) (%) (%) (%) (%) (%)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$11.33 5.96+ $ 2,148 -- 4.95+ .95+ 3.99+ 0
11.73 10.61 17,380 .03 6.82 .92 5.93 10
11.73 7.10 30,686 .10 6.93 .91 6.12 16
12.29 11.52 42,475 .44 6.38 .98 5.84 22
12.67 9.74 54,372 .78 5.76 1.13 5.41 42
13.51 13.09 64,558 .96 5.12 1.11 4.97 44
12.06 (5.91) 55,379 .99 5.21 1.14 5.06 60
13.25 16.41 59,153 .99 5.06 1.14 4.91 30
12.99 3.09 58,823 .98 4.92 1.13 4.77 35
13.30 8.36 59,243 .96 4.81 1.11 4.66 22

13.24 14.45 957 1.81+ 4.24+ 1.97+ 4.08+ 30
12.97 2.22 1,603 1.78 4.12 1.93 3.97 35
13.28 7.56 2,011 1.76 4.01 1.91 3.86 22

$11.37 6.21+ $1,084 -- 4.53+ 2.20+ 2.33+ 10
12.28 13.98 3,883 .13 4.99 1.28 3.83 32
10.90 (6.45) 3,872 .20 5.22 1.44 3.99 61
12.29 18.72 4,984 .20 5.18 1.36 4.03 76
12.13 3.68 5,822 .38 4.94 1.31 4.02 43
12.66 9.56 6,697 .40 4.87 1.23 4.04 30

12.29 16.65 75 1.00+ 4.38+ 2.16+ 3.23+ 76
12.13 2.85 134 1.20 4.12 2.12 3.20 43
12.66 8.71 185 1.20 4.07 2.03 3.24 30

</TABLE>

15
<PAGE>

FIRST INVESTORS MULTI-STATE
INSURED TAX FREE FUND

PENNSYLVANIA FUND
Class A
4/30/90* to 12/31/90 . . . . $11.17 $.296 $.214 $.510 $.270 $ -- $.270
1991 . . . . . . . . . . . . 11.41 .714 .429 1.143 .695 .008 .703
1992 . . . . . . . . . . . . 11.85 .699 .427 1.126 .716 -- .716
1993 . . . . . . . . . . . . 12.26 .667 1.048 1.715 .663 .152 .815
1994 . . . . . . . . . . . . 13.16 .627 (1.447) (.820) .630 -- .630
1995 . . . . . . . . . . . . 11.71 .638 1.463 2.101 .635 .036 .671
1996 . . . . . . . . . . . . 13.14 .622 (.197) .425 .627 .028 .655
1997 . . . . . . . . . . . . 12.91 .624 .523 1.147 .624 .153 .777
Class B
1/12/95* to 12/31/95 . . . . 11.81 .539 1.376 1.915 .549 .036 .585
1996 . . . . . . . . . . . . 13.14 .529 (.201) .328 .530 .028 .558
1997 . . . . . . . . . . . . 12.91 .526 .510 1.036 .523 .153 .676

VIRGINIA FUND
Class A
4/30/90* to 12/31/90 . . . . $11.17 $.320 $.080 $.400 $.300 $ -- $.300
1991 . . . . . . . . . . . . 11.27 .715 .523 1.238 .690 .018 .708
1992 . . . . . . . . . . . . 11.80 .683 .481 1.164 .702 .032 .734
1993 . . . . . . . . . . . . 12.23 .636 .915 1.551 .639 .082 .721
1994 . . . . . . . . . . . . 13.06 .611 (1.383) (.772) .608 -- .608
1995 . . . . . . . . . . . . 11.68 .625 1.370 1.995 .629 .036 .665
1996 . . . . . . . . . . . . 13.01 .626 (.195) .431 .624 .067 .691
1997 . . . . . . . . . . . . 12.75 .615 .504 1.119 .617 .032 .649
Class B
1/12/95*to 12/31/95 . . . . . 11.76 .510 1.286 1.796 .520 .036 .556
1996 . . . . . . . . . . . . . 13.00 .525 (.194) .331 .524 .067 .591
1997 . . . . . . . . . . . . 12.74 .513 .505 1.018 .516 .032 .548
</TABLE>

* Commencement of operations of Class A shares or date Class B shares first
offered.

** Calculated without sales charges.

+ Annualized.

++ Net of expenses waived or assumed by the investment adviser and/or the
transfer agent.

16
<PAGE>

- ----------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
-----------------------------------------------------------------------------------------------
Ratio to Average Net
Ratio to Average Assets Before Expenses
Net Assets ++ Waived or Assumed
----------------------- ------------------------
- -----------
Net Asset
Value Net Net Portfolio
- ----------- Total Net Assets Investment Investment Turnover
End of Return ** End of Period Expenses Income Expenses Income Rate
Period (%) (in thousands) (%) (%) (%) (%) (%)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$11.41 6.88+ $6,252 .05+ 5.39+ 1.05+ 4.39+ 1
11.85 10.24 16,118 .29 6.28 1.03 5.54 26
12.26 9.81 26,036 .56 5.84 1.12 5.28 18
13.16 14.28 35,514 .79 5.17 1.10 4.86 37
11.71 (6.31) 33,542 .88 5.11 1.13 4.86 81
13.14 18.29 39,980 .86 5.07 1.11 4.82 48
12.91 3.39 42,228 .86 4.86 1.11 4.61 42
13.28 9.14 42,223 .85 4.79 1.10 4.54 37

13.14 16.49 247 1.72+ 4.20+ 1.98 3.94+ 48
12.91 2.61 781 1.66 4.06 1.91 3.81 42
13.27 8.23 1,739 1.65 3.99 1.90 3.74 37

$11.27 5.40+ $3,327 .08+ 5.56+ 1.22+ 4.43+ 0
11.80 11.31 9,756 .13 6.32 1.10 5.36 15
12.23 10.19 16,507 .56 6.75 1.22 5.09 41
13.06 12.94 24,684 .81 4.97 1.16 4.62 39
11.68 (5.97) 22,325 .85 5.01 1.20 4.66 55
13.01 17.42 25,193 .81 5.01 1.16 4.66 34
12.75 3.47 21,047 .79 4.93 1.20 4.52 30
13.22 9.03 22,136 .80 4.78 1.16 4.42 10

13.00 15.53 991 1.66+ 4.16+ 2.02+ 3.80+ 34
12.74 2.66 1,166 1.59 4.13 2.00 3.72 30
13.21 8.19 1,390 1.60 3.98 1.96 3.62 10

</TABLE>

17
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

New York Insured

The investment objective of New York Insured is to provide a high level of
interest income which is exempt from Federal income tax, New York State and New
York City personal income taxes and is not a Tax Preference Item. New York
Insured seeks to achieve its objective by investing at least 80% of its total
assets in Municipal Instruments, as defined below, issued by or on behalf of New
York State and its municipal governments and by public authorities in New York
State, as well as by territories and possessions of the United States and the
District of Columbia and their political subdivisions, agencies and
instrumentalities, the interest on which is exempt from Federal income tax, New
York State and New York City personal income taxes and is not a Tax Preference
Item. See "Municipal Instruments."

Multi-State Insured

The investment objective of each Fund of Multi-State Insured is to achieve
a high level of interest income which is exempt from Federal income tax and, to
the extent indicated for a particular Fund, from state and local income taxes
for residents of that state and is not a Tax Preference Item. Each Fund of
Multi-State Insured seeks to achieve its objective by investing at least 80% of
its total assets in Municipal Instruments, as defined below, issued by or on
behalf of states, territories and possessions of the United States and the
District of Columbia and their political subdivisions, agencies and
instrumentalities, the interest on which is exempt from Federal income tax,
state and local income taxes in the states for whose residents the particular
Fund is established and is not a Tax Preference Item. See "Municipal
Instruments."

General Policies

Each Fund may invest in zero coupon municipal securities. Each Fund may
invest up to 25% of its net assets in securities on a "when-issued" basis, which
involves an arrangement whereby delivery of, and payment for, the instruments
occur up to 45 days after the agreement to purchase the instruments is made by a
Fund. Each Fund also may invest up to 20% of its assets, on a temporary basis,
in high quality fixed income obligations, the interest on which is subject to
Federal and state or local income taxes. Each Fund also may invest up to 10% of
its total assets in municipal obligations on which the rate of interest varies
inversely with interest rates on other municipal obligations or an index
(commonly referred to as inverse floaters) and may acquire detachable call
options relating to municipal bonds. Each Fund may borrow money for temporary or
emergency purposes in amounts not exceeding 5% of its total assets and invest in
repurchase agreements. See "Description of Certain Securities, Other Investment
Policies and Risk Factors," below, and the SAI for more information regarding
these securities.

Although each Fund generally invests in municipal bonds rated Baa or higher
by Moody's Investors Service, Inc. ("Moody's") or BBB or higher by Standard &
Poor's Ratings Group ("S&P"), each Fund may invest up to 5% of its net assets in
lower rated municipal bonds or in unrated municipal bonds deemed to be of
comparable quality by the Adviser. See "Debt Securities," below. However, in
each instance such municipal bonds will be covered by the insurance feature and
thus

18
<PAGE>

are considered to be of higher quality than lower rated municipal bonds without
an insurance feature. See "Insurance" for a discussion of the insurance feature.
The Adviser will carefully evaluate on a case-by-case basis whether to dispose
of or retain a municipal bond which has been downgraded in rating subsequent to
its purchase by a Fund. A description of municipal bond ratings is contained in
Appendix A to the SAI.

Each Fund may invest more than 25% of its total assets in a particular
segment of the municipal bond market, such as hospital revenue bonds, housing
agency bonds, industrial development bonds, airport bonds and university
dormitory bonds, during periods when one or more of these segments offer higher
yields and/or profit potential. This possible concentration of the assets of a
Fund may result in the Fund being invested in securities which are related in
such a way that economic, business, political developments, or other changes
which would affect one security would probably likewise affect the other
securities within that particular segment of the bond market. Such concentration
of a Fund's investments could increase market risks, but risk of non-payment of
interest when due, or default on the payment of principal, is covered by the
insurance feature of each Fund.

As used in this Prospectus and in the SAI, "Municipal Instruments" include
the following: (1) municipal bonds; (2) private activity bonds or industrial
development bonds; (3) certificates of participation ("COPs"); (4) municipal
notes; (5) municipal commercial paper; and (6) variable rate demand instruments
("VRDIs").

Each Fund's net asset value fluctuates based mainly upon changes in the
value of its portfolio securities. Each Fund's investment objective and certain
investment policies set forth in the SAI that are designated fundamental
policies may not be changed without shareholder approval. There can be no
assurance that any Fund will achieve its investment objective.

Description of Certain Securities, Other Investment Policies and Risk Factors

General Market Risk

In addition to the risks associated with particular types of securities,
which are discussed below, the Funds are subject to general market risks. Each
Fund invests primarily in Municipal Instruments from a particular state. The
market risks associated with Municipal Instruments include the possibility that
the value of those instruments held by the Funds will fluctuate with movements
in interest rates and changes in the perceived creditworthiness of the issuers
of those instruments. Municipal Instruments are likely to decline in value in
times of rising interest rates and to rise in value in times of falling interest
rates. In general, the longer the maturity of a Municipal Instrument, the more
pronounced is the effect of a change in interest rates on the value of the
instrument. The market risks associated with concentrating investments in a
particular state include a Fund's increased sensitivity to changes in economic
conditions or other circumstances that may weaken the capacity of the issuer to
make principal and interest payments. A Fund's yield and net asset value per
share can be affected by political and economic developments within a particular
state, its public authorities and political subdivisions. In addition, new
federal, state and local laws, or changes in existing laws, may adversely affect
the tax-exempt status of interest on a Fund's

19
<PAGE>

portfolio securities or of the exempt-interest dividends paid by a Fund, extend
the time for payment of principal or interest or otherwise constrain enforcement
of such obligations.

Types of Securities and Their Risks

Debt Securities. The market value of debt securities is influenced
significantly by changes in the level of interest rates. Generally, as interest
rates rise, the market value of debt securities decreases. Conversely, as
interest rates fall, the market value of debt securities increases. Factors
which could result in a rise in interest rates, and a decrease in market value
of debt securities, include an increase in inflation or inflation expectations,
an increase in the rate of U.S. economic growth, an expansion in the Federal
budget deficit, or an increase in the price of commodities such as oil. In
addition, the market value of debt securities is influenced by perceptions of
the credit risks associated with such securities. Credit risk is the risk that
adverse changes in economic conditions can affect an issuer's ability to pay
principal and interest. Debt obligations rated lower than Baa by Moody's or BBB
by S&P, commonly referred to as "junk bonds," are speculative and generally
involve a higher risk of loss of principal and income than higher-rated debt
securities. See Appendix A to the SAI for a description of municipal bond
ratings.

Insurance. All municipal bonds in each Fund's portfolio will be insured as
to their scheduled payment of principal and interest at the time of purchase
either (1) under a Mutual Fund Insurance Policy purchased by each Tax Free Fund
from an independent insurance company; (2) under an insurance policy obtained
subsequent to a municipal bond's original issue; or (3) under an insurance
policy obtained by the issuer or underwriter of such municipal bond at the time
of original issuance. An insured municipal bond in the portfolio of a Fund
typically will be covered by only one of the three policies. All three types of
insurance policies insure the scheduled payment of all principal and interest on
the Funds' municipal bonds as they fall due. The insurance does not guarantee
the market value or yield of the insured municipal bonds or the net asset value
or yield of the shares of a Fund. Investors should note that while all municipal
bonds in which the Funds will invest will be insured, each Fund may invest up to
35% of its total assets in portfolio securities not covered by the insurance
feature. Each Tax Free Fund has purchased a Mutual Fund Insurance Policy from
AMBAC Assurance Corporation ("AMBAC"), a Wisconsin stock insurance company with
its principal executive offices in New York City. Under certain circumstances,
each Tax Free Fund may obtain such insurance from an insurer other than AMBAC,
provided such insurer is rated in the top rating category by S&P, Moody's, Fitch
IBCA, Inc. ("Fitch") or any recognized statistical rating organization. Because
these insurance premiums are paid by each Fund, a Fund's yield is reduced by
this expense. See "Insurance" in the SAI for a detailed discussion of the
insurance feature.

Inverse Floaters. Each Fund may invest in derivative securities on which
the rate of interest varies inversely with interest rates on similar securities
or the value of an index. For example, an inverse floating rate security may pay
interest at a rate that increases as a specified interest rate index decreases
but decreases as that index increases. The secondary market for inverse floaters
may be limited. The market value of such securities generally is more volatile
than that of a fixed rate obligation and, like most debt obligations, will vary
inversely with changes in interest rates. The interest rates on inverse floaters
may be significantly reduced, even to zero, if interest rates rise. Each Fund
may invest up to 10% of its net assets in inverse floaters.

20
<PAGE>

Municipal Instruments

Municipal Bonds. Municipal bonds are debt obligations that generally are
issued to obtain funds for various public purposes and have a time to maturity,
at issuance, of more than one year. The two principal classifications of
municipal bonds are "general obligation" and "revenue" bonds. General obligation
bonds are secured by the issuer's pledge of its full faith and credit for the
payment of principal and interest. Revenue bonds generally are payable only from
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special tax or other specific revenue source.
There are variations in the security of municipal bonds, both within a
particular classification and between classifications, depending on numerous
factors. The yields on municipal bonds depend on, among other things, general
money market conditions, condition of the municipal bond market, size of a
particular offering, the maturity of the obligation and rating of the issuer.
Generally, the value of municipal bonds varies inversely to changes in interest
rates. See Appendix A to the SAI for a description of municipal bond ratings.

Private Activity Bonds or Industrial Development Bonds. Certain types of
revenue bonds, referred to as private activity bonds ("PABs") or industrial
development bonds ("IDBs"), are issued by or on behalf of public authorities to
obtain funds to provide for various privately operated facilities, such as
airports or mass transportation facilities. Most PABs and IDBs are pure revenue
bonds and are not backed by the taxing power of the issuing agency or authority.
See "Taxes" in the SAI for a discussion of special tax consequences to
"substantial users," or persons related thereto, of facilities financed by PABs
or IDBs.

Certificates of Participation. COPs provide participation interests in
lease revenues and each certificate represents a proportionate interest in or
right to the lease-purchase payment made under municipal lease obligations or
installment sales contracts. In certain states, COPs constitute a majority of
new municipal financing issues. The possibility that a municipality will not
appropriate funds for lease payments is a risk of investing in COPs, although
this risk is mitigated by the fact that each COP will be covered by the
insurance feature. See "Certificates of Participation" in the SAI for further
information on COPs.

Municipal Notes. Municipal notes which a Fund may purchase will be
principally tax anticipation notes, bond anticipation notes, revenue
anticipation notes and project notes. The obligations are sold by an issuer
prior to the occurrence of another revenue producing event to bridge a financial
gap for such issuer. Municipal notes are usually general obligations of the
issuing municipality. Project notes are issued by housing agencies, but are
guaranteed by the U.S. Department of Housing and Urban Development and are
secured by the full faith and credit of the United States. Such municipal notes
must be rated MIG-1 by Moody's or SP-1 by S&P or have insurance through the
issuer or an independent insurance company. A description of municipal note
ratings is contained in Appendix B to the SAI.

Variable Rate Demand Instruments. VRDIs are Municipal Instruments, the
interest on which is adjusted periodically, and which allow the holder to demand
payment of all unpaid principal plus accrued interest from the issuer. A VRDI
that a Fund may purchase will be selected if it meets criteria established and
designed by the applicable Tax Free Fund's Board of Directors or Trustees (each,
a "Board") to minimize risk to that Fund. In addition, a VRDI must be rated
MIG-1

21
<PAGE>

by Moody's or SP-1 by S&P or insured by the issuer or an independent insurance
company. There is a recognized after-market for VRDIs.

Variable Rate and Floating Rate Notes. Each Fund may invest in variable
rate and floating rate notes, which are derivatives, issued by municipalities.
Variable rate notes include master demand notes which are obligations permitting
the holder to invest fluctuating amounts, which may change daily without
penalty, pursuant to direct arrangements between the Fund, as lender, and the
borrower. The interest rates on these notes fluctuate from time to time. The
issuer of such obligations normally has a corresponding right, after a given
period, to prepay in its discretion the outstanding principal amount of the
obligations plus accrued interest upon a specified number of days' notice to the
holders of such obligations.

The interest rate on a floating rate obligation is based on a known lending
rate, such as a bank's prime rate, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable rate obligation is adjusted
automatically at specified intervals. Frequently, such obligations are secured
by letters of credit or other credit support arrangements provided by banks.
Because these obligations are direct lending arrangements between the lender and
borrower, it is not contemplated that such instruments generally will be traded,
and there is generally no established secondary market for these obligations,
although they are redeemable at face value. Accordingly, where these obligations
are not secured by letters of credit or other credit support arrangements, the
right of the Fund to redeem is dependent on the ability of the borrower to pay
agencies.

Restricted Securities and Illiquid Investments. Each Fund may invest up to
15% of its net assets in illiquid investments, including (1) securities that are
illiquid due to the absence of a readily available market or due to legal or
contractual restrictions on resale and (2) repurchase agreements maturing in
more than seven days. However, illiquid investments for purposes of this
limitation do not include restricted securities eligible for resale under Rule
144A under the Securities Act of 1933, as amended ("Rule 144A Securities"),
which the applicable Board or the Adviser has determined are liquid under
Board-approved guidelines. In addition, there is a risk of increasing
illiquidity during times when qualified institutional buyers are uninterested in
purchasing Rule 144A Securities. See the SAI for more information regarding
restricted securities and illiquid investments, including the risks involved in
their use.

Taxable Securities. Each Fund may invest up to 20% of its assets, on a
temporary basis, in high quality fixed income obligations, the interest on which
is subject to Federal and state or local income taxes. A Fund may, for example,
invest the proceeds from the sale of portfolio securities in taxable obligations
pending the investment or reinvestment thereof in Municipal Instruments. A Fund
may invest in highly liquid taxable obligations in order to avoid the necessity
of liquidating portfolio investments to meet redemptions by Fund investors. Each
Fund's temporary investments in taxable securities may consist of: (1)
obligations of the U.S. Government, its agencies or instrumentalities; (2) other
debt securities rated within the highest grade of S&P or Moody's; (3) commercial
paper rated in the highest grade by either of such rating services; and (4)
certificates of deposit and letters of credit. Certificates of deposit are
negotiable certificates issued against funds deposited in a commercial bank or a
savings and loan association for a definite period of time and earning a
specified return.

22
<PAGE>

State Specific Risk Factors

Most of the securities in which each Fund invests are issued within that
Fund's state. Thus, each Fund's yield and share price stability are closely tied
to conditions within that state and to the financial conditions of that state,
its authorities and municipalities. In addition, economic developments within a
single state or region could have a greater impact on a Fund's portfolio than on
an investment portfolio composed of securities of more geographically diverse
issuers. Each Fund seeks to mitigate these potential risks through careful
credit risk analysis and the use of insurance, as previously discussed.
Summaries of certain relevant information regarding each state's economy are set
forth below. For an expanded discussion, see "State Specific Risk Factors" in
the SAI.

Risk Factors for the Connecticut Fund. Connecticut's economy is generally
diverse, but concentration in several important sectors, including
manufacturing, finance, insurance and real estate, wholesale and retail trade
and services, may cause the state's economy to be adversely affected by cyclical
changes. In Fiscal Year 1997, the state government derived approximately 67% of
its revenue from the collection of taxes, the majority of which is comprised of
personal income, sales and use, and corporation taxes. The state finances a wide
array of capital programs and projects through the issuance of general
obligation bonds backed by the general taxing authority of the state and special
tax obligation bonds backed by a dedicated stream of revenue. Fiscal Year 1997
showed a General Fund operating surplus of $252 million, its largest surplus in
more than a decade. When the operations of all of the State's funds are
considered, the State incurred a deficit in government operations of $95
million, nearly 50% lower than the deficit in fiscal year 1996.

Risk Factors for the Florida Fund. Florida's economy has diversified and
has shifted emphasis from resource manufacturing to tourism, other services and
trade. Economic development efforts are broadening. Nevertheless, economic
developments affecting the service industry, the tourism industry and high-tech
manufacturing could have severe effects on the Florida economy. Due to the
development of amusement and educational theme parks, the seasonal and cyclical
character of Florida's tourist industry has been reduced. However, a decline in
the national economy, competition from other tourist destinations, crime and
international developments all may affect Florida tourism. While Florida's
population growth has traditionally helped its economy to perform above the
national average, the rapid population growth experienced by the state in the
1980's has slowed down in the 1990's. Due to the large number of retirees,
Florida personal income has generally been insulated from certain national
economic effects. A reduction in the number of retirees moving to Florida and an
increasing native birthrate may increase the susceptibility of Florida's economy
to national economic effects affecting personal income. In addition, the
economic well-being of Florida's retirees could be adversely affected by federal
entitlement cuts. Various limitations on the State of Florida, its governmental
agencies and Florida local governmental agencies, including constitutional and
statutory balanced budget requirements, may inhibit the ability of the issuers
to repay existing municipal indebtedness and issue additional indebtedness. The
value of Florida municipal instruments may also be affected by general
conditions in the money markets or the municipal bond markets, the levels of
Federal income tax rates, the supply of tax-exempt bonds, the credit quality and
rating of the issues and perceptions with respect to the level of interest
rates. See the SAI for an expanded discussion of the risk considerations for the
Florida Fund.

23
<PAGE>

Risk Factors for the Georgia Fund. The Georgia Fund will concentrate its
investments in debt obligations of the state of Georgia and guaranteed revenue
debt of its instrumentalities (the "Georgia Obligations"). The Georgia
Obligations may be adversely affected by economic and political conditions and
developments within the state.

In both economic and demographic arenas, Georgia's growth continues to
exceed that of its neighboring Southeastern states, though Georgia's economy has
slowed from pre-1996 Olympic Games levels. The unemployment rate in Georgia is
currently below the national average.

While Georgia's immediate financial future appears sound, should the
above-mentioned trends slow or reverse themselves, the Georgia economy and state
revenues could be adversely affected. There can be no assurance that the events
discussed above will not negatively affect the market value of the Georgia
Obligations or the ability of either the state or its instrumentalities to pay
interest and repay principal on the Georgia Obligations in a timely manner.

Risk Factors for the Maryland Fund. The State of Maryland has enjoyed
continued economic growth in the later part of the 1990s. State revenues in
recent years have been sufficient to fund the state's expenditures as well as
fund the state's contributions to the Revenue Stabilization Account of the
state's Reserve Fund. Personal income tax rates have been cut by 10%, being
phased-in over a five-year period. Maryland's constitution requires a balanced
budget. While the ratings assigned to Maryland municipal instruments by
nationally recognized statistical ratings organizations indicate that Maryland
and its principal subdivisions and agencies are overall in satisfactory economic
health, there can, of course, be no assurance that this will continue or that
particular bond issues may not be adversely affected by changes in state or
local economic or political conditions. Maryland tax-free securities include
obligations issued by the state of Maryland or its counties, municipalities,
authorities, or other subdivisions. The performance of these securities is
closely tied to economic and political conditions within the state.

Risk Factors for the Massachusetts Fund. The Commonwealth of Massachusetts
and certain of its cities, towns, counties and other political subdivisions have
at certain times in the past experienced serious financial difficulties which
have adversely affected their credit standing. The recurrence of such financial
difficulties could adversely affect the market values and marketability of, or
result in default in payment on, outstanding obligations issued by the
Commonwealth or its public authorities or municipalities. In Massachusetts, the
tax on personal property and real estate is the principal source of tax revenues
available to cities and towns to meet local costs. "Proposition 2 1/2" an
initiative petition adopted by the voters of the Commonwealth of Massachusetts
in November 1980, limits the power of Massachusetts cities and towns and certain
tax-supported districts and public agencies to raise revenue from property taxes
to support their operations, including the payment of debt service, and could
impair on their obligations. Massachusetts cities and towns also receive
substantial local aid from the Commonwealth. The ability of the Commonwealth to
pay its obligations and to provide local aid will by affected by, among other
things, future social, environmental and economic conditions, many of which are
not within the control of the Commonwealth, as well as by questions of
legislative policy and the financial condition of the Commonwealth.

24
<PAGE>

Risk Factors for the New Jersey Fund. New Jersey has a diversified economic
base consisting of, among others, commerce and service industries, selective
commercial agriculture, insurance, tourism, petroleum refining and
manufacturing, although New Jersey's manufacturing industry has shown a downward
trend in the last few years. New Jersey is a major recipient of Federal
assistance. Hence, a decrease in Federal financial assistance may adversely
affect New Jersey's financial condition. As a result of high levels of
unemployment in the 1970s, New Jersey defaulted on employment benefits in 1974
and received advances from the U.S. Department of Labor in order to continue
meeting benefit obligations. In the early 1980s New Jersey's trust fund for
unemployment insurance was bankrupt and until 1984 the trust fund was subject to
a Federal penalty surtax. While New Jersey's economic base has become more
diversified over time and thus its economy appears to be less vulnerable during
recessionary periods, a recurrence of high levels of unemployment could
adversely affect New Jersey's overall economy and its ability to meet its
financial obligations. New Jersey law requires a municipality to maintain a
balanced budget and generally to restrict increases of certain appropriations,
excluding debt service, to the lesser of a certain price index of 5% annually.
Maintaining a balanced budget may adversely affect a municipality's ability to
repay its obligations. The value of New Jersey obligations may also be affected
by general conditions in the money markets or the municipal bond markets, the
levels of Federal and New Jersey income tax rates, the supply of tax-exempt
bonds, the size of the particular offering, the maturity of the obligation, the
credit quality and rating of the issue and perceptions with respect to the level
of interest rates.

Risk Factors for New York Insured. New York Insured's performance is
closely tied to conditions within the State and its public authorities and
municipalities, particularly The City of New York (the "City"). The economic and
financial condition of the State may be affected by various financial, social,
economic and political factors. Those factors can be very complex, can vary from
fiscal year to fiscal year, and are frequently the result of actions taken not
only by the State but also by entities, such as the federal government, that are
outside the State's control. Because of the uncertainty and unpredictability of
changes in these factors, their impact cannot be fully included in the
assumptions underlying the State's projections. There can be no assurance that
the State economy will not experience results that are worse than presently
predicted, with corresponding material and adverse effects on the State's
financial projections. To the extent the State experiences economic
difficulties, its ability to assist its public authorities and subdivisions is
impaired. Uncertainties with regard to both the economy and potential decisions
at the federal level add further pressure on future budget balance in the State.
This risk includes either a financial market or broader economic "correction," a
risk heightened by the relatively lengthy expansions currently underway. The
securities industry is more important to the New York economy than the national
economy, and a significant deterioration in stock market performance could
ultimately produce adverse changes in wage and employment levels. In addition, a
normal "forecast error" of one percentage point in the expected growth rate
could cumulatively raise or lower receipts by $1 billion by the last year of the
1998 through 2001 projection period. An additional risk to the State Financial
Plan arises from the potential impact of certain litigation and federal
disallowances now pending against the State, which could produce adverse effects
on the State's projections of receipts and disbursements. The Financial Plan
assumes no significant federal disallowances or other federal actions that could
affect State finances, but has reserves of $500 million in the event of such an
action. The fiscal stability of the State is related, in part, to the fiscal
stability of its public authorities. There are numerous public authorities, with
various responsibilities, including those which finance, construct and/or
operate revenue producing public facilities. The State's access to the public
credit markets could be impaired, and the market price of its

25
<PAGE>

outstanding debt may be materially adversely affected, if any of its public
authorities were to default on their respective obligations. Certain statutory
arrangements provide for State local assistance payments, otherwise payable to
localities, to be made under certain circumstances to certain public
authorities. Some public authorities also receive moneys from State
appropriations to pay for the operating costs of certain of their programs. For
example, the Metropolitan Transportation Authority receives the bulk of this
money in order to carry out mass transit and commuter services. Failure of the
State to appropriate necessary amounts or to take other action to permit the
public authorities to meet their obligations could result in a default by one or
more of the public authorities. If a default were to occur, it would likely have
a significant adverse effect on the market price of obligations of the State and
its public authorities. The fiscal health of the State may be affected by the
fiscal health of the City, which continues to require significant financial
assistance from the State. The City depends on State aid both to enable the City
to balance its budget and to meet its cash requirements. The State could also be
affected by the ability of the City, and certain entities issuing debt for the
benefit of the City, to market their securities successfully in the public
credit markets. The City has achieved balanced operating results for each of its
fiscal years since 1981 as reported in accordance with the then-applicable GAAP
standards. Although the City has balanced its budget since 1981, estimates of
the City's future revenues and expenditures, which are based on numerous
assumptions, are subject to various uncertainties. The City may be required to
implement additional actions, including increases in taxes and reductions in
essential City services. The City might also seek additional assistance from the
State. Fiscal difficulties in localities in the State, other than the City,
particularly in the cities of Yonkers and Troy, may also have an impact on the
State.

Risk Factors for the North Carolina Fund. The economic profile of the State
consists of a combination of industry, agriculture and tourism. The labor force
has undergone significant changes during recent years. The State has moved from
a predominantly agricultural economy to a service and goods producing economy.
The majority of non-agricultural employment is spread among manufacturing,
retail trade, services and the government sector. In North Carolina the issuance
of municipal debt is overseen by the North Carolina Local Government Commission.
This Commission handles the approval, sale and delivery of all local bonds and
notes issued in North Carolina and monitors fiscal accounting standards
prescribed by the Local Government Budget and Fiscal Control Act. No unit of
local government can incur bonded indebtedness without the Commission's prior
approval. If approved, the obligations are sold by the Commission on a sealed
bid basis. The Commission then monitors the local unit's debt service through a
system of monthly reports. Over the past twenty years, North Carolina state debt
obligations have maintained ratings of Aaa by Moody's and AAA by S&P. North
Carolina state and municipal securities may be adversely affected by economic
and political conditions and developments within the State of North Carolina.
The North Carolina Constitution requires a balanced budget, and the State has
not realized any revenue shortfalls in recent years. The State has realized
budgetary credit balances in the last several years; however, during the 1989-90
and 1990-91 fiscal years, the State realized revenue shortfalls requiring the
Governor and General Assembly to mandate significant spending constraints to
fulfill the constitutional requirement of a balanced budget. Therefore, there is
no guarantee that budgetary credit balances will continue to be realized in
future periods.

Risk Factors for the Pennsylvania Fund. Pennsylvania's economy is based on
a mixture of manufacturing, mining, trade, medical and health services,
education and financial institutions. Pennsylvania's continued dependence on
manufacturing, mining, steel and coal, however, has made

26
<PAGE>

the state vulnerable to cyclical fluctuations, foreign imports and environmental
concerns. Pennsylvania's population and per capita income have been increasing
slightly over the past five years, and it's employment and unemployment rates
have generally not been significantly different over the past five years from
that of the United States. Pennsylvania is engaged in certain litigation matters
which are described briefly in the SAI.

Risk Factors for the Virginia Fund. Virginia's economy is based primarily
on manufacturing, the government and service sectors, agriculture, mining and
tourism, and unemployment rates are typically below the national average. The
Commonwealth has a long history of fiscal stability, due in large part to a
conservative financial philosophy, broad-based employment opportunities and
diverse sources of revenue. The 1998-2000 biennium budget for the Commonwealth
forecasts continued economic growth in the Commonwealth after a strong growth
year in 1997. While Virginia's year-to-year changes in personal income exceeded
those of the United States in the 1980s, the state and nation have grown at
similar rates more recently, although Virginia's real growth rate was a half
percentage point better than the national rate over the last fiscal year. The
Constitution of Virginia requires a balanced budget and limits the ability of
the Commonwealth to create debt. General obligation debt may be incurred to meet
certain short-term needs, to finance capital projects and, under less stringent
restriction, to finance revenue-producing capital projects. Also, "special fund"
revenue bonds, to which the constitutional debt restrictions do not apply and
which are not supported by the full faith and credit of the Commonwealth, may be
issued to finance qualifying Commonwealth revenue projects. General obligations
of cities, towns and counties are payable from the general revenues of the
entity, including ad valorem tax revenues on property within the jurisdiction.
Revenue obligations issued by other entities are payable only from revenues from
the particular project or projects involved. Securities held in the Virginia
Fund that are not general obligations of the Commonwealth may be subject to
economic risks or uncertainties peculiar to the issuers of such securities or
the sources from which they are to be paid.

General. There can be no assurances that future national, regional or
state-wide economic developments will not adversely affect the market value of
Municipal Instruments held by a Fund or the ability of particular obligors to
make timely payments of debt service on (or lease payments relating to) those
obligations. In addition, there can be no assurances that future court decisions
or legislative actions will not affect the ability of the issuer of a Municipal
Instrument to repay its obligations or the tax status of a Fund's distributions
relating to investments in Municipal Instruments.

ALTERNATIVE PURCHASE PLANS

Each Fund has two classes of shares, Class A and Class B, which represent
interests in the same portfolio of securities and have identical voting,
dividend, liquidation and other rights and the same terms and conditions, except
that each class (i) is subject to a different sales charge and bears its
separate distribution and certain other class expenses; (ii) has exclusive
voting rights with respect to matters affecting only that class; and (iii) has
different exchange privileges.

Class A Shares. Class A shares are sold with an initial sales charge of up
to 6.25% of the amount invested with discounts available for volume purchases.
Class A shares pay a 12b-1 fee at the annual rate of 0.30% of each Fund's
average daily net assets attributable to Class A shares, of

27
<PAGE>

which no more than 0.25% may be paid as a service fee and the balance thereof
paid as an asset-based sales charge. The initial sales charge is waived for
certain purchases and a contingent deferred sales charge ("CDSC") may be imposed
on such purchases. See "How to Buy Shares."

Class B Shares. Class B shares are sold without an initial sales charge,
but are generally subject to a CDSC which declines in steps from 4% to 0% during
a six-year period and bear a higher 12b-1 fee than Class A shares. Class B
shares pay a 12b-1 fee at the annual rate of 1.00% of each Fund's average daily
net assets attributable to Class B shares, of which no more than 0.25% may be
paid as a service fee and the balance thereof paid as an asset-based sales
charge. Class B shares automatically convert into Class A shares after eight
years. See "How to Buy Shares."

Factors to Consider in Choosing a Class of Shares. In deciding which
alternative is most suitable, an investor should consider several factors, as
discussed below. Regardless of whether an investor purchases Class A or Class B
shares, your Representative, as defined under "How to Buy Shares," receives
compensation for selling shares of a Fund, which may differ for each class.

The principal advantages of purchasing Class A shares are the lower overall
expenses, the availability of quantity discounts on volume purchases and certain
account privileges which are not offered to Class B shareholders. If an investor
plans to make a substantial investment, the sales charge on Class A shares may
either be lower due to the reduced sales charges available on volume purchases
of Class A shares or waived for certain eligible purchasers. Because of the
reduced sales charge available on quantity purchases of Class A shares, it is
recommended that investments of $250,000 or more be made in Class A shares.
Investments in excess of $1,000,000 will only be accepted as purchases of Class
A shares. Distributions paid by each Fund with respect to Class A shares will
also generally be greater than those paid with respect to Class B shares because
expenses attributable to Class A shares will generally be lower.

The principal advantage of purchasing Class B shares is that, since no
initial sales charge is paid, all of an investor's money is put to work from the
outset. Furthermore, although any investment in a Fund should only be viewed as
a long-term investment, if a redemption must be made soon after purchase, an
investor will pay a lower sales charge than if Class A shares had been
purchased. Conversely, because Class B shares are subject to a higher
asset-based sales charge, long-term Class B shareholders may pay more in
asset-based sales charges than the economic equivalent of the maximum sales
charge on Class A shares. The automatic conversion of Class B shares into Class
A shares after eight years is designed to reduce the probability of this
occurring.

HOW TO BUY SHARES

You may buy shares of a Fund through a First Investors registered
representative ("FIC Representative") or through a registered representative
("Dealer Representative") of an unaffiliated broker-dealer ("Dealer") which is
authorized to sell shares of a Fund. Your FIC Representative or Dealer
Representative (each, a "Representative") may help you complete and submit an
application to open an account with a Fund. Certain accounts may require
additional documentation.

With respect to certain shareholder privileges noted in this Prospectus and
the SAI, each fund in the First Investors family of funds, except as noted
below, is an "Eligible Fund" (collectively, "Eligible

28
<PAGE>

Funds"). First Investors Special Bond Fund, Inc., First Investors Life Series
Fund and First Investors U.S. Government Plus Fund are not Eligible Funds. First
Investors Cash Management Fund, Inc. and First Investors Tax-Exempt Money Market
Fund, Inc. (the "Money Market Funds"), unless otherwise noted, are not Eligible
Funds. The funds of Executive Investors Trust are Eligible Funds provided the
shares of any such fund either have been (a) acquired through an exchange from
an Eligible Fund which imposes a maximum sales charge of 6.25%, or (b) held for
at least one year from their date of purchase.

Choice of Class of Shares. When you open a Fund account you must specify
which class of shares you wish to purchase. If you do not specify which class of
shares you wish to purchase, your order will be processed according to
procedures established by FIC. For more information, see the SAI.

Minimum Investment. You may open a Fund account with as little as $1,000.
This account minimum is waived if you open an account for a particular class of
shares through a full exchange of shares of the same class of another Eligible
Fund. Class A share accounts opened through an exchange of shares from the Money
Market Funds may be subject to an initial sales charge. Automatic investment
plans allow you to open an account with as little as $50, provided you invest at
least $600 a year. See "Systematic Investing."

Processing and Pricing of Share Purchases. Purchases by written application
will be processed as follows: Applications accompanied by checks drawn on U.S.
banks made payable to "FIC" and received in FIC's Woodbridge offices by the
close of regular trading on the NYSE, generally 4:00 P.M. (New York City time),
will be processed and shares will be purchased at the public offering price
determined at the close of regular trading on the NYSE on that day. Money
orders, starter checks and third-party checks will not be accepted.

Purchases via telephone or wire will be processed as follows: Orders
received by Representatives before the close of regular trading on the NYSE and
received by FIC at their Woodbridge offices before the close of its business
day, generally 5:00 P.M. (New York City time), will be executed at the public
offering price determined as of the close of regular trading on the NYSE on that
day. It is the responsibility of Representatives to promptly transmit orders
they receive. The "public offering price" is the net asset value plus the
applicable sales charge for Class A shares and the net asset value for Class B
shares. For a discussion of pricing practices in the event that the Funds must
halt operations due to an emergency, see the SAI. Each Fund reserves the right
to reject any application or order for its shares for any reason and to suspend
the offering of its shares.

Purchases through the National Securities Clearing Corp. ("NSCC")
"Fund/SERV" system will be processed as follows: Orders received by a Dealer
before the close of regular trading on the NYSE and received by FIC at its
Woodbridge offices in accordance with NSCC rules and procedures will be executed
at the net asset value, plus any applicable sales charge, determined as of the
close of regular trading on the NYSE on that day. It is the responsibility of
the Dealer to transmit purchase orders to FIC promptly and accurately. FIC will
not be liable for any change in the purchase price due to the failure of FIC to
receive such purchase orders. Any such disputes must be settled between you and
the Dealer.

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<PAGE>

Class A Shares. Class A shares of each Fund are sold at the public offering
price, which will vary with the size of the purchase, as shown in the following
table:

<TABLE>
<CAPTION>
Sales Charge as % of
---------------------------- Concession to
Offering Net Amount Dealers as % of
Amount of Investment Price Invested Offering Price
- -------------------- --------- -------------- ---------------
<S> <C> <C> <C>
Less than $25,000....................................... 6.25% 6.67% 5.13%
$25,000 but under $50,000............................... 5.75 6.10 4.72
$50,000 but under $100,000.............................. 5.50 5.82 4.51
$100,000 but under $250,000............................. 4.50 4.71 3.69
$250,000 but under $500,000............................. 3.50 3.63 2.87
$500,000 but under $1,000,000........................... 2.50 2.56 2.05
</TABLE>

There is no sales charge on transactions of $1 million or more, purchases
that qualify for the Cumulative Purchase Privilege if they total at least $1
million or purchases made pursuant to a Letter of Intent in the minimum amount
of $1 million. The Underwriter will pay from its own resources a sales
commission to FIC Representatives and a concession equal to 0.90% of the amount
invested to Dealers on such purchases. If shares are redeemed within 24 months
of purchase a CDSC of 1.00% will be deducted from the redemption proceeds. The
CDSC will be applied in the same manner as the CDSC on Class B shares. See
"Class B Shares." The CDSC will be waived for any purchase of $1 million or more
on which the Dealer agrees to receive its concession in installments paid over a
24-month period.

Cumulative Purchase Privilege and Letters of Intent. You may purchase Class
A shares of a Fund at a reduced sales charge through the Cumulative Purchase
Privilege or by executing a Letter of Intent. For more information, see the SAI,
call your Representative or call Shareholder Services at 1-800-423-4026.

Waivers of Class A Sales Charges. Sales charges on Class A shares do not
apply to: (1) any purchase by an officer, trustee or employee (who has completed
the introductory employment period) of the Tax Free Funds, the Underwriter, the
Adviser, or their affiliates, by a Representative, or by the spouse, or by the
children and grandchildren under the age of 21 of any such person; (2) any
purchase by a former officer, trustee, director or employee of the Tax Free
Funds, the Underwriter, the Adviser, or their affiliates, or by a former FIC
Representative, provided they had acted as such for at least five years and had
retired or otherwise terminated the relationship in good standing; (3) any
reinvestment of dividends or other distributions in Class A shares of any
Eligible Fund; (4) any reinvestment of Systematic Withdrawal Payment Plan
payments in Class A shares of any Eligible Fund; (5) any reinvestment of the
loan repayments by a participant in a loan program of any First Investors
sponsored qualified retirement plan; (6) a purchase with proceeds from the
liquidation of a First Investors Life Variable Annuity Fund A contract, First
Investors Life Variable Annuity Fund C contract or First Investors Life Variable
Annuity Fund D contract during the one-year period preceding the maturity date
of the contract; and (7) any purchase made during the period November 15, 1998
to February 28, 1999 with the proceeds from a redemption made after February 14,
1998 from the 1st Fund of First Investors U.S. Government Plus Fund.

30
<PAGE>

Additionally, policyholders of participating life insurance policies issued
by First Investors Life Insurance Company, an affiliate of the Adviser and
Underwriter, may elect to invest dividends earned on such policies in Class A
shares of a Fund at net asset value, provided the annual dividend is at least
$50 and the policyholder has an existing account with the Fund.

Holders of certain unit trusts ("Unitholders") who have elected to invest
the entire amount of cash distributions from either principal, interest income
or capital gains or any combination thereof ("Unit Distributions") from the
following trusts may invest such Unit Distributions in Class A shares of a Fund
at a reduced sales charge. Unitholders of various series of New York Insured
Municipals-Income Trust sponsored by Van Kampen Merritt Inc. (the "New York
Trust"); Unitholders of various series of the Multistate Tax Exempt Trust
sponsored by Advest Inc.; and Unitholders of various series of the Municipal
Insured National Trust, J.C. Bradford & Co. as agent, may purchase Class A
shares of a Fund with Unit Distributions at an offering price which is the net
asset value per share plus a sales charge of 1.5%. Unitholders of various series
of tax-exempt trusts, other than the New York Trust, sponsored by Van Kampen
Merritt Inc. may purchase Class A shares of a Fund with Unit Distributions at an
offering price which is the net asset value per share plus a sales charge of
1.0%. Unitholders may invest in Class A shares of a Fund, other than through the
reinvestment of Unit Distributions. Unitholders will be charged the Fund's
regular offering price on such purchases. Each Fund's initial minimum investment
requirement is waived for purchases of Class A shares with Unit Distributions.
Shares of a Fund purchased by Unitholders may be exchanged for Class A shares of
any Eligible Fund subject to the terms and conditions set forth under "How to
Exchange Shares."

Class B Shares. The public offering price of Class B shares of each Fund is
the next determined net asset value, with no initial sales charge imposed. A
CDSC, however, is imposed upon most redemptions of Class B shares at the rates
set forth below:

Contingent Deferred Sales Charge
Year Since Purchase as a Percentage of Dollars Invested
Payment Made or Redemption Proceeds
------------ ----------------------

First.................................... 4%
Second................................... 4
Third.................................... 3
Fourth................................... 3
Fifth.................................... 2
Sixth.................................... 1
Seventh and thereafter................... 0

The CDSC will not be imposed on (1) the redemption of Class B shares
acquired as dividends or other distributions, or (2) any increase in the net
asset value of redeemed shares above their initial purchase price (in other
words, the CDSC will be imposed on the lower of net asset value or purchase
price). In determining whether a CDSC is payable on any redemption, it will be
assumed that the redemption is made first of any Class B shares acquired as
dividends or other distributions, second of Class B shares that have been held
for a sufficient period of time such that the CDSC no longer is applicable to
such shares and finally of Class B shares held longest during the period of time
that a CDSC is applicable to such shares. This will result in you paying the
lowest possible CDSC.

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<PAGE>

As an example, assume an investor purchased 100 shares of Class B shares at
$10 per share for a total cost of $1,000 and in the second year after purchase,
the net asset value per share is $12 and, during such time, the investor has
acquired 10 additional Class B shares as dividends. If at such time the investor
makes his or her first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to a CDSC charge because redemptions are first made of
shares acquired through dividend reinvestment. With respect to the remaining 40
shares, the charge is applied only to the original cost of $10 per share and not
to the increase in net asset value of $2 per share. Therefore, $400 of the $600
redemption proceeds will be charged at a rate of 4.00% (the applicable rate in
the second year after purchase).

For purposes of determining the CDSC on Class B shares, all purchases made
during a calendar month will be deemed to have been made on the first business
day of that month at the average cost of all purchases made during that month.
The holding period of Class B shares acquired through an exchange with another
Eligible Fund will be calculated from the first business day of the month that
the Class B shares were initially acquired in the other Eligible Fund. The
amount of any CDSC will be paid to FIC. The CDSC imposed on the purchase of
Class B shares will be waived under certain circumstances. See "Waivers of CDSC
on Class B Shares" in the SAI.

Conversion of Class B Shares. A shareholder's Class B shares will
automatically convert to Class A shares approximately eight years after the date
of purchase, together with a pro rata portion of all Class B shares representing
dividends and other distributions paid in additional Class B shares. The Class B
shares so converted will no longer be subject to the higher expenses borne by
Class B shares. The conversion will be effected at the relative net asset values
per share of the two classes on the first business day of the month following
the month in which the eighth anniversary of the purchase of the Class B shares
occurs. If a shareholder effects one or more exchanges between Class B shares of
the Eligible Funds during the eight-year period, the holding period for the
shares so exchanged will commence upon the date of the purchase of the original
shares. Because the per share net asset value of the Class A shares may be
higher than that of the Class B shares at the time of conversion, a shareholder
may receive fewer Class A shares than the number of Class B shares converted.
See "Determination of Net Asset Value."

Additional Purchases. After you make your first investment in a Fund, you
may purchase additional shares of a Fund by mailing a check made payable to FIC,
directly to First Investors Corporation, 581 Main Street, Woodbridge, NJ
07095-1198, Attn: Dept. CP. Include your account number on the face of the
check. There is no minimum on additional purchases of Fund shares.

Systematic Investing. Shareholders who have an account with a U.S. bank, or
other financial institution that is an Automated Clearing House member, may
arrange for automatic investments in a Fund on a systematic basis through First
Investors Money Line. Systematic investments may also be made through automatic
payroll investments. You may also elect to reinvest systematically in Class A or
Class B shares of a Fund at net asset value the cash distributions or Systematic
Withdrawal Plan payments from the same class of shares of an existing account in
another Eligible Fund, including the Money Market Funds. If you wish to
participate in any of these systematic investment plans, please call Shareholder
Services at 1-800-423-4026 or see the SAI.

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Transfer of Shares. Shareholders may transfer the ownership of their shares
in a Fund account to another party. Because the Funds do not offer their shares
other than through a broker or dealer, if the party to whom the shares are to be
transferred does not have a broker or dealer of record and does not wish to
complete the paperwork necessary to become a client of First Investors, the
Funds reserve the right to liquidate the shares and forward the proceeds to the
new accountholder rather than to make the transfer. For more information on how
to transfer your Fund shares, call your Representative or call Shareholder
Services at 1-800-423-4026.

General. The Underwriter may at times agree to reallow to Dealers up to an
additional 0.25% of the dollar amount of shares of the Funds and/or certain
other First Investors Funds sold by such Dealers during a specific period of
time. From time to time, the Underwriter also will pay, through additional
reallowances or other sources, a bonus or other compensation to Dealers that
employ a Dealer Representative who sells a minimum dollar amount of the shares
of the Funds and/or certain other First Investors Funds during a specific period
of time. FIC Representatives generally are more highly compensated for sales of
First Investors mutual funds than for sales of other mutual funds.

HOW TO EXCHANGE SHARES

Should your investment needs change, you may exchange, at net asset value,
shares of a Fund for shares of any Eligible Fund, including the Money Market
Funds. Shares of a particular class may be exchanged only for shares of the same
class of another fund. Exchanges can only be made into accounts registered to
identical owners. If your exchange is into a new account, it must meet the
minimum investment and other requirements of the fund into which the exchange is
being made. Additionally, the fund must be available for sale in the state where
you reside. Before exchanging Fund shares for shares of another fund, you should
read the Prospectus of the fund into which the exchange is to be made. You may
obtain Prospectuses and information with respect to which funds qualify for the
exchange privilege free of charge by calling Shareholder Services at
1-800-423-4026. Exchange requests received in "good order," as defined below, by
the Transfer Agent before the close of regular trading on the NYSE will be
processed at the net asset value determined as of the close of regular trading
on the NYSE on that day; exchange requests received after that time will be
processed on the following trading day.

Exchanges By Mail. To exchange shares by mail, you should mail requests to
Administrative Data Management Corp., 581 Main Street, Woodbridge, NJ
07095-1198. Shares will be exchanged after the request is received in "good
order" by the Transfer Agent. "Good order" means that an exchange request must
include: (1) the names of the funds, account number(s), the dollar amount,
number of shares or percentage of the account you wish to exchange; (2) share
certificates, if issued; (3) the signature of all registered owners exactly as
the account is registered; and (4) signature guarantees, if required (see "How
to Redeem Shares-Signature Guarantees"). If the request is not in good order or
information is missing, the Transfer Agent will seek additional information from
you and process the exchange on the day it receives such information. Certain
account registrations may require additional legal documentation in order to
exchange. To review these requirements, please call Shareholder Services at
1-800-423-4026.

Exchanges By Telephone. See "Telephone Transactions," below.

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Additional Exchange Information. Exchanges should be made for investment
purposes only. A pattern of frequent exchanges may be contrary to the best
interests of a Fund's other shareholders. Accordingly, each Fund has the right,
at its sole discretion, to limit the amount of an exchange, reject any exchange,
or, upon 60 days' notice, materially modify or discontinue the exchange
privilege. Each Fund will consider all relevant factors in determining whether a
particular frequency of exchanges is contrary to the best interests of the Fund
and/or a class of the Fund and its other shareholders. Any such restriction will
be made by a Fund on a prospective basis only, upon notice to the shareholder
not later than ten days following such shareholder's most recent exchange.

HOW TO REDEEM SHARES

You may redeem your Fund shares at the next determined net asset value,
less any applicable CDSC, on any day the NYSE is open, directly through the
Transfer Agent. Your Representative may help you with this transaction. Shares
account may be redeemed by mail or telephone. Certain account registrations may
require additional legal documentation in order to redeem. Redemption requests
received in "good order" by the Transfer Agent before the close of regular
trading on the NYSE, will be processed at the net asset value, less any
applicable CDSC, determined as of the close of regular trading on the NYSE on
that day. Payment of redemption proceeds generally will be made within seven
days. If the shares being redeemed were recently purchased by check, payment may
be delayed to verify that the check has been honored, which may take up to
fifteen days from date of purchase. Shareholders may not redeem shares by
telephone or Electronic Fund Transfer unless the shares being redeemed have been
owned for at least 15 days. Redemption checks returned to the Transfer Agent,
marked as being undeliverable, by the U.S. Postal Service after two consecutive
mailings will be held by the Transfer Agent in a non-interest bearing account.
Such funds will remain in the non-interest bearing account until the Transfer
Agent is either provided with a current address and any required supporting
documentation or is required to escheat the funds to the appropriate state
treasury. For a discussion of pricing practices in the event that the Funds must
halt operations due to an emergency, see the SAI.

Redemptions By Mail. Written redemption requests should be mailed to
Administrative Data Management Corp., 581 Main Street, Woodbridge, NJ
07095-1198. For your redemption request to be in good order, you must include:
(1) the name of the Fund; (2) your account number; (3) the dollar amount, number
of shares or percentage of the account you want redeemed; (4) share
certificates, if issued; (5) the original signatures of all registered owners
exactly as the account is registered; and (6) signature guarantees, if required.
If your redemption request is not in good order or information is missing, the
Transfer Agent will seek additional information and process the redemption on
the day it receives such information. To review these requirements, please call
Shareholder Services at 1-800-423-4026.

Signature Guarantees. In order to protect you, the Funds and their agents,
each Fund reserves the right to require signature guarantees in order to process
certain exchange or redemption requests. See the SAI or call Shareholder
Services at 1-800-423-4026 for instances when signature guarantees are required.

Redemptions By Telephone. See "Telephone Transactions," below.

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Electronic Fund Transfer. Shareholders who have established Electronic Fund
Transfer may have redemption proceeds electronically transferred to a
predesignated bank account. Each Fund has the right, at its sole discretion, to
limit or terminate your ability to exercise the electronic fund transfer
privilege at any time. For additional information, see the SAI. Applications to
establish Electronic Fund Transfer are available from your FIC Representative or
by calling Shareholder Services at 1-800-423-4026.

Fund/SERV Redemptions. If there is a Dealer of record on your Fund account,
the Fund is authorized to execute electronic redemption requests received
directly from this Dealer. Electronic requests may be processed through the
services of the NSCC "Fund/SERV" system. Redemption requests received by a
Dealer before the close of regular trading on the NYSE and received by FIC at
its Woodbridge offices in accordance with NSCC rules and procedures will be
executed at the net asset value, less any applicable sales charge, determined at
the close of regular trading on the NYSE on that day. It is the responsibility
of the Dealer to transmit redemption requests to FIC promptly and accurately.
FIC will not be liable for any change in the redemption price due to the failure
of FIC to receive such redemption requests. Any such disputes must be settled
between you and the Dealer.

Systematic Withdrawal Plan. If you own noncertificated shares, you may set
up a plan for redemptions to be made automatically at regular intervals. See the
SAI for more information on the Systematic Withdrawal Plan or call Shareholder
Services at 1-800-423-4026.

Repurchase through Underwriter. You may redeem Fund shares through a
Dealer. In this event, the Underwriter, acting as agent for each Fund, will
offer to repurchase or accept an offer to sell such shares at a price equal to
the net asset value next determined after the making of such offer, less any
applicable CDSC. The Dealer may charge you a fee for handling any redemption
transaction.

Redemption of Low Balance Accounts. Because each Fund incurs certain fixed
costs in maintaining shareholder accounts, each Fund may redeem without your
consent, on at least 60 days' prior written notice (which may appear on your
account statement), any Fund account of Class A or Class B shares which has a
net asset value of less than $500. To avoid such redemption, you may, during
such 60-day period, purchase additional Fund shares of the same class so as to
increase your account balance to the required minimum. There will be no CDSC
imposed on such redemptions of Class B shares. A Fund will not redeem accounts
that fall below $500 solely as a result of a reduction in net asset value.
Accounts established under a Systematic Investment Plan that have been
discontinued prior to meeting the $1,000 minimum are subject to this policy.

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<PAGE>

Additional information concerning how to redeem shares of a Fund is
available upon request to your Representative or Shareholder Services at
1-800-423-4026.

TELEPHONE TRANSACTIONS

Unless you specifically decline to have telephone privileges, you, or any
person who we reasonably believe is authorized to act on your behalf, may redeem
or exchange noncertificated shares of a Fund by calling the Special Services
Department at 1-800-342-6221 weekdays (except holidays) between 9:00 A.M. and
5:00 P.M. (New York City time). Certain accounts, however, are required to
complete additional documents in order to activate telephone privileges.
Exchange or redemption requests received before the close of regular trading on
the NYSE will be processed at the net asset value, less any applicable CDSC,
determined as of the close of business on that day. Exchange or redemption
requests received after the close of regular trading on the NYSE will be
processed the following business day. For more information on telephone
privileges, please call Shareholder Services at 1-800-423-4026 or see the SAI.

Telephone Exchanges. Exchange requests may be made by telephone (provided
no certificate has been issued for the shares).

Telephone Redemptions. The telephone redemption privilege may be used to
redeem shares provided: (1) the redemption proceeds are being mailed to the
address of record or to a predesignated bank account; (2) your address of record
has not changed within the past 60 days; (3) the shares to be redeemed have not
been issued in certificate form; (4) each redemption does not exceed $50,000;
(5) the proceeds of the redemption, together with all redemptions made from the
account during the prior 30-day period, do not exceed $100,000; and (6) the
shares being redeemed have been owned for at least fifteen days. Telephone
redemption instructions will be accepted from any one owner or authorized
individual.

Additional Information. The Tax Free Funds, the Adviser, the Underwriter
and their officers, trustees, directors and employees will not be liable for any
loss, damage, cost or expense arising out of any instruction (or any
interpretation of such instruction) received by telephone which they reasonably
believe to be authentic. This policy places the entire risk of loss for
unauthorized or fraudulent transactions on the shareholder, except that if the
above-referenced parties do not follow reasonable procedures, some or all of
them may be liable for any such losses. For more information on telephone
transactions see the SAI. The Tax Free Funds have the right, at their sole
discretion, upon 60 days' notice, to materially modify or discontinue the
telephone exchange and redemption privilege. During times of drastic economic or
market changes, telephone exchanges or redemptions may be difficult to
implement. If you experience difficulty in making a telephone exchange or
redemption, your exchange or redemption request may be made by regular or
overnight mail, and it will be implemented at the next determined net asset
value, less any applicable CDSC, following receipt by the Transfer Agent.

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MANAGEMENT

Board of Directors or Trustees. Each Tax Free Fund's Board, as part of its
overall management responsibility, oversees various organizations responsible
for the applicable Fund's day-to-day management. Adviser. First Investors
Management Company, Inc. supervises and manages each Fund's investments,
determines each Fund's portfolio transactions and supervises all aspects of each
Fund's operations. The Adviser is a New York corporation located at 95 Wall
Street, New York, NY 10005. The Adviser presently acts as investment adviser to
14 mutual funds. First Investors Consolidated Corporation ("FICC") owns all of
the voting common stock of the Adviser and all of the outstanding stock of FIC
and the Transfer Agent. Mr. Glenn O. Head controls FICC and, therefore, controls
the Adviser.

As compensation for its services, the Adviser receives an annual fee from
each of the Funds, which is payable monthly. For the fiscal year ended December
31, 1997, New York Insured paid 0.70%, net of waiver, of its average daily net
assets in advisory fees. For the fiscal year ended December 31, 1997, the
advisory fees paid by each Fund of Multi-State Insured, as a percentage of such
Fund's average daily net assets, net of waivers, were as follows: Connecticut
Fund - 0.50%; Florida Fund - 0.50%; Georgia Fund - 0.20%; Maryland Fund - 0.30%;
Massachusetts Fund - 0.50%; New Jersey Fund - 0.60%; North Carolina Fund -
0.20%; Pennsylvania Fund - 0.50%; and Virginia Fund - 0.50%.

Portfolio Manager. Clark D. Wagner has been Portfolio Manager of the Tax
Free Funds since he joined FIMCO in 1991. Mr. Wagner is also Portfolio Manager
of certain other First Investors funds. Mr. Wagner has been Chief Investment
Officer of FIMCO since 1992.

Brokerage. Each Fund may allocate brokerage commissions, if any, to
broker-dealers in consideration of Fund share distribution, but only when
execution and price are comparable to that offered by other broker-dealers.
Brokerage may be directed to brokers who provide research. See the SAI for more
information on allocation of portfolio brokerage.

Underwriter. Each Tax Free Fund has entered into an Underwriting Agreement
with First Investors Corporation, 95 Wall Street, New York, NY 10005, as
Underwriter. The Underwriter receives all sales charges in connection with the
sale of each Fund's Class A shares and all CDSCs in connection with each Fund's
Class B shares and may receive other payments under a plan of distribution. See
"How to Buy Shares" and "Distribution Plans."

DISTRIBUTION PLANS

Pursuant to separate distribution plans pertaining to each Fund's Class A
and Class B shares ("Class A Plan" or "Class B Plan," and collectively,
"Plans"), each Fund may reimburse or compensate, as applicable, the Underwriter
for certain expenses incurred in the distribution of that Fund's shares
("distribution fees") and the servicing or maintenance of existing Fund
shareholder accounts ("service fees"). Pursuant to the Plans, distribution fees
are paid for activities relating to the distribution of Fund shares, including
costs of printing and dissemination of sales material

37
<PAGE>

or literature, prospectuses and reports used in connection with the sale of Fund
shares. Service fees are paid for the ongoing maintenance and servicing of
existing shareholder accounts, including payments to Representatives who provide
shareholder liaison services to their customers who are holders of that Fund,
provided they meet certain criteria.

Pursuant to each Class A Plan, the applicable Tax Free Fund's Board, in its
sole discretion, may periodically allocate the portion of distribution fees and
services fees that each Fund may spend, provided the aggregate of such fees paid
by that Fund may not exceed an annual rate of 0.30% of the Fund's average daily
net assets attributable to Class A shares in any one fiscal year. Of that
amount, no more than 0.25% of a Fund's average daily net assets attributable to
Class A shares may be paid as service fees. Payments made to the Underwriter
under each Class A Plan may only be made for reimbursement of specific expenses
incurred in connection with distribution and service activities.

Pursuant to each Class B Plan, each Fund is authorized to pay the
Underwriter a distribution fee at the annual rate of 0.75% of that Fund's
average daily net assets attributable to Class B shares and a service fee of
0.25% of the Fund's average daily net assets attributable to Class B shares.
Payments made to the Underwriter under each Class B Plan will represent
compensation for distribution and service activities, not reimbursement for
specific expenses incurred.

Although Class B shares are sold without an initial sales charge, the
Underwriter pays from its own resources a sales commission to FIC
Representatives and a concession equal to 3.5% of the amount invested to Dealers
who sell Class B shares. In addition, the Underwriter will make quarterly
payments of service fees to Representatives commencing after the thirteenth
month following the initial sale of Class B shares. The Underwriter will make
such payments at an annual rate of up to 0.25% of the average net asset value of
Class B shares which are attributable to shareholders for whom the
Representatives are designated as dealer of record.

Each Fund may suspend or modify payments under the Plans at any time, and
payments are subject to the continuation of each Plan, the terms of any dealer
agreements between Dealers and the Underwriter and any applicable limits imposed
by the National Association of Securities Dealers, Inc. Each Fund will not carry
over any fees under the Plans to the next fiscal year. See "Distribution Plans"
in the SAI for a full discussion of the various Plans.

DETERMINATION OF NET ASSET VALUE

The net asset value of each Fund's shares fluctuates and is determined
separately for each class of shares. The net asset value of shares of a given
class of each Fund is determined as of the close of regular trading on the NYSE
(generally 4:00 P.M., New York City time) on each day the NYSE is open for
trading, and at such other times as the applicable Board deems necessary, by
dividing the market value of the securities held by such Fund, plus any cash and
other assets, less all liabilities attributable to that class, by the number of
shares of the applicable class outstanding. If there is no available market
value, securities will be valued at their fair value as determined in good faith
pursuant to procedures adopted by the applicable Board. Expenses (other than
12b-1 fees and certain other class expenses) are allocated daily to each class
of shares based upon the relative proportion of net assets of each class. The
per share net asset value of the Class B shares will

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<PAGE>

generally be lower than that of the Class A shares because of the higher
expenses borne by the Class B shares. The NYSE currently observes the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.

DIVIDENDS AND OTHER DISTRIBUTIONS

Dividends from net investment income are generally declared daily and paid
monthly by each Fund. Unless you direct the Transfer Agent otherwise, dividends
declared on a class of shares are paid in additional shares of the same class of
the distributing Fund at the net asset value generally determined as of the
close of business on the first business day of the following month. If you
redeem all of your shares of a Fund at any time during a month, you are paid all
dividends declared through the day prior to the date of the redemption, together
with the proceeds of your redemption, less any applicable CDSC. Net investment
income includes interest, earned discount and other income earned on portfolio
securities less expenses.

Each Fund also distributes with its regular dividend at the end of each
year substantially all of its net capital gain (the excess of net long-term
capital gain over net short-term capital loss) and net short-term capital gain,
if any, after deducting any available capital loss carryovers. Unless you direct
the Transfer Agent otherwise, these distributions are paid in additional shares
of the class with respect to which they are declared at the net asset value
generally determined as of the close of business on the business day immediately
following the record date of the distribution. A Fund may make an additional
distribution in any year if necessary to avoid a Federal excise tax on certain
undistributed ordinary (taxable) income and capital gain.

Dividends and other distributions paid on both classes of a Fund's shares
are calculated at the same time and in the same manner. Dividends on Class B
shares of a Fund are expected to be lower than those for its Class A shares
because of the higher distribution fees borne by the Class B shares. Dividends
on each class also might be affected differently by the allocation of other
class-specific expenses.

In order to be eligible to receive a dividend or other distribution, you
must own Fund shares as of the close of business on the record date of the
distribution. You may elect to receive dividends and/or other distributions in
cash by notifying the Transfer Agent by telephone or in writing prior to the
record date of the distribution. If you elect this form of payment, the payment
date generally is two weeks following the record date of the distribution. Your
election remains in effect until you revoke it by notifying the Transfer Agent.

You may elect to invest the entire amount of any cash distribution on Class
A or Class B shares of a Fund in the same class of shares of any Eligible Fund,
including the Money Market Funds, by notifying the Transfer Agent. See the SAI
or call Shareholder Services at 1-800-423-4026 for more information. The
investment will be made at the net asset value per share of the other fund,
generally determined as of the close of business on the business day immediately
following the record date of the distribution.

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<PAGE>

A dividend or other distribution paid on a class of shares of a Fund will
be paid in additional shares of that class and not in cash if either of the
following events occurs: (1) the total amount of the distribution is under $5 or
(2) the Fund has received notice of your death on an individual account (until
written alternate payment instructions and other necessary documents are
provided by your legal representative). Dividend or distribution checks returned
to the Transfer Agent marked as being undeliverable by the U.S. Postal Service
after two consecutive mailings will be held by the Transfer Agent in a
non-interest bearing account until the Transfer Agent is either provided with a
current address and any required supporting documentation or is required to
escheat the funds to the appropriate state treasury. Any subsequent dividend or
distribution check returned in the same manner will be treated as a request by
you to change your dividend or distribution option to reinvest. The proceeds
will be reinvested in additional shares of the distributing class at net asset
value until the Fund receives new instructions.

TAXES

Each Fund has qualified and intends to continue to qualify for treatment as
a regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"), so that it will be relieved of Federal income tax on that
part of its investment company taxable income (consisting generally of taxable
net investment income and net short-term capital gain) and net capital gain that
it distributes to its shareholders. In addition, each Fund intends to continue
to qualify to pay "exempt-interest dividends" (as defined below), which
requires, among other things, that at the close of each calendar quarter at
least 50% of the value of its total assets must consist of Municipal
Instruments.

Distributions by a Fund of the excess of interest income from Municipal
Instruments over certain amounts disallowed as deductions, which are designated
by the Fund as "exempt-interest dividends," generally may be excluded by you
from gross income. Distributions by a Fund of interest income from taxable
obligations and net short-term capital gain, if any, are taxable to you as
ordinary income, to the extent of the Fund's earnings and profits, whether paid
in cash or in additional Fund shares. Distributions of a Fund's net capital
gain, when designated as such, are taxable to you as long-term capital gain,
whether paid in cash or in additional Fund shares, regardless of the length of
time you have owned your shares.

If you purchase your shares shortly before the record date for a taxable
dividend or capital gain distribution, you will pay full price for the shares
and receive some portion of the price back as a taxable distribution. Following
the end of each calendar year you will receive a statement from the Fund in
which you hold shares describing the tax status of distributions paid by the
Fund for that year. The information regarding capital gain distributions
designates the portions thereof subject to the different maximum rates of tax
applicable to individuals' net capital gain.

Interest on indebtedness incurred or continued to purchase or carry shares
of a Fund will not be deductible for Federal income tax purposes to the extent
the Fund's distributions consist of exempt-interest dividends. Each Fund does
not intend to invest in PABs or IDBs the interest on which is treated as a Tax
Preference Item.

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Proposals have been and, in the future, may be introduced before Congress
for the purpose of restricting or eliminating the Federal income tax exemption
for interest on Municipal Instruments. If such a proposal were enacted, the
availability of Municipal Instruments for investment by each Fund and the value
of its portfolio securities would be affected. In that event, each Fund would
reevaluate its investment objective and policies.

Each Fund is required to withhold 31% of all taxable dividends, capital
gain distributions and redemption proceeds payable to you (if you are an
individual or certain other non-corporate shareholder) if the Fund is not
furnished with your correct taxpayer identification number, and the same
percentage of such dividends and distributions in certain other circumstances.

Your redemption of Fund shares will result in a taxable gain or loss to
you, depending on whether the redemption proceeds are more or less than your
adjusted basis for the redeemed shares (which normally includes any initial
sales charge paid on Class A shares). An exchange of Fund shares for shares of
any Eligible Fund generally will have similar tax consequences. However, special
tax rules apply when a shareholder (1) disposes of Class A shares through a
redemption or exchange within 90 days of purchase and (2) subsequently acquires
Class A shares of an Eligible Fund without paying a sales charge due to the
reinvestment privilege or exchange privilege. In these cases, any gain on the
disposition of the original Class A shares will be increased, or loss decreased,
by the amount of the sales charge paid when the shares were acquired, and that
amount will increase the basis of the Eligible Fund's shares subsequently
acquired. In addition, if you purchase Fund shares within 30 days before or
after redeeming other shares of that Fund (regardless of class) at a loss, all
or a portion of the loss will not be deductible and will increase the basis of
the newly purchased shares. No gain or loss will be recognized to a shareholder
as a result of a conversion of Class B shares to Class A shares.

The foregoing is only a summary of some of the important Federal income tax
considerations generally affecting each Fund and its shareholders; see the SAI
for a further discussion. There may be other Federal, state or local tax
considerations applicable to a particular investor; for example, a Fund's
distributions may be wholly or partly taxable under state and/or local laws. You
therefore are urged to consult your own tax adviser.

State Income Taxes.

Connecticut. In the opinion of Kelley Drye & Warren LLP, Connecticut tax
counsel to Multi-State Insured, shareholders who are Connecticut resident
individuals will not be subject to the Connecticut personal income tax on
distributions from the Connecticut Fund to the extent that these distributions
qualify as (i) exempt-interest dividends, as defined in section 852(b)(5) of the
Code, that are attributable to interest on obligations issued by or on behalf of
the State of Connecticut, any political subdivision thereof, or any public
instrumentality, state or local authority, district or similar public entity
created under the laws of the State of Connecticut, or (ii) "exempt dividends"
for Connecticut tax purposes. Distributions to Connecticut shareholders of the
Connecticut Fund that are attributable to sources other than those described
above will generally be includible in the Connecticut income of such
shareholders. See "State Income Taxes" in the SAI for additional Connecticut tax
information. Florida. In the opinion of Rudnick & Wolfe, Florida tax counsel to
Multi-State Insured, under existing law, shareholders of the Florida Fund will
not be subject to the Florida intangible personal property tax on their
ownership of Florida Fund shares or on distributions of income or gains made by
the Florida Fund to the extent that such distributions are attributable solely
to certain assets exempt from intangible tax taxation under Florida law, as more
fully described in the SAI.

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For Florida state income tax purposes, the Florida Fund itself will not be
subject to the Florida income tax so long as it has no income subject to Federal
taxation.

Interests held by shareholders of the Florida Fund will not be subject to
the Florida ad valorem property tax, the Florida sales and use tax or the
Florida documentary stamp tax.

Georgia. In the opinion of Kutak Rock, Georgia tax counsel to Multi-State
Insured, shareholders of the Georgia Fund that are individuals, estates, trusts,
and corporations subject to Georgia income tax may exclude from income for
Georgia income tax purposes, distributions from the Georgia Fund that are
derived from interest on obligations issued by the State of Georgia or any
political subdivision thereof, exempt from federal taxation under section 103(a)
of the Code. Individuals, estates, trusts and corporations may exclude from
income for Georgia income tax purposes, dividend distributions from the Georgia
Fund on obligations of the United States or of any authority, commission,
instrumentality or possession thereof exempt from state income tax under federal
law.

Capital gains recognized as a result of the sale of shares in the Georgia
Fund can not be excluded for purposes of calculating the Georgia income tax by
individuals, estates, trusts and corporations.

Maryland. In the opinion of Ober, Kaler, Grimes & Shriver, tax counsel to
Multi-State Insured, holders of shares of the Maryland Fund who are subject to
Maryland state and local income tax, will not be subject to tax in Maryland on
Maryland Fund dividends to the extent that such dividends are attributable to
interest on tax-exempt obligations of the State of Maryland or its political
subdivisions, interest on obligations of the United States or its possessions
and territories or gains realized from the disposition of either of these
categories of obligations (with the express exception of dividends attributable
to gain from the disposition of obligations of a United States territory or
possession which are subject to Maryland state and local income tax). In
addition, dividends attributable to interest on obligations issued by states
other than Maryland and income from repurchase contracts are subject to Maryland
state and local income tax.

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<PAGE>

Massachusetts. In the opinion of Palmer & Dodge LLP, Massachusetts tax
counsel to Multi-State Insured, assuming the continuation in effect of a
Technical Information Release of the Massachusetts Department of Revenue,
holders of shares of the Massachusetts Fund who are subject to Massachusetts
personal income tax will not be subject to tax on distributions from the
Massachusetts Fund to the extent that these distributions (1) qualify as exempt
interest dividends of a regulated investment company within the meaning of Code
section 852(b)(5) that are directly attributable to interest on obligations
issued by the Commonwealth of Massachusetts, its instrumentalities or its
political subdivisions that is exempt from Massachusetts taxation or (2) qualify
as capital gain dividends as defined in Code section 852(b)(3)(C), that are
attributable to gain on obligations issued by the Commonwealth of Massachusetts,
its instrumentalities or political subdivisions that is exempt from
Massachusetts taxation. If a holder of shares of the Massachusetts Fund is a
corporation subject to the Massachusetts corporate excise tax, distributions
received from the Massachusetts Fund are includable in gross income and
generally may not be deducted by such a corporate holder in computing its net
income. The shares of the Massachusetts Fund will be includable in the gross
estate of a deceased individual holder who is a resident of Massachusetts for
purposes of the Massachusetts Estate Tax.

New Jersey. In the opinion of Hawkins, Delafield & Wood, New Jersey tax
counsel to Multi-State Insured, provided that the New Jersey Fund qualifies as a
qualified investment fund under New Jersey law, shareholders of the New Jersey
Fund who are New Jersey resident individuals, estates and trusts will not be
subject to the New Jersey Gross Income Tax on (1) distributions of the interest
and capital gains made by the New Jersey Fund to the extent that such
distributions are with respect to New Jersey state and local bonds and (2) on
gains resulting from the redemption or sale of shares of the New Jersey Fund. A
description of a qualified investment fund and of New Jersey state and local
bonds is contained in the SAI. A corporate shareholder of the New Jersey Fund
subject to the New Jersey Corporation Business Tax or the New Jersey Corporation
Income Tax will be required to include in its corporate tax base (1)
distributions of interest and capital gains made by the New Jersey Fund and (2)
gains resulting from the redemption or sale of shares of the New Jersey Fund.

New York. In the opinion of Hawkins, Delafield & Wood, tax counsel to New
York Insured, New York resident individual shareholders will not be subject to
the personal income taxes imposed by New York State and by New York City on
distributions from New York Insured to the extent that these distributions
qualify as exempt-interest dividends, as defined in section 852(b)(5) of the
Code, and are attributable to interest on obligations issued by or on behalf of
the State of New York or any political subdivision thereof. Information
concerning New York Insured income attributable to sources other than from New
York and the tax treatment of interest on indebtedness incurred to purchase or
carry shares of New York Insured is provided in the SAI. New York Insured
distributions are not excluded from the determination of the franchise and
corporation taxes that are based on entire net income and respectively imposed
by the State and City of New York.

North Carolina. This opinion of Wyrick Robbins Yates & Ponton LLP, North
Carolina tax counsel to Multi-State Insured, and the information appearing in
the SAI are based on the current provisions of Chapter 105 of the North Carolina
General Statutes, the North Carolina Administrative Code, and the administrative
position of the North Carolina Department of Revenue

43
<PAGE>

(the "Revenue Department") as found in rules, bulletins and statements issued by
the Revenue Department.

Individual shareholders of the North Carolina Fund who are subject to North
Carolina income taxation will not be subject to such tax on North Carolina Fund
dividend distributions to the extent that such distributions represent interest
on (a) direct obligations of the United States or its possessions, (b)
obligations of the State of North Carolina, its political subdivisions or a
commission, an authority, or another agency of the State of North Carolina or
its political subdivisions, or (c) obligations of nonprofit educational
institutions organized or chartered under the laws of the State of North
Carolina. Corporate shareholders of the North Carolina Fund that are subject to
North Carolina income taxation will receive substantially the same treatment as
individual shareholders except corporate shareholders may exclude from North
Carolina taxable income only the net of (i) distributions of interest on such
obligations, less (ii) related expenses.

The above exemptions from North Carolina income tax do not apply to capital
gain distributions received from the North Carolina Fund, except that
distributions of gains are exempt from North Carolina income tax to the extent
attributable to the disposition of certain obligations issued before July 1,
1995 by the State of North Carolina or its agencies or political subdivisions.

Pennsylvania. In the opinion of Kirkpatrick & Lockhart LLP, Pennsylvania
tax counsel to Multi-State Insured, individual shareholders of the Pennsylvania
Fund will not be subject to Pennsylvania personal income taxes on distributions
of interest attributable to Exempt Obligations, but will be subject to those
taxes on distributions of gains and most other sources of income from the
Pennsylvania Fund. "Exempt Obligations" generally means obligations issued by
Pennsylvania and its agencies, public authorities, municipalities and other
political subdivisions as well as obligations of the United States. Exempt
interest in Pennsylvania is referred to as excludible exempt-interest dividends
and will be identified by the Pennsylvania Fund.

Shares of the Pennsylvania Fund will be exempt from any Pennsylvania county
personal property tax to the extent that the Pennsylvania Fund's portfolio
consists of Exempt Obligations on the annual assessment date. This tax is
imposed by most, but not all, counties in Pennsylvania. Distributions of
interest derived from Exempt Obligations are not subject to the Philadelphia
School District investment net income tax provided that the Pennsylvania Fund
reports to its shareholders the percentage of Exempt Obligations held by it for
the year. The Pennsylvania Fund will report this percentage to its shareholders.
Exempt-interest dividends are not subject to the Pennsylvania corporate net
income tax. Gains on Exempt Obligations are, however, subject to this tax.
Shares of the Pennsylvania Fund are not considered by Pennsylvania to be exempt
when determining Pennsylvania capital stock and franchise taxes. Please see
"Federal Income Taxes" above for a discussion of "exempt-interest dividends".

Virginia. In the opinion of Sands, Anderson, Marks & Miller, a Professional
Corporation, Virginia tax counsel to Multi-State Insured, interest on exempt
obligations in the Virginia Fund passed through to shareholders in qualifying
distributions will retain its exempt status in the hands of the shareholders.
Accordingly, individual shareholders of the Virginia Fund subject to Virginia
personal income tax will not be required to include in their gross income, for
Virginia personal income tax purposes, distributions made by the Virginia Fund
that are exclusively (1) both tax-

44
<PAGE>

exempt for Federal income tax purposes and derived from interest on obligations
of the Commonwealth of Virginia or any of its political subdivisions, or (2)
without regard to any exemption from Federal income tax, derived from interest
in certain obligations for which a Virginia income tax exemption is
independently provided. If a distribution includes both taxable and tax-exempt
interest, the entire distribution is included in the gross income of the
shareholder for Virginia personal income tax purposes unless the exempt portion
is designated with reasonable certainty. Counsel has been advised that, in the
event any such commingled distributions are made by the Virginia Fund, the
Virginia Fund intends to provide such designation in a manner acceptable to the
Virginia Department of Taxation, to shareholders of the Virginia Fund.

See "State Income Taxes" in the SAI for additional state tax information.
Investors should consult their own tax advisers for appropriate state advice.

PERFORMANCE INFORMATION

For purposes of advertising, each Fund's performance may be calculated for
each class of its shares based on average annual total return and total return.
Each of these figures reflects past performance and does not necessarily
indicate future results. Average annual total return shows the average annual
percentage change in an assumed $1,000 investment. It reflects the hypothetical
annually compounded return that would have produced the same total return if a
Fund's performance had been constant over the entire period. Because average
annual total return tends to smooth out variations in a Fund's return, you
should recognize that it is not the same as actual year-by-year results. Average
annual total return includes the effect of paying the maximum sales charge (in
the case of Class A shares) or the deduction of any applicable CDSC (in the case
of Class B shares) and payment of dividends and other distributions in
additional shares. One, five and ten year periods will be shown unless the class
has been in existence for a shorter period. Total return is computed using the
same calculations as average annual total return. However, the rate expressed is
the percentage change from the initial $1,000 invested to the value of the
investment at the end of the stated period. Total return calculations assume
reinvestment of dividends and other distributions.

Each Fund also may advertise its yield for each class of shares. Yield
reflects investment income net of expenses over a 30-day (or one-month) period
on a Fund share, expressed as an annualized percentage of the maximum offering
price per share for Class A shares and the net asset value per share for Class B
shares at the end of the period. Yield computations differ from other accounting
methods and therefore may differ from dividends actually paid or reported net
income. Each Fund may also advertise its "actual distribution rate" for each
class of shares. This is computed in the same manner as yield except that actual
income dividends declared per share during the period in question are
substituted for net investment income per share. In addition, each Fund
calculates its "actual distribution rate" based upon net asset value for
dissemination to existing shareholders.

Tax-equivalent yields show the taxable yields an investor would have to
earn to equal a Fund's tax-free yields. The tax-equivalent yield is calculated
similarly to the yield, except that the yield is increased using a stated income
tax rate to demonstrate the taxable yield necessary to produce an after-tax
yield equivalent to a Fund's tax-free yield.

45
<PAGE>

Each of the above performance calculations may be based on investment at
reduced sales charge levels or at net asset value. Any quotation of performance
figures not reflecting the maximum sales charge or CDSC will be greater than if
the maximum sales charge or CDSC were used. Each class of shares of a Fund has
different expenses which will affect its performance.

GENERAL INFORMATION

Organization. New York Insured was incorporated in the State of Maryland on
July 5, 1983. New York Insured's authorized capital stock consists of one
billion shares of common stock, with a par value of $.01 per share. Multi-State
Insured was organized as a Massachusetts business trust on October 30, 1985. The
seventeen series of Multi-State Insured may be referred to as: First Investors
Arizona Insured Tax Free Fund, First Investors California Insured Tax Free Fund,
First Investors Connecticut Insured Tax Free Fund, First Investors Colorado
Insured Tax Free Fund, First Investors Florida Insured Tax Free Fund, First
Investors Georgia Insured Tax Free Fund, First Investors Maryland Insured Tax
Free Fund, First Investors Massachusetts Insured Tax Free Fund, First Investors
Michigan Insured Tax Free Fund, First Investors Minnesota Insured Tax Free Fund,
First Investors Missouri Insured Tax Free Fund, First Investors New Jersey
Insured Tax Free Fund, First Investors North Carolina Insured Tax Free Fund,
First Investors Ohio Insured Tax Free Fund, First Investors Oregon Insured Tax
Free Fund, First Investors Pennsylvania Insured Tax Free Fund and First
Investors Virginia Insured Tax Free Fund.

Each Tax Free Fund is authorized to issue shares of beneficial interest or
common stock, as applicable, in such separate and distinct series and classes of
shares as the applicable Tax Free Fund's Board shall from time to time
establish. The shares of beneficial interest of Multi-State Insured are
presently divided into seventeen separate and distinct series and the shares of
common stock of New York Insured presently comprise one series. Each Tax Free
Fund presently has two classes, designated Class A shares and Class B shares.
Each class of a Fund represents interests in the same assets of that Fund. The
Tax Free Funds do not hold annual shareholder meetings. If requested to do so by
the holders of at least 10% of a Tax Free Fund's outstanding shares, the
applicable Tax Free Fund's Board will call a special meeting of shareholders for
any purpose, including the removal of Directors or Trustees. Each share of each
Fund has equal voting rights except as noted above.

Custodian. The Bank of New York, 48 Wall Street, New York, NY 10286, is
custodian of the securities and cash of each Fund.

Transfer Agent. Administrative Data Management Corp., 581 Main Street,
Woodbridge, NJ 07095-1198, an affiliate of FIMCO and FIC, acts as transfer and
dividend disbursing agent for each Fund and as redemption agent for regular
redemptions. The Transfer Agent's telephone number is 1-800-423-4026.

Share Certificates. The Funds do not issue certificates for Class B shares,
The Funds, however, will issue share certificates for Class A shares at the
shareholder's request. Ownership of shares of each Fund is recorded on a stock
register by the Transfer Agent and shareholders have the same rights of
ownership with respect to such shares as if certificates had been issued.

46
<PAGE>

Confirmations and Statements. You will receive confirmations of purchases
and redemptions of shares of a Fund. Generally, confirmation statements will be
sent to you following a transaction in the account, including payment of a
dividend or capital gain distribution in additional shares or cash. However,
systematic investments made through First Investors Money Line or automatic
payroll deductions will only be confirmed in your monthly or quarterly
statement, showing all transactions occurring during the period.

Control Persons and Principal Holders of Securities. Francis J. Sincox,
4500 Binwhe Lane, Gastonia, NC 28052 owns 25.7% of the Class B shares of the
North Carolina Fund and may, therefore, be deemed to control this class of that
Fund under the 1940 Act. John J. Madden and Barbara Madden, 94 Spangenburg
Avenue, East Stroudsburg, PA 18301 owns 34.5% of the Class B shares of the
Pennsylvania Fund and may, therefore, be deemed to control this class of that
Fund under the 1940 Act.

Shareholder Inquiries. Shareholder inquiries can be made by calling
Shareholder Services at 1-800-423-4026.

Annual and Semi-Annual Reports and Prospectuses to Shareholders. It is each
Fund's practice to mail only one copy of its annual and semi-annual reports to
any address at which more than one shareholder with the same last name has
indicated that mail is to be delivered. Additional copies of the reports will be
mailed if requested in writing or by telephone by any shareholder. In addition,
if the SEC adopts a currently pending proposed rule, it is the Funds' intention
to mail only one copy of its Prospectus to any address at which more than one
shareholder with the same last name has indicated that mail is to be delivered.
Additional copies of the Prospectus will be mailed if requested in writing or by
telephone by any shareholder.

Year 2000. Like other mutual funds, the Funds could be adversely affected
if the computer and other information processing systems used by the Adviser,
Transfer Agent and other service providers are not properly programmed to
process date-related information on and after January 1, 2000. Such systems
typically have been programmed to use a two-digit number to represent the year
for any date. As a result, computer systems could incorrectly misidentify "00"
as 1900, rather than 2000, and make mistakes when performing operations. The
Adviser and Transfer Agent are taking steps that they believe are reasonably
designed to address the Year 2000 problem for computer and other systems used by
them and are obtaining assurances that comparable steps are being taken by the
Funds' other service providers. However, there can be no assurance that these
steps will be sufficient to avoid any adverse impact on the Funds. Nor can the
Funds estimate the extent of any impact.

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<PAGE>

TABLE OF CONTENTS
================================================================================

Fee Table......................................................................2
Financial Highlights...........................................................7
Investment Objectives and Policies............................................18
Alternative Purchase Plans....................................................27
How to Buy Shares.............................................................28
How to Exchange Shares........................................................33
How to Redeem Shares..........................................................34
Telephone Transactions........................................................36
Management....................................................................37
Distribution Plans............................................................37
Determination of Net Asset Value..............................................38
Dividends and Other Distributions.............................................39
Taxes.........................................................................40
Performance Information.......................................................45
General Information...........................................................46

Investment Adviser Custodian
First Investors Management The Bank of New York
Company, Inc. 48 Wall Street
95 Wall Street New York, NY 10286
New York, NY 10005
Transfer Agent
Underwriter Administrative Data
First Investors Corporation Management Corp.
95 Wall Street 581 Main Street
New York, NY 10005 Woodbridge, NJ 07095-1198

Legal Counsel Auditors
Kirkpatrick & Lockhart LLP Tait, Weller & Baker
1800 Massachusetts Avenue, N.W. 8 Penn Center Plaza
Washington, D.C. 20036 Philadelphia, PA 19103

This Prospectus is intended to constitute an offer by each Tax Free Fund only of
the securities of which it is the issuer and is not intended to constitute an
offer by any Fund of the securities of any other Fund whose securities are also
offered by this Prospectus. No Fund intends to make any representation as to the
accuracy or completeness of the disclosure in this Prospectus relating to any
other Fund. No dealer, salesman or any other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus or the Statement of Additional Information, and if given or
made, such information and representation must not be relied upon as having been
authorized by either Tax Free Fund, First Investors Corporation, or any
affiliate thereof. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the shares offered hereby in any state to
any person to whom it is unlawful to make such offer in such state.

<PAGE>

First Investors
Multi-State
Insured Tax Free Fund
- ---------------------------

Connecticut Fund Massachusetts Fund
Florida Fund New Jersey Fund
Georgia Fund North Carolina Fund
Maryland Fund Pennsylvania Fund
Virginia Fund
- ---------------------------

Prospectus

- ----------------------------

April 30, 1998

First Investors Logo

Logo is described as follows: the arabic numeral one separated into seven
vertical segments followed by the words "First Investors."

Verticle line from top to bottom in center of page about 1/2 inch in thickness

The following language appears to the left of the above language in the printed
piece:

The words "BULK RATE U.S. POSTAGE PAID PERMIT NO. 7379" in a box to the right of
a circle containing the words
"MAILED FROM ZIP CODE 11201" appears on the righthand side.

The following language appears on the lefthand side:

FIRST INVESTORS NEW YORK INSURED TAX FREE FUND, INC.
FIRST INVESTORS MULTI-STATE INSURED TAX FREE FUND
95 WALL STREET
NEW YORK, NY 10005

First Investors Logo (as described above)
A MEMBER OF THE
FIRST INVESTORS
FINANCIAL NETWORK

FITF001

<PAGE>

FIRST INVESTORS NEW YORK INSURED TAX FREE FUND, INC.

FIRST INVESTORS MULTI-STATE INSURED TAX FREE FUND
Arizona Fund, California Fund, Colorado Fund, Connecticut Fund,
Florida Fund, Georgia Fund, Maryland Fund, Massachusetts Fund,
Michigan Fund, Minnesota Fund, Missouri Fund, New Jersey Fund,
North Carolina Fund, Ohio Fund, Oregon Fund, Pennsylvania Fund,
Virginia Fund

95 Wall Street 1-800-423-4026
New York, New York 10005

Statement of Additional Information
dated April 30, 1998

This is a Statement of Additional Information ("SAI") for First Investors
New York Insured Tax Free Fund, Inc. ("New York Insured") and First Investors
Multi-State Insured Tax Free Fund (collectively, the "Tax Free Funds"), each an
open-end diversified management investment company. New York Insured consists of
a single investment series and First Investors Multi-State Insured Tax Free Fund
("Multi-State Insured") consists of seventeen separate investment series
(singularly, "Fund," and collectively, "Funds").

New York Insured. The investment objective of New York Insured is to
provide a high level of interest income that is exempt from Federal income tax,
New York State, New York City personal income taxes and is not an item of tax
preference for purposes of the Federal alternative minimum tax ("Tax Preference
Item").

Multi-State Insured. The investment objective of each Fund of Multi-State
Insured is to achieve a high level of interest income that is exempt from
Federal income tax and, to the extent indicated for a particular Fund, from
state and local income taxes for residents of that state and is not a Tax
Preference Item.

There can be no assurance that any Fund will achieve its investment
objective.

This SAI is not a prospectus. It should be read in conjunction with the
Prospectuses of the Funds dated April 30, 1998, which may be obtained free of
cost from the Funds at the address or telephone number noted above.

<PAGE>

TABLE OF CONTENTS Page

Investment Policies..................................................... 3
Hedging and Option Income Strategies.................................... 8
Investment Restrictions................................................. 14
Insurance............................................................... 17
State Specific Risk Factors............................................. 19
Directors or Trustees and Officers...................................... 64
Management.............................................................. 67
Underwriter............................................................. 68
Distribution Plans...................................................... 69
Determination of Net Asset Value........................................ 72
Allocation of Portfolio Brokerage....................................... 72
Reduced Sales Charges, Additional Exchange and
Redemption Information and Other Services............................. 73
Taxes................................................................... 79
Performance Information................................................. 90
General Information..................................................... 97
Appendix A.............................................................. 106
Appendix B.............................................................. 109
Appendix C.............................................................. 109
Appendix D.............................................................. 111
Financial Statements.................................................... 117

2
<PAGE>

INVESTMENT POLICIES

Bond Market Concentration. Each Fund may invest more than 25% of its total
assets in a particular segment of the municipal bond market, such as hospital
revenue bonds, housing agency bonds, industrial development bonds, airport bonds
and university dormitory bonds, during periods when one or more of these
segments offer higher yields and/or profit potential. As of December 31, 1997,
the percentage of assets of each Fund concentrated in a particular segment of
the bond market is as follows:: Arizona Fund - 45.6% in general obligation
bonds; Colorado Fund - 43.0% in general obligation bonds; Connecticut Fund -
31.9% in general obligation bonds and 21.1 in health care bonds; Florida Fund -
48.8% in utilities bonds; Georgia Fund - 32.8% in utilities bonds and 25.3% in
general obligation bonds; Maryland Fund - 28.7% in general obligation bonds and
20.4% in health care bonds; Massachusetts Fund - 20.5% in general obligation
bonds; 30.9% in health care bonds and 21.6% in utilities bonds, Michigan Fund -
54.4% in general obligation bonds; Minnesota Fund - 34.4% in general obligation
bonds and 21.4% in health care bonds; Missouri Fund - 25.7% in health care
bonds; New Jersey Fund - 25.9% in health care bonds; North Carolina Fund - 40.1%
in general obligation bonds and24.1% in utilities bonds; Ohio Fund - 75.0% in
general obligation bonds; Oregon Fund - 42.9% in general obligation bonds and
23.5% in utilities bonds; Pennsylvania Fund - 22.0% in general obligation bonds,
22.9% in health care bonds and 32.5% in utilities bonds, and Virginia Fund -
24.2% in utilities bonds.

Certificates of Participation. The applicable Tax Free Fund's Board of
Directors or Trustees (each, a "Board") has established guidelines for
determining the liquidity of the certificates of participation ("COPs") in the
applicable Tax Free Fund's portfolio and, subject to review by that Tax Free
Fund's Board, has delegated that responsibility to the Adviser. Pursuant to
these guidelines, the Adviser will consider (1) the frequency of trades and
quotes for the security, (2) the number of dealers willing to purchase or sell
the security and the number of other potential buyers, (3) the willingness of
dealers to undertake to make a market in the security, (4) the nature of the
marketplace, namely, the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer, (5) the coverage of the
obligation by new issue insurance, (6) the likelihood that the marketability of
the obligation will be maintained through the time the security is held by a
Fund, and (7) for unrated COPs, the COPs' credit status analyzed by the Adviser
according to the factors reviewed by rating agencies.

Detachable Call Options. Detachable call options are sold by issuers of
municipal bonds separately from the municipal bonds to which the call options
relate and permit the purchasers of the call options to acquire the municipal
bonds at the call prices and call dates. In the event that interest rates drop,
the purchaser could exercise the call option to acquire municipal bonds that
yield above-market rates. Each Fund may acquire detachable call options relating
to municipal bonds that the Fund already owns or will acquire in the immediate
future and thereby, in effect, make such municipal bonds non-callable so long as
the Fund continues to hold the detachable call option. Each Fund will consider
detachable call options to be illiquid securities and they will be treated as
such for purposes of certain investment limitation calculations.

High Yield Securities. Although each Fund may invest up to 5% of its net
assets in municipal bonds rated lower than Baa by Moody's Investors Service,
Inc. ("Moody's") or BBB by Standard & Poor's Ratings Group ("S&P"), each Fund
currently does not intend to purchase such municipal bonds. However,
occasionally a Fund may hold in its portfolio a municipal bond that has had its
rating downgraded. In each instance, such bonds will be covered by the insurance
feature and thus considered to be of higher quality than high yield securities
without an insurance feature. See "Insurance" for a detailed discussion of the
insurance feature. Debt obligations rated lower than Baa by Moody's or BBB

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<PAGE>

by S&P, commonly referred to as "junk bonds" are speculative and generally
involve a higher risk or loss of principal and income than higher-rated
securities ("High Yield Securities"). High Yield Securities are subject to
certain risks that may not be present with investments in high grade securities.
The prices of High Yield Securities tend to be less sensitive to interest rate
changes than higher-rated investments, but may be more sensitive to adverse
economic changes. A strong economic downturn or a substantial period of rising
interest rates could severely affect the market for High Yield Securities.

Municipal obligations that are high yield securities rated below investment
grade ("Municipal High Yield Securities") are deemed by Moody's and S&P to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal and may involve major risk exposure to adverse conditions.
"Municipal High Yield Securities," unless otherwise noted, include unrated
securities deemed to be rated below investment grade by the Funds' investment
adviser, First Investors Management Company, Inc. ("Adviser" or "FIMCO").
Ratings of Municipal High Yield Securities represent the rating agencies'
opinions regarding their quality, are not a guarantee of quality and may be
reduced after a Fund has acquired the security. Credit ratings attempt to
evaluate the safety of principal and interest payments and do not evaluate the
risks of fluctuations in market value. Also, rating agencies may fail to make
timely changes in credit ratings in response to subsequent events, so that an
issuer's current financial condition may be better or worse than the rating
indicates.

Municipal High Yield Securities generally offer a higher current yield than
higher grade issues. However, Municipal High Yield Securities involve higher
risks, in that they are especially subject to adverse changes in the general
economic conditions, in economic conditions of an issuer's geographic area and
in the industries or activities in which the issuer is engaged. Municipal High
Yield Securities are also especially sensitive to changes in the financial
condition of the issuer and to price fluctuations in response to changes in
interest rates. Accordingly, the yield on lower rated Municipal High Yield
Securities will fluctuate over time. During periods of economic downturn or
rising interest rates, municipal issuers may experience financial stress which
could adversely affect their ability to make payments of principal and interest
and increase the possibility of default.

In addition, Municipal High Yield Securities are frequently traded only in
markets where the number of potential purchasers and sellers, if any, is
limited. This factor may limit a Fund's ability to acquire such securities and
to sell such securities at their fair value in response to changes in the
economy or the financial markets, especially for unrated Municipal High Yield
Securities. Although unrated Municipal High Yield Securities are not necessarily
of lower quality than rated Municipal High Yield Securities, the market for
rated Municipal High Yield Securities generally is broader than that for unrated
Municipal High Yield Securities. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may also decrease the values and
liquidity of Municipal High Yield Securities, especially in a thinly traded
market.

Loans of Portfolio Securities. New York Insured may loan securities to
qualified broker-dealers or other institutional investors provided: the borrower
pledges to the Fund and agrees to maintain at all times with the Fund cash
collateral equal to not less than 100% of the value of the securities loaned
(plus accrued interest or dividend), if any, the loan is terminable at will by
the Fund, the Fund pays only reasonable custodian fees in connection with the
loan, and the Adviser monitors the creditworthiness of the borrower throughout
the life of the loan. Such loans may be terminated by the Fund at any time and
the Fund may vote the proxies if a material event affecting the investment is to
occur. The market risk applicable to any security loaned remains a risk of the
Fund. The borrower must add to the collateral whenever the market value of the
securities rises above the level of such collateral. The Fund could incur a loss
if the borrower should fail financially at a time when the value

-4-
<PAGE>

of the loaned securities is greater than the collateral. The primary objective
of such loaning function is to supplement the Fund's income through investment
of the cash collateral in short-term interest bearing obligations. The Fund may
make loans, together with illiquid securities, not in excess of 15% of its net
assets.

Repurchase Agreements. A repurchase agreement essentially is a short-term
collateralized loan. The lender (a Fund) agrees to purchase a security from a
borrower (typically a broker-dealer) at a specified price. The borrower
simultaneously agrees to repurchase that same security at a higher price on a
future date (which typically is the next business day). The difference between
the purchase price and the repurchase price effectively constitutes the payment
of interest. In a standard repurchase agreement, the securities which serve as
collateral are transferred to a Fund's custodian bank. In a "tri-party"
repurchase agreement, these securities would be held by a different bank for the
benefit of the Fund as buyer and the broker-dealer as seller. In a "quad-party"
repurchase agreement, the Fund's custodian bank also is made a party to the
agreement. Each Fund may enter into repurchase agreements with banks which are
members of the Federal Reserve System or securities dealers who are members of a
national securities exchange or are market makers in government securities. The
period of these repurchase agreements will usually be short, from overnight to
one week, and at no time will a Fund invest in repurchase agreements with more
than one year in time to maturity. The securities which are subject to
repurchase agreements, however, may have maturity dates in excess of one year
from the effective date of the repurchase agreement. Each Fund will always
receive, as collateral, securities whose market value, including accrued
interest, which will at all times be at least equal to 100% of the dollar amount
invested by the Fund in each agreement, and the Fund will make payment for such
securities only upon physical delivery or evidence of book entry transfer to the
account of the custodian. If the seller defaults, a Fund might incur a loss if
the value of the collateral securing the repurchase agreement declines, and
might incur disposition costs in connection with liquidating the collateral. In
addition, if bankruptcy or similar proceedings are commenced with respect to the
seller of the security, realization upon the collateral by a Fund may be delayed
or limited. No Fund may enter into a repurchase agreement with more than seven
days to maturity if, as a result, more than 15% of such Fund's net assets would
be invested in such repurchase agreements and other illiquid investments.

Restricted Securities and Illiquid Investments. No Fund will purchase or
otherwise acquire any security if, as a result, more than 15% of its net assets
(taken at current value) would be invested in securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale. This policy includes detachable call options and
repurchase agreements maturing in more than seven days. This policy does not
include restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933, as amended ("1933 Act"), which each Tax Free Fund's
Board or the Adviser has determined under Board-approved guidelines are liquid.

Restricted securities which are illiquid may be sold only in privately
negotiated transactions or in public offerings with respect to which a
registration statement is in effect under the 1933 Act. Such securities include
those that are subject to restrictions contained in the securities laws of other
countries. Securities that are freely marketable in the country where they are
principally traded, but would not be freely marketable in the United States,
will not be subject to this 15% limit. Where registration is required, a Fund
may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, a Fund might obtain a less favorable price than prevailed when it
decided to sell.

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In recent years, a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including private
placements, repurchase agreements, commercial paper, foreign securities and
corporate bonds and notes. These instruments are often restricted securities
because the securities are either themselves exempt from registration or sold in
transactions not requiring registration. Institutional investors generally will
not seek to sell these instruments to the general public, but instead will often
depend on an efficient institutional market in which such unregistered
securities can be readily resold or on an issuer's ability to honor a demand for
repayment. Therefore, the fact that there are contractual or legal restrictions
on resale to the general public or certain institutions is not dispositive of
the liquidity of such investments.

Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
that might develop as a result of Rule 144A could provide both readily
ascertainable values for restricted securities and the ability to liquidate an
investment in order to satisfy share redemption orders. An insufficient number
of qualified institutional buyers interested in purchasing Rule 144A-eligible
securities held by a Fund, however, could affect adversely the marketability of
such portfolio securities and a Fund might be unable to dispose of such
securities promptly or at reasonable prices.

Over-the-counter ("OTC") options and their underlying collateral are also
considered illiquid investments. While the Funds have no intention of investing
in options in the coming year, if any such Fund did, the assets used as cover
for OTC options written by the Fund would not be considered illiquid unless the
OTC options are sold to qualified dealers who agree that the Fund may repurchase
any OTC option it writes at a maximum price to be calculated by a formula set
forth in the option agreement. The cover for an OTC option written subject to
this procedure would be considered illiquid only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option

U.S. Government Obligations. Securities issued or guaranteed as to
principal and interest by the U.S. Government include (1) U.S. Treasury
obligations which differ only in their interest rates, maturities and times of
issuance as follows: U.S. Treasury bills (maturities of one year or less), U.S.
Treasury notes (maturities of one to ten years), and U.S. Treasury bonds
(generally maturities of greater than ten years); and (2) obligations issued or
guaranteed by U.S. Government agencies and instrumentalities that are backed by
the full faith and credit of the United States, such as securities issued by the
Federal Housing Administration, Government National Mortgage Association, the
Department of Housing and Urban Development, the Export-Import Bank, the General
Services Administration and the Maritime Administration and certain securities
issued by the Farmers Home Administration and the Small Business Administration.
The range of maturities of U.S. Government Obligations is usually three months
to thirty years.

When-Issued Securities. Each Fund may invest up to 25% of its net assets in
securities issued on a when-issued or delayed delivery basis, which involves an
arrangement whereby delivery of, and payment for, the instruments occur up to 45
days after the agreement to purchase the instruments is made by a Fund. The
purchase price to be paid by a Fund and the interest rate on the instruments to
be purchased are both selected when the Fund agrees to purchase the securities
on a "when-issued" basis. A Fund generally would not pay for such securities or
start earning interest on them until they are issued or received. However, when
a Fund purchases debt obligations on a when-issued basis, it assumes the risks
of ownership, including the risk of price fluctuation, at the time of purchase,
not at the time of receipt. Failure of the issuer to deliver a security
purchased by a Fund on a when-issued basis may result in such Fund incurring a
loss or missing an opportunity to make an alternative investment. When a Fund
enters into a commitment to purchase securities on a when-issued basis, it

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establishes a separate account on its books and records or with its custodian
consisting of cash, U.S. Government securities or other liquid high-grade debt
securities equal to the amount of the Fund's commitment, which are valued at
their fair market value. If on any day the market value of this segregated
account falls below the value of the Fund's commitment, the Fund will be
required to deposit additional cash or qualified securities into the account
until equal to the value of the Fund's commitment. When the securities to be
purchased are issued, a Fund will pay for the securities from available cash,
the sale of securities in the segregated account, sales of other securities and,
if necessary, from sale of the when-issued securities themselves although this
is not ordinarily expected. Securities purchased on a when-issued basis are
subject to the risk that yields available in the market, when delivery takes
place, may be higher than the rate to be received on the securities a Fund is
committed to purchase. Sale of securities in the segregated account or sale of
the when-issued securities may cause the realization of a capital gain or loss.

Zero Coupon Securities. Each Fund may invest in zero coupon municipal
securities. Zero coupon securities are debt obligations that do not entitle the
holder to any periodic payment of interest prior to maturity or a specified date
when the securities begin paying current interest. They are issued and traded at
a discount from their face amount or par value, which discount varies depending
on the time remaining until cash payments begin, prevailing interest rates,
liquidity of the security and the perceived credit quality of the issuer.
Original issue discount earned each year on zero coupon securities must be
accounted for by the Fund that holds the securities for purposes of determining
the amount it must distribute that year to continue to qualify for tax treatment
as a regulated investment company. See "Taxes." Thus, a Fund may be required to
distribute as a dividend an amount that is greater than the total amount of cash
it actually receives. These distributions must be made from a Fund's cash assets
or, if necessary, from the proceeds of sales of portfolio securities. A Fund
will not be able to purchase additional income-producing securities with cash
used to make such distributions, and its current income ultimately could be
reduced as a result. The market prices of zero coupon securities generally are
more volatile than the prices of securities that pay interest periodically and
in cash and are likely to respond to changes in interest rates to a greater
degree than do other types of debt securities having similar maturities and
credit quality.

Portfolio Turnover. The Adviser manages each Fund's portfolio by the
purchase and sale of securities with a view to achieving its investment
objective. Securities are purchased and sold in response to their current yields
and evaluation of an issuer's ability to meet its debt obligations in the future
and assessment of future changes in the levels of the interest rates on
municipal bonds of varying maturities. Although each Fund has no current
intention of purchasing securities for this purpose, each Fund may engage to a
limited extent in short-term trading consistent with its investment objective
and policies (to secure higher income, to preserve capital or to upgrade the
quality of bonds held). A portfolio turnover rate of 100% would occur, for
example, if all the securities in a Fund's portfolio, with the exception of
securities whose maturities at the time of acquisition were one year or less,
were replaced in a single year. A high rate of portfolio turnover (100% or more)
generally leads to transaction costs and may result in a greater number of
taxable transactions. See "Allocation of Portfolio Brokerage."

For the fiscal years ended December 31, 1996 and 1997, the portfolio
turnover rate for New York Insured was 53% and 24%, respectively. For the fiscal
years ended December 31, 1996 and 1997, the portfolio turnover rate for each
Fund of Multi-State Insured was as follows:

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Fiscal Year Fiscal Year
Ended Ended
December 31, 1996 December 31, 1997
----------------- -----------------

Arizona Fund 27% 47%
California Fund 30 46
Colorado Fund 20 39
Connecticut Fund 15 14
Florida Fund 55 19
Georgia Fund 37 21
Maryland Fund 13 35
Massachusetts Fund 45 28
Michigan Fund 43 32
Minnesota Fund 49 15
Missouri Fund 15 12
New Jersey Fund 35 22
North Carolina Fund 43 30
Ohio Fund 33 25
Oregon Fund 21 32
Pennsylvania Fund 42 37
Virginia Fund 30 10

HEDGING AND OPTION INCOME STRATEGIES

The Adviser may engage in certain options and futures strategies to hedge
each Fund's portfolio, in other circumstances permitted by the Commodities
Futures Trading Commission ("CFTC") and engage in certain options strategies to
enhance income. The instruments described below are sometimes referred to
collectively as "Hedging Instruments." Certain special characteristics of and
risks associated with using Hedging Instruments are discussed below. In addition
to the non-fundamental investment guidelines (described below) adopted by each
Tax Free Fund's Board to govern each Fund's investments in Hedging Instruments,
use of these instruments is subject to the applicable regulations of the
Securities and Exchange Commission ("SEC"), the several options and futures
exchanges upon which options and futures contracts are traded and the CFTC.

Participation in the options or futures markets involves investment risks
and transaction costs to which a Fund would not be subject absent the use of
these strategies. If the Adviser's prediction of movements in the direction of
the securities and interest rate markets are inaccurate, the adverse
consequences to a Fund may leave the Fund in a worse position than if such
strategies were not used. A Fund might not employ any of the strategies
described below, and there can be no assurance that any strategy will succeed.
The use of these strategies involve certain special risks, including (1)
dependence on the Adviser's ability to predict correctly movements in the
direction of interest rates and securities prices, (2) imperfect correlation
between the price of options, futures contracts and options thereon and
movements in the prices of the securities being hedged, (3) the fact that skills
needed to use these strategies are different from those needed to select
portfolio securities, and (4) the possible absence of a liquid secondary market
for any particular instrument at any time.

Although each Fund may engage in the strategies listed below, they intend
only to engage in transactions involving futures contracts and options thereon.

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<PAGE>

Cover for Hedging and Option Income Strategies. No Fund will use leverage
in its hedging and option income strategies. No Fund will enter into a hedging
or option income strategy that exposes the Fund to an obligation to another
party unless it owns either (1) an offsetting ("covered") position in securities
or other options or futures contracts or (2) cash and/or other liquid assets
with a value sufficient at all times to cover its potential obligations. Each
Fund will comply with guidelines established by the SEC with respect to coverage
of hedging and option income strategies by mutual funds and, if required, will
set aside cash and/or liquid assets in a segregated account with its custodian
in the prescribed amount. Securities or other options or futures positions used
for cover and assets held in a segregated account cannot be sold or closed out
while the hedging or option income strategy is outstanding unless they are
replaced with similar assets. As a result, there is a possibility that the use
of cover or segregation involving a large percentage of a Fund's assets could
impede portfolio management or the Fund's ability to meet redemption requests or
other current obligations.

Options Strategies. Each Fund may purchase call options on securities that
the Adviser intends to include in its portfolio in order to fix the cost of a
future purchase. Call options also may be used as a means of participating in an
anticipated price increase of a security. In the event of a decline in the price
of the underlying security, use of this strategy would serve to limit the Fund's
potential loss to the option premium paid; conversely, if the market price of
the underlying security increases above the exercise price and a Fund either
sells or exercises the option, any profit eventually realized will be reduced by
the premium. Each Fund may purchase put options in order to hedge against a
decline in the market value of securities held in its portfolio. The put option
enables a Fund to sell the underlying security at the predetermined exercise
price; thus the potential for loss to the Fund below the exercise price is
limited to the option premium paid. If the market price of the underlying
security is higher than the exercise price of the put option, any profit the
Fund realizes on the sale of the security will be reduced by the premium paid
for the put option less any amount for which the put option may be sold.

Each Fund may write covered call options on securities to increase income
in the form of premiums received from the purchasers of the options. Because it
can be expected that a call option will be exercised if the market value of the
underlying security increases to a level greater than the exercise price, a Fund
will write covered call options on securities generally when the Adviser
believes that the premium received by the Fund, plus anticipated appreciation in
the market price of the underlying security up to the exercise price of the
option, will be greater than the total appreciation in the price of the
security. The strategy may be used to provide limited protection against a
decrease in the market price of the security in an amount equal to the premium
received for writing the call option less any transaction costs. Thus, if the
market price of the underlying security held by a Fund declines, the amount of
such decline will be offset wholly or in part by the amount of the premium
received by the Fund. If, however, there is an increase in the market price of
the underlying security and the option is exercised, the Fund will be obligated
to sell the security at less than its market value. A Fund gives up the ability
to sell the portfolio securities used to cover the call option while the call
option is outstanding. Such securities may also be considered illiquid in the
case of OTC options written by a Fund, to the extent described under "Investment
Policies--Restricted Securities and Illiquid Investments" and therefore subject
to each Fund's limitation on investments in illiquid securities. In addition, a
Fund could lose the ability to participate in an increase in the value of such
securities above the exercise price of the call option because such an increase
would likely be offset by an increase in the cost of closing out the call option
(or could be negated if the buyer chose to exercise the call option at an
exercise price below the securities' current market value).

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<PAGE>

Each Fund may write put options. A put option gives the purchaser of the
option the right to sell, and the writer (seller) the obligation to buy, the
underlying security at the exercise price during the option period. So long as
the obligation of the writer continues, the writer may be assigned an exercise
notice by the broker-dealer through which such option was sold, requiring it to
make payment of the exercise price against delivery of the underlying security.
The operation of put options in other respects, including their related risks
and rewards, is substantially identical to that of call options. A Fund may
write covered put options in circumstances when the Adviser believes that the
market price of the securities will not decline below the exercise price less
the premiums received. If the put option is not exercised, a Fund will realize
income in the amount of the premium received. This technique could be used to
enhance current return during periods of market uncertainty. The risk in such a
transaction would be that the market price of the underlying security would
decline below the exercise price less the premiums received, in which case the
Fund would expect to suffer a loss.

Currently, options on debt securities are primarily traded on the OTC
market. OTC options are contracts between a Fund and the opposite party with no
clearing organization guarantee. Thus, when a Fund purchases an OTC option, it
relies on the dealer from which it has purchased the OTC option to make or take
delivery of the securities underlying the option. Failure by the dealer to do so
would result in the loss of the premium paid by the Fund as well as the loss of
the expected benefit of the transaction.

Options Guidelines. In view of the risks involved in using options, each
Tax Free Fund's Board has adopted the following non-fundamental investment
guidelines to govern a Fund's use of options that may be modified by each Board
without shareholder vote: (1) options will be purchased or written only when the
Adviser believes that there exists a liquid secondary market in such options;
and (2) a Fund may purchase a put or call option if the value of the option's
premium, when aggregated with the premiums on all other options held by such
Fund, exceeds 5% of that Fund's total assets. This does not limit a Fund's
assets at risk to 5%.

Special Characteristics and Risks of Options Trading. Each Fund may
effectively terminate its right or obligation under an option by entering into a
closing transaction. If a Fund wishes to terminate its obligation to sell
securities under a put or call option it has written, the Fund may purchase a
put or call option of the same series (that is, an option identical in its terms
to the put or call option previously written); this is known as a closing
purchase transaction. Conversely, in order to terminate its right to purchase or
sell specified securities under a call or put option it has purchased, a Fund
may write an option of the same series as the option held; this is known as a
closing sale transaction. Closing transactions essentially permit a Fund to
realize profits or limit losses on its options positions prior to the exercise
or expiration of the option. Whether a profit or loss is realized from a closing
transaction depends on the price movement of the underlying security and the
market value of the option.

The value of an option position will reflect, among other things, the
current market price of the underlying security, the time remaining until
expiration, the relationship of the exercise price to the market price, the
historical price volatility of the underlying security and general market
conditions. For this reason, the successful use of options depends upon the
Adviser's ability to forecast the direction of price fluctuations in the
underlying securities.

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<PAGE>

Options normally have expiration dates of up to nine months. Unless an
option purchased by a Fund is exercised or unless a closing transaction is
effected with respect to that position, a loss will be realized in the amount of
the premium paid and any transaction costs.

Closing transactions may be effected with respect to options traded in the
OTC markets (currently the primary markets for options on debt securities) only
by negotiating directly with the other party to the option contract or in a
secondary market for the option if such market exists. Although a Fund will
enter into OTC options only with dealers that agree to enter into, and that are
expected to be capable of entering into, closing transactions with a Fund, there
is no assurance that the Fund will be able to liquidate an OTC option at a
favorable price at any time prior to expiration. In the event of insolvency of
the opposite party, a Fund may be unable to liquidate an OTC option.
Accordingly, it may not be possible to effect closing transactions with respect
to certain options, with the result that a Fund would have to exercise those
options that it has purchased in order to realize any profit. With respect to
options written by a Fund, the inability to enter into a closing transaction may
result in material losses to the Fund. For example, because a Fund must maintain
a covered position with respect to any call option it writes, the Fund may not
sell the underlying assets used to cover an option during the period it is
obligated under the option. This requirement may impair a Fund's ability to sell
a portfolio security or make an investment at a time when such a sale or
investment might be advantageous.

A Fund's activities in the options markets may result in a higher portfolio
turnover rate and additional brokerage costs; however, a Fund also may save on
commissions by using options as a hedge rather than buying or selling individual
securities in anticipation or as a result of market movements.

Futures Strategies. Each Fund may engage in futures strategies to attempt
to reduce the overall investment risk that would normally be expected to be
associated with ownership of the securities in which it invests.

Each Fund may use financial futures contracts and options thereon to hedge
the debt portion of its portfolio against changes in the general level of
interest rates. A Fund may purchase a financial futures contract when it intends
to purchase debt securities but has not yet done so. This strategy may minimize
the effect of all or part of an increase in the market price of those securities
because a rise in the price of the securities prior to their purchase may either
be offset by an increase in the value of the futures contract purchased by the
Fund or avoided by taking delivery of the debt securities under the futures
contract. Conversely, a fall in the market price of the underlying debt
securities may result in a corresponding decrease in the value of the futures
position. A Fund may sell a financial futures contract in order to continue to
receive the income from a debt security, while endeavoring to avoid part or all
of the decline in the market value of that security that would accompany an
increase in interest rates.

Each Fund may purchase a call option on a financial futures contract to
hedge against a market advance in debt securities that the Fund plans to acquire
at a future date. A Fund also may write covered call options on financial
futures contracts as a partial hedge against a decline in the price of debt
securities held in the Fund's portfolio or purchase put options on financial
futures contracts in order to hedge against a decline in the value of debt
securities held in the Fund's portfolio.

Each Fund will use futures contracts and options thereon solely in bona
fide hedging transactions or under other circumstances permitted by the CFTC.

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<PAGE>

Futures Guidelines. In view of the risks involved in using futures
strategies described below, each Tax Exempt Fund's Board has adopted
non-fundamental investment guidelines to govern the use of such investments by
the Fund that may be modified by each Board without shareholder vote. In the
event a Fund enters into futures contracts or options thereon other than for
bona fide hedging purposes (as defined by the CFTC), the aggregate margin
deposits on all outstanding futures contracts positions held by a Fund and
premiums paid on outstanding futures contracts, after taking into account
unrealized profits and losses, will not exceed 5% of a Fund's total assets, or
enter into any futures contracts or related options if the aggregate amount of a
Fund's commitments under outstanding futures contracts positions and related
options written by a Fund would exceed the market value of a Fund's total
assets. This does not limit a Fund's assets at risk to 5%. The value of all
futures sold will not exceed the total market value of a Fund's portfolio. In
addition, each Fund may not purchase financial futures contracts if immediately
thereafter more than 30% of its total assets would be so invested.

Special Characteristics and Risks of Futures Trading. No price is paid upon
entering into futures contracts. Instead, upon entering into a futures contract,
a Fund is required to deposit with its custodian in a segregated account in the
name of the futures broker through which the transaction is effected an amount
of cash, U.S. Government securities or other liquid, high-grade debt instruments
generally equal to 3%-5% of the contract value. This amount is known as "initial
margin." When writing a put or call option on a futures contract, margin also
must be deposited in accordance with applicable exchange rules. Initial margin
on futures contracts is in the nature of a performance bond or good-faith
deposit that is returned to a Fund upon termination of the transaction, assuming
all obligations have been satisfied. Under certain circumstances, such as
periods of high volatility, a Fund may be required by an exchange to increase
the level of its initial margin payment. Additionally, initial margin
requirements may be increased generally in the future by regulatory action.
Subsequent payments, called "variation margin," to and from the broker, are made
on a daily basis as the value of the futures position varies, a process known as
"marking to market." Variation margin does not involve borrowing to finance the
futures transactions, but rather represents a daily settlement of a Fund's
obligation to or from a clearing organization. Each Fund is also obligated to
make initial and variation margin payments when it writes options on futures
contracts.

Holders and writers of futures positions and options thereon can enter into
offsetting closing transactions, similar to closing transactions on options on
securities, by selling or purchasing, respectively, a futures position or
options position with the same terms as the position or option held or written.
Positions in futures contracts and options thereon may be closed only on an
exchange or board of trade providing a secondary market for such futures or
options.

Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract or related option may vary
either up or down from the previous day's settlement price. Once the daily limit
has been reached in a particular contract, no trades may be made that day at a
price beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because
prices could move to the daily limit for several consecutive trading days with
little or no trading and thereby prevent prompt liquidation of unfavorable
positions. In such event, it may not be possible for a Fund to close a position
and, in the event of adverse price movements the Fund would have to make daily
cash payments of variation margin (except in the case of purchased options).
However, in the event futures contracts have been used to hedge portfolio
securities, such securities will not be sold until the contracts can be
terminated. In such circumstances, an increase in the price of the securities,
if any, may partially or completely offset losses on the futures contract.
However, there is no

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<PAGE>

guarantee that the price of the securities will, in fact, correlate with the
price movements in the contracts and thus provide an offset to losses on the
contracts.

Successful use by a Fund of futures contracts and related options will
depend upon the Adviser's ability to predict movements in the direction of the
overall securities and interest rate markets, which requires different skills
and techniques than predicting changes in the prices of individual securities.
Moreover, futures contracts relate not to the current price level of the
underlying instrument but to the anticipated levels at some point in the future.
There is, in addition, the risk that the movements in the price of the futures
contract or related option will not correlate with the movements in prices of
the securities being hedged. In addition, if a Fund has insufficient cash, it
may have to sell assets from its portfolio to meet daily variation margin
requirements. Any such sale of assets may or may not be made at prices that
reflect the rising market. Consequently, a Fund may need to sell assets at a
time when such sales are disadvantageous to the Fund. If the price of the
futures contract or related option moves more than the price of the underlying
securities, a Fund will experience either a loss or a gain on the futures
contract or related option, that may or may not be completely offset by
movements in the price of the securities that are the subject of the hedge.

In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between price movements in the futures or related
option position and the securities being hedged, movements in the prices of
futures contracts and related options may not correlate perfectly with movements
in the prices of the hedged securities because of price distortions in the
futures market. As a result, a correct forecast of general market trends may not
result in successful hedging through the use of futures contracts and related
options over the short term.

Positions in futures contracts may be closed out only on an exchange or
board of trade that provides a secondary market for such futures contracts or
related options. Although each Fund intends to purchase or sell futures and
related options only on exchanges or boards of trade where there appears to be a
liquid secondary market, there is no assurance that such a market will exist for
any particular contract or option at any particular time. In such event, it may
not be possible to close a futures or option position and, in the event of
adverse price movements, a Fund would continue to be required to make variation
margin payments.

Like options on securities, options on futures contracts have a limited
life. The ability to establish and close out options on futures will be subject
to the development and maintenance of liquid secondary markets on the relevant
exchanges or boards of trade. There can be no certainty that liquid secondary
markets for all options on futures contracts will develop.

Purchasers of options on futures contracts pay a premium in cash at the
time of purchase. This amount and the transaction costs are all that is at risk.
Sellers of options on a futures contract, however, must post initial margin and
are subject to additional margin calls that could be substantial in the event of
adverse price movements. In addition, although the maximum amount at risk when a
Fund purchases an option is the premium paid for the option and the transaction
costs, there may be circumstances when the purchase of an option on a futures
contract would result in a loss to the Fund when the use of a futures contract
would not.

Each Fund's activities in the futures and related options markets may
result in a higher portfolio turnover rate and additional transaction costs in
the form of added brokerage commissions; however, the Fund also may save on
commissions by using futures and related options as a hedge rather than buying
or selling individual securities or currencies in anticipation or as a result of
market movements.

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INVESTMENT RESTRICTIONS

The investment restrictions set forth below have been adopted by the
respective Fund and, unless identified as non-fundamental policies, may not be
changed without the approval of a vote of a majority of the outstanding voting
securities of that Fund. As provided in the Investment Company Act of 1940, as
amended ("1940 Act"), a "vote of a majority of the outstanding voting securities
of the Fund" means the affirmative vote of the lesser of (1) more than 50% of
the outstanding shares of the Fund or (2) 67% or more of the shares of the Fund
present at a meeting, if more than 50% of the outstanding shares are represented
at the meeting in person or by proxy. Except with respect to borrowing, changes
in values of a Fund's assets will not cause a violation of the following
investment restrictions so long as percentage restrictions are observed by that
Fund at the time it purchases any security.

New York Insured. New York Insured will not:

(1) Borrow money except for temporary or emergency purposes (not for
leveraging or investment) in an amount not exceeding 5% of the value of its
total assets (including the amount borrowed) less liabilities (other than
borrowings). Any borrowings that exceed 5% of the value of the Fund's total
assets by reason of a decline in net assets will be reduced within three
business days to the extent necessary to comply with the 5% limitation. This
policy shall not prohibit deposits of assets to provide margin or guarantee
positions in connection with transactions in options, futures contracts, swaps,
forward contracts, and other derivative instruments or the segregation of assets
in connection with such transactions.

(2) Make loans, except by purchase of debt obligations and through
repurchase agreements. However, the Fund's Board of Directors may, on the
request of broker-dealers or other institutional investors which they deem
qualified, authorize the Fund to loan securities to cover the borrower's short
position; provided, however, the borrower pledges to the Fund and agrees to
maintain at all times with the Fund cash collateral equal to not less than 100%
of the value of the securities loaned; and, further provided, that such loans
will not be made if the value of all such loans, repurchase agreements maturing
in more than seven days and other illiquid assets is greater than an amount
equal to 15% of the Fund's net assets.

(3) Invest more than 25% of the Fund's total assets (taken at current
value) in the obligations of one or more issuers having their principal business
activities in the same industry.

(4) Purchase a Municipal Instrument unless it is an Insured Municipal
Instrument, or is already insured by a policy of insurance or, as to uninsured
municipal commercial paper or municipal notes, is supported by a letter of
credit or other similar guarantee obtained by the issuer or underwriter thereof.

(5) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter under Federal securities laws.

(6) Buy or sell real estate or interests in oil, gas or mineral
exploration, or issue senior securities (as defined in the 1940 Act); provided,
however, the Fund may invest in Municipal Instruments secured by real estate or
interests in real estate.

The Fund has adopted the following non-fundamental investment restrictions,
which may be changed without shareholder approval. The restrictions provide that
the Fund will not:

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<PAGE>

(1) Purchase any security if, as a result, more than 15% of its net assets
would be invested in illiquid securities, including repurchase agreements not
entitling the holder to payment of principal and interest within seven days and
any securities that are illiquid by virtue of legal or contractual restrictions
on resale or the absence of a readily available market. The Directors, or the
Fund's investment adviser acting pursuant to authority delegated by the
Directors, may determine that a readily available market exists for securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as
amended, or any other applicable rule, and therefore that such securities are
not subject to the foregoing limitation.

(2) Purchase or sell physical commodities unless acquired as a result of
ownership of securities (but this restriction shall not prevent the Fund from
purchasing or selling options, futures contracts, caps, floors and other
derivative instruments, engaging in swap transactions or investing in securities
or other instruments backed by physical commodities).

(3) Enter into futures contracts or options on futures contracts if
immediately thereafter the aggregate margin deposits on all outstanding futures
contracts positions held by the Fund and premiums paid on outstanding options on
futures contracts, after taking into account unrealized profits and losses,
would exceed 5% of the market value of the total assets of the Fund, or enter
into any futures contracts or options on futures contracts if the aggregate
amount of the Fund's commitments under outstanding futures contracts positions
and options on future contracts written by the Fund would exceed the market
value of the total assets of the Fund.

(4) Pledge assets, except that the Fund may pledge its assets to secure
borrowings made in accordance with fundamental investment restriction (1) above,
provided the Fund maintains asset coverage of at least 300% for pledged assets;
provided, however, this limitation will not prohibit escrow, collateral or
margin arrangements in connection with the Fund's use of options, futures
contracts or options on futures contracts.

(5) Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions, and
provided that margin payments and other deposits made in connection with
transactions in options, futures contracts, swaps, forward contracts, and other
derivative instruments shall not be deemed to constitute purchasing securities
on margin.

(6) Sell securities short, unless it owns or has the right to obtain
securities, without additional consideration, equivalent in kind and amount to
the securities sold short, and provided that transactions in options, futures
contracts, swaps, forward contracts, and other derivative instruments are not
deemed to constitute selling securities short.

(7) With respect to 75% of the Fund's total assets, purchase the securities
of any issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) if, as a result, (a) more than 5%
of the Fund's total assets would be invested in the securities of that issuer,
or (b) the Fund would hold more than 10% of the outstanding voting securities of
that issuer.

(8) Invest in the securities of other investment companies or investment
trusts except to the extent permitted by law.

Multi-State Insured. Each Fund of Multi-State Insured will not:

(1) Borrow money except for temporary or emergency purposes (not for
leveraging or investment) in an amount not exceeding 5% of the value of its
total assets (including the amount borrowed) less

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<PAGE>

liabilities (other than borrowings). Any borrowings that exceed 5% of the value
of a Fund's total assets by reason of a decline in net assets will be reduced
within three business days to the extent necessary to comply with the 5%
limitation. This policy shall not prohibit deposits of assets to provide margin
or guarantee positions in connection with transactions in options, futures
contracts, swaps, forward contracts, and other derivative instruments or the
segregation of assets in connection with such transactions.

(2) Purchase, as to 75% of each Fund's total assets (taken at current
value), the securities of any issuer (other than the U.S. Government) if, as a
result thereof, more than 5% of the total assets of such Fund would be invested
in the securities of such issuer. When the assets and revenues of an agency,
instrumentality or political subdivision issuing a Municipal Instrument or other
security are distinct from the assets and revenues of the government which
created the issuing entity, and the Municipal Instrument is supported by the
issuing entity's assets and revenues, the issuing entity is deemed to be the
sole issuer of the Municipal Instrument or security. If an industrial
development bond is supported only by the payments of the nongovernmental
beneficiary of the industrial development bond, then such nongovernmental entity
is deemed to be the sole issuer. With respect to pre-refunded bonds, the Adviser
considers an escrow account to be the issuer of such bonds when the escrow
account consists solely of U.S. Government obligations fully substituted for the
obligation of the issuing municipality.

(3) Purchase the securities of any issuer (other than the U.S. Government)
if, as a result thereof, any Fund would hold more than 10% of any class of
securities (including any class of voting securities) of such issuer.

(4) Purchase the securities of an issuer if such purchase, at the time
thereof, would cause more than 5% of the value of the total assets of any Fund
to be invested in securities of issuers which, including predecessors, have a
record of less than three years' continuous operation.

(5) Purchase the securities of other investment companies or investment
trusts, except as they may be acquired as part of a merger, consolidation or
acquisition of assets.

(6) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter under Federal securities laws.

(7) Buy or sell real estate or interests in oil, gas or mineral
exploration, or senior securities (as defined in the 1940 Act); provided,
however, each Fund may invest in Municipal Instruments secured by real estate or
interests in real estate.

(8) Make loans, except by purchase of debt obligations, publicly
distributed bonds or debentures (which are not considered loans), and through
repurchase agreements.

Multi-State Insured, on behalf of the Funds, has adopted the following
non-fundamental investment restrictions, which may be changed without
shareholder approval. They provide that each Fund will not:

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<PAGE>

readily available market exists for securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933, as amended, or any other applicable
rule, and therefore that such securities are not subject to the foregoing
limitation.

(2) Purchase or sell physical commodities unless acquired as a result of
ownership of securities (but this restriction shall not prevent each Fund from
purchasing or selling options, futures contracts, caps, floors and other
derivative instruments, engaging in swap transactions or investing in securities
or other instruments backed by physical commodities).

(3) Enter into futures contracts or options on futures contracts if
immediately thereafter the aggregate margin deposits on all outstanding futures
contracts positions held by a Fund and premiums paid on outstanding options on
futures contracts, after taking into account unrealized profits and losses,
would exceed 5% of the market value of the total assets of such Fund, or enter
into any futures contracts or options on futures contracts if the aggregate
amount of a Fund's commitments under outstanding futures contracts positions and
options on future contracts written by such Fund would exceed the market value
of the total assets of such Fund.

(4) Pledge assets, except that a Fund may pledge its assets to secure
borrowings made in accordance with fundamental investment restriction (1) above,
provided such Fund maintains asset coverage of at least 300% for pledged assets;
provided, however, this limitation will not prohibit escrow, collateral or
margin arrangements in connection with a Fund's use of options, futures
contracts or options on futures contracts.

(5) Purchase securities on margin, except that a Fund may obtain such
short-term credits as are necessary for the clearance of transactions, and
provided that margin payments and other deposits made in connection with
transactions in options, futures contracts, swaps, forward contracts, and other
derivative instruments shall not be deemed to constitute purchasing securities
on margin.

INSURANCE

The municipal bonds in each Fund's portfolio will be insured as to their
scheduled payments of principal and interest at the time of purchase either (1)
under a Mutual Fund Insurance Policy written by an independent insurance
company; (2) under an insurance policy obtained subsequent to a municipal bond's
original issue (a "Secondary Market Insurance Policy"); or (3) under an
insurance policy obtained by the issuer or underwriter of such municipal bond at
the time of original issuance (a "New Issue Insurance Policy"). An insured
municipal bond in a Fund's portfolio typically will be covered by only one of
the three policies. For instance, if a municipal bond is already covered by a
New Issue Insurance Policy or a Secondary Market Insurance Policy, then that
security will not be additionally insured under the Mutual Fund Insurance
Policy.

Each Tax Free Fund has purchased a Mutual Fund Insurance Policy ("Policy")
from AMBAC Assurance Corporation ("AMBAC"), a Wisconsin stock insurance company,
with its principal executive offices in New York City. The Policy guarantees the
payment of principal and interest on municipal bonds purchased by a Fund which
are eligible for insurance under the Policy. Municipal bonds are eligible for
insurance if they are approved by AMBAC prior to their purchase by a Fund. AMBAC

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<PAGE>

furnished each Fund with an approved list of municipal bonds at the time the
Policy was issued and subsequently provides amended and modified lists of this
type at periodic intervals. AMBAC may withdraw particular securities from the
approved list and may limit the aggregate amount of each issue or category of
municipal bonds therein, in each case by notice to a Fund prior to the entry by
the Fund of an order to purchase a specific amount of a particular security
otherwise eligible for insurance under the Policy. The approved list merely
identifies issuers whose issues may be eligible for insurance and does not
constitute approval of, or a commitment by, AMBAC to insure such securities. In
determining eligibility for insurance, AMBAC has applied its own standards which
correspond generally to the standard it normally uses in establishing the
insurability of new issues of municipal bonds and which are not necessarily the
criteria which would be used in regard to the purchase of municipal bonds by a
Fund. The Policy does not insure: (1) obligations of, or securities guaranteed
by, the United States of America or any agency or instrumentality thereof; (2)
municipal bonds which were insured as to payment of principal and interest at
the time of their issuance; (3) municipal bonds purchased by a Fund at a time
when they were ineligible for insurance; (4) municipal bonds which are insured
by insurers other than AMBAC; and (5) municipal bonds which are no longer owned
by a Fund. AMBAC has reserved the right at any time, upon 90 days' prior written
notice to a Fund, to refuse to insure any additional municipal bonds purchased
by a Fund, on or after the effective date of such notice. If AMBAC so notifies a
Fund, the Fund will attempt to replace AMBAC with another insurer. If another
insurer cannot be found to replace AMBAC, the Fund will ask its shareholders to
approve continuation of its business without insurance.

In the event of nonpayment of interest or principal when due, in respect of
an insured municipal bond, AMBAC is obligated under the Policy to make such
payment not later than 30 days after it has been notified by a Fund that such
nonpayment has occurred (but not earlier than the date such payment is due).
AMBAC, as regards insurance payments it may make, will succeed to the rights of
a Fund. Under the Policy, a payment of principal on an insured municipal bond is
due for payment when the stated maturity date has been reached, which does not
include any earlier due date by reason of redemption, acceleration or other
advancement of maturity or extension or delay in payment by reason of
governmental action.

The Policy does not guarantee the market value or yield of the insured
municipal bonds or the net asset value or yield of a Fund's shares. The Policy
will be effective only as to insured municipal bonds owned by a Fund. In the
event of a sale by a Fund of a municipal bond insured under the Policy, the
insurance terminates as to such municipal bond on the date of sale. If an
insured municipal bond in default is sold by a Fund, AMBAC is liable only for
those payments of interest and principal which are then due and owing and, after
making such payments, AMBAC will have no further obligations to a Fund in
respect of such municipal bond. It is the intention of each Fund, however, to
retain any insured securities which are in default or in significant risk of
default and to place a value on the defaulted securities equal to the value of
similar insured securities which are not in default. While a defaulted bond is
held by a Fund, the Fund continues to pay the insurance premium thereon but also
collects interest payments from the insurer and retains the right to collect the
full amount of principal from the insurer when the municipal bond comes due. See
"Determination of Net Asset Value" for a more complete description of the Funds'
method of valuing securities in default and securities which have a significant
risk of default.

Each Tax Free Fund may purchase a Secondary Market Insurance Policy from an
independent insurance company rated in the top rating category by S&P, Moody's,
Fitch IBCA, Inc. ("Fitch") or any other nationally recognized rating
organization which insures a particular bond for the remainder of its term at a
premium rate fixed at the time such bond is purchased by a Fund. It is expected
that these premiums will range from 1% to 5% of par value. Such insurance
coverage will

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<PAGE>

be noncancellable and will continue in force so long as such bond so insured is
outstanding. Each Fund may also purchase municipal bonds which are already
insured under a Secondary Market Insurance Policy. A Secondary Market Insurance
Policy could enable a Fund to sell a municipal bond to a third party as an
AAA/Aaa rated insured municipal bond at a market price higher than what
otherwise might be obtainable if the security were sold without the insurance
coverage. (Such rating is not automatic, however, and must specifically be
requested for each bond.) Any difference between the excess of a bond's market
value as an AAA/Aaa rated bond over its market value without such rating and the
single premium payment would inure to a Fund in determining the net capital gain
or loss realized by a Fund upon the sale of the bond.

In addition to the contract of insurance relating to each Fund, there is a
contract of insurance between AMBAC and Executive Investors Trust, between AMBAC
and First Investors Series Fund and between AMBAC and First Investors Insured
Tax Exempt Fund, Inc. Otherwise, neither AMBAC nor any affiliate thereof, has
any material business relationship, direct or indirect, with the Funds.

AMBAC is a Wisconsin-domiciled stock insurance corporation regulated by the
Office of the Commissioner of Insurance of the State of Wisconsin and licensed
to do business in 50 states, the District of Columbia, the Territory of Guam and
the Commonwealth of Puerto Rico, with admitted assets of approximately
$2,879,000,000 (unaudited) and statutory capital of approximately
$1,656,000,000. (unaudited) as of December 31, 1997. Statutory capital consists
of AMBAC's policyholders' surplus and statutory contingency reserve. S&P,
Moody's and Fitch. have each assigned a triple-A claims-paying ability rating to
AMBAC.

AMBAC has obtained a ruling from the Internal Revenue Service to the effect
that the insuring of an obligation by AMBAC will not affect the treatment for
Federal income tax purposes of interest on such obligation and that insurance
proceeds representing maturing interest paid by AMBAC under policy provisions
substantially identical to those contained in its municipal bond insurance
policy shall be treated for Federal income tax purposes in the same manner as if
such payments were made by the issuer of the municipal bonds.

AMBAC makes no representation regarding the municipal bonds included in the
investment portfolio of each Fund or the advisability of investing in such
municipal bonds and makes no representation regarding, nor has it participated
in the preparation of, the Prospectuses and this Statement of Additional
Information.

The information relating to AMBAC contained above has been furnished by
AMBAC. No representation is made herein as to the accuracy or adequacy of such
information, or as to the existence of any adverse changes in such information,
subsequent to the date hereof.

STATE SPECIFIC RISK FACTORS

Set forth below is additional discussion of risk factors to the discussion
in the Prospectus with respect to some of the Fund that invest primarily in
obligations of issuers from a particular state. Neither Multi-State Insured nor
New York Insured have independently verified this information.

Risk Factors for the Arizona Fund. Arizona's economy continues on a path of
strong growth. Economists at Arizona State University project that the pace may
slow slightly, but no signs of any serious imbalances are present. Arizona's
economy has been strengthened by five consecutive years of substantial tax
reductions, and Arizona is among the fastest growing states. The state's
population increased by approximately 22% during the 6-year period from 1990 to
1996. During

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<PAGE>

1997, Arizona's population was estimated at approximately 4.5 million.
Homebuilding and commercial construction is extremely strong, and Phoenix now
ranks as the sixth largest city in the United States with a population of
approximately 1.2 million. This growth in population will require corresponding
increases in revenues of Arizona issuers to meet increased demands for
infrastructure development and various services, and the performance of the
State's economy will be critical to providing such increased revenues.

Arizona's economy relies in part on services, construction, manufacturing
dominated by electrical, transportation and military equipment, high technology,
government, tourism, and the military. The Arizona economy has generally
performed above the national average in recent years. State unemployment rates
have remained generally comparable to the national average in recent years.
Arizona has held a steady position among the top five states in employment
growth since May 1993. In August 1997, Arizona's rate of job creation ranked
third in the nation. Arizona's personal income increased approximately 7.3
percent in 1997. Although Arizona's economy is continuing to expand, restrictive
government spending, a decline in the construction sector, and resizing of the
defense industry are expected to restrain the pace of expansion. The condition
of the national economy will continue to be a significant factor influencing
Arizona's economy.

Arizona is required by law to maintain a balanced budget. To achieve this
objective, the State has, in the past, utilized a combination of spending
reductions and tax increases. Although personal income taxes have been cut by
28%, at the end of 1997 the state had a budget surplus of approximately $900
million.

With respect to issuers of the securities in which the Arizona Fund will
invest, Arizona's state constitution limits the amount of debt payable from
general tax revenue that may be contracted by the State to $350,000. However,
certain other issuers have the power to issue obligations payable from a source
of revenue that affects the whole or large portions of the State. For example,
the Transportation Board of the State of Arizona Department of Transportation
may issue obligations for highways that are paid from revenues generated from,
among other sources, state gasoline taxes. Salt River Project Agricultural &
Improvement District, an agricultural improvement district that operates the
Salt River Project (a Federal reclamation project and an electrical system that
generates, purchases, and distributes electric power to residential, commercial,
industrial, and agricultural power users in a 2,900 square-mile service area
around Phoenix), may issue obligations payable from a number of sources.

Arizona's state constitution also restricts the debt payable from general
tax revenues of certain of the State's political subdivisions and municipal
corporations. No county, city, town, school district, or other municipal
corporation of the State may for any purpose become indebted in any manner in an
amount exceeding six percent of the taxable property in such county, city, town,
school district, or other municipal corporation without the approval of a
majority of the qualified electors thereof voting at an election provided by law
to be held for that purpose; provided, however, that (i) under no circumstances
may any county or school district of the State become indebted in an amount
exceeding 15% (or 30% in the case of a unified school district) of such taxable
property, and (ii) any incorporated city or town of the State with such approval
may be allowed to become indebted up to an additional 20% for (a) supplying such
city or town water, artificial light, or sewers, when the works for supplying
such water, light, or sewers are or shall be owned and controlled by the
municipality, and (b) the acquisition and development by the incorporated city
or town of land or interests therein for open space preserves, parks,
playgrounds, and recreational facilities. Irrigation, power, electrical,
agricultural improvements, drainage, flood control, and tax levying public

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<PAGE>

improvement districts are, however, exempt from the restrictions of the Arizona
Constitution. There are also restrictions relating to such entities implemented
by statute.

Annual property tax levies for the payment of general obligation bonded
indebtedness of political subdivisions and municipal corporations are unlimited
as to rate or amount (other than for purposes of refunding when there are
certain limits). Other obligations may be issued by such entities, sometimes
without an election, which are payable from, among other sources, project
revenues, special assessments, and excise taxes.

Arizona political subdivisions and municipal corporations are subject to
certain other limitations on their ability to assess taxes and levies that could
affect their ability to meet their financial obligations. Subject to certain
exceptions, the maximum amount of property taxes levied by any Arizona county,
city, town, or community college district for their operations and maintenance
expenditures cannot exceed the amount levied in a proceeding year by more than
two percent. Certain taxes are specifically exempt from this limit, including
taxes levied for debt service payments.

In 1994, the Supreme Court of Arizona ruled that Arizona's statutory
financing system for public education was not in compliance with the Arizona
Constitution and directed the Arizona Legislature (the "Legislature") public
school funding in Arizona. The Supreme Court further ordered that the ruling
would have prospective application only, that financing for public education
should continue under existing statutes, and that bonded indebtedness incurred
under the existing statues, as long as they are in effect, is valid and
enforceable. In an effort to respond to the Supreme Court's decision, the
Legislature established a school capital equity fund (the "Initial Fund") with
an initial appropriation of $30 million and a subsequent appropriation of $70
million. The Initial Fund was available to school districts that met certain
established criteria. In 1997, the Supreme Court ruled that (i) the creation of
the Initial Fund did not cure the constitutional defect in the State's financing
for public education, and (ii) the Legislature must adopt a constitutional
funding system for public education by June 30, 1998. If a constitutional
funding system is not adopted by June 30, 1998, the State Superintendent of
Public Instruction and State Board of Education will not be permitted to
distribute funds to the school districts of the State.

In 1997, the Legislature established the "Assistance to Build Classrooms
Fund" (the "ABC Fund"). The ABC Fund was designed, along with the amounts
available in the Initial Fund, to assist those school districts that did not
meet a minimum level of capital funding on a per student basis. A hearing was
held to determine whether the legislation establishing the ABC Fund, in
conjunction with the legislation providing for the Initial Fund (collectively,
the "Remedial Legislation"), brought the statutory financing system for public
education into compliance with the Arizona Constitution. The court held that it
did not. The Governor of Arizona filed a special action in the Supreme Court
challenging such ruling, but the Supreme Court ruled that the Remedial
Legislation did not solve the public school funding problem. In establishing the
ABC Fund, the Legislature provided that the Remedial Legislation would be
revoked automatically if the Supreme Court held that such legislation did not
satisfy the requirements of the Arizona Constitution, and, therefore, the
Remedial Legislation has been revoked.

It is unclear how the Legislature may respond to the Supreme Court's
direction to enact curative legislation or what the effect on Arizona school
districts will be. No assurance can be given that the Supreme Court will approve
any legislative response or that the Supreme Court will not take further action
in this matter. The effect of any legislative or judicial action cannot be
determined at this time.

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<PAGE>

If a constitutional funding system is not adopted by June 30, 1998, and if
the Supreme Court orders the State Superintendent of Public Instruction and the
State Board of Education not to distribute funds to the school districts,
certain school districts may experience severe adverse financial consequences
that may adversely affect the market value of their bonds and may, if severe
enough, cause the bankruptcy or insolvency of such districts and affect timely
payment of their bonds. Such bonds may be held with respect to the Arizona
Series.

Risk Factors for the California Fund. Changes in California constitutional
and other laws during the last several years have restricted the ability of
California taxing entities to increase real property tax revenues and other tax
sources and, through limiting various other taxes, have resulted in a reduction
in the absolute amount, or in the rate of growth, of certain components of state
and local revenues. These actions have raised additional questions about the
ability of California State and municipal issuers to obtain sufficient revenue
to pay their bond obligations. In 1978, California voters approved an amendment
to the California Constitution known as "Proposition 13." Proposition 13 limits
ad valorem taxes on real property and restricts the ability of taxing entities
to increase real property taxes. Legislation passed subsequent to Proposition
13, however, provided for the redistribution of California's General Fund
surplus to local agencies, the reallocation of revenues to local agencies and
the assumption of certain local obligations by the State so as to help
California municipal issuers to raise revenue to pay their bond obligations. It
is unknown, however, whether additional revenue redistribution legislation will
be enacted in the future and whether, if enacted such legislation would provide
sufficient revenue for such California issuers to pay their obligations.

The State is also subject to Article XIIIB of the State's Constitution,
which may have an adverse impact on California State and municipal issuers.
Article XIIIB restricts the State from spending certain appropriations in excess
of an appropriations limit imposed for each State and local government entity.
If revenues exceed such appropriations limit, such revenues must be returned to
the taxpayers.

In 1988, Proposition 98 was enacted by the voters of California.
Proposition 98 changed state funding of public education below university level,
primarily by guaranteeing K-12 schools a minimum share of General Fund revenues.
Currently, the Proposition 98 formulas require the allocation of approximately
40% of General Fund revenues to such educational support.

In November, 1996, Proposition 218 was enacted by the voters of California.
Proposition 218, called the Right to Vote on Taxes Initiative, requires any
special tax, levy or fee imposed or increased since January 1, 1995 without
voter consent to be validated by a vote. The initiative's intent was to close
"loopholes" in Proposition 13. The effect of Proposition 218 is to restrict the
spending flexibility of local governments. Since the passage of Proposition 218,
five California cities reviewed by major rating agencies have been downgraded.
An additional eight ratings have remained unchanged.

Expenditures exceeded revenues for four of the five fiscal years ending
with 1991-1992. Revenue and expenditures were essentially equal in 1992-1993,
but the original budget for that year projected revenues exceeding expenditures
by $2.6 billion. By June 30, 1993, according to the Department of Finance, the
State's Reserves for Economic Uncertainties had a deficit, on a budget basis, of
approximately $2.8 billion. The 1993-94 Budget Act planned to retire the
accumulated $2.8 billion prior year budget deficit by December 31, 1994. This
accumulated deficit was eliminated by the end of 1996.

In August, 1997, the Legislature approved a $70.9 billion budget, which
included a general fund budget of $53.1 billion, up from $49 billion in fiscal
1997.

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In January, 1998, the Governor submitted a proposed a $73.8 billion budget,
with a $55.4 billion general fund budget for 1998-99 which projects a surplus
with $741 million to be added to the state's reserves.

Local agency and municipal revenues are often highly dependent upon the
level of state appropriations. Accordingly, constraints at the state level tend
to result in revenue reductions at the local level. Thus, the substantial fiscal
pressures that have been experienced on the state level as a result of the prior
deficits continue to adversely impact local agency and municipal revenues.

The rights of owners of California governmental securities are subject to
the limitations on legal remedies against the governmental entity issuing such
securities, including a limitation on enforcement of judgments against funds
needed to service the public welfare and interest, and in some instances a
limitation on the enforcement of judgments against the entity's funds of a
fiscal year other than the fiscal year in which the payments were due.

As indicated in the Prospectus, the California Fund holds securities of
certain agencies that invested in the Pool, including OCTA and SOCPA (as defined
in the Prospectus). As of the date of this SAI, all principal and interest
payments have been made by OCTA and SOCPA when due, but there is no guarantee
that they will be made in the future. Both securities issues are insured by a
nationally recognized municipal bond insurance corporation. As of the date of
this Prospectus, neither security has had its rating downgraded by a nationally
recognized rating agency. However, although each insurance company that has
insured obligations of entities who were invested in the Pool have indicated its
intention to honor its policies, there can be no assurance at this time that
each such insurance company will have the ability to pay the debt service on
these obligations when due or whether it may raise defenses with respect to such
policy.

In addition, should OCTA and/or SOCPA not make debt service payments when
due, enforceability of either's obligations may become subject to the Federal
Bankruptcy Code and applicable bankruptcy, insolvency, reorganization,
moratorium, or similar laws relating to or affecting the enforcement of
creditors' rights generally, now or hereafter in effect; equity principals which
may limit the specific enforcement under State law of certain remedies; the
exercise by the United States of America of the powers delegated to it by the
Constitution; and the reasonable and necessary exercise, in certain exceptional
situations, of the police powers inherent in the sovereignty of the State of its
governmental bodies in the interest of serving a significant and legitimate
public purpose. Bankruptcy proceedings, or the exercise of powers by the federal
or state governments, if initiated, could subject the owners of the securities
of any governmental entity to judicial discretion and interpretation of their
rights in bankruptcy or otherwise, and consequently may entail risks of delay,
limitation, or modification of their rights.

Risk Factors for the Colorado Fund. The Colorado Fund will concentrate its
investments in debt obligations of the State of Colorado and its local
government entities (the "Colorado Obligations"). The information contained
herein is not intended to be a complete discussion of all relevant risk factors,
and there may be other factors not discussed herein that may adversely affect
the value of and the payment of interest and principal on the Colorado
Obligations.

Colorado's economy began to improve in the late 1980's, recovering from a
recession largely caused by contractions in the energy, high technology and
construction industries. The recovery has been fueled, in part, by large public
construction projects, net immigration, a healthy tourist economy, and increases
in the wholesale and retail trade sector and the general services sector. Now,
most of the large public works projects are completed, net immigration has
slowed and increases in tourism have slowed since the voters failed in 1993 to
approve an extension of the statewide tourism tax.

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<PAGE>

Consequently, the Colorado Office of State Planning and Budgeting has stated
that "Colorado's economic forecast is fraught with more uncertainty than at any
time in the past several years. The proposed changes in the federal budget will
shift more responsibilities to the State, just as the State's economy is slowing
down. Still, Colorado's non-agricultural job growth was roughly 2.0% in 1997,
and the unemployment rate is one of the lowest in the United States.

Employment in the service and trade industries represents approximately 55%
of the State's nonagricultural wage and salary jobs, and government employment
represents approximately 16%. Manufacturing represents only 10% and, while total
jobs in the sector are stable, manufacturing is slowly falling as a percentage
of total employment, due in part to a concentration in defense-related
production. Colorado's unemployment rate was 3.2% in November 1997, both below
the national rate of 4.6%. Colorado added around 40,000 nonagricultural wage and
salary jobs in 1997 (to 1,958,000), while total employment reached 2,138,000, an
all time high.

There are approximately 2,000 units of local government in Colorado,
including counties, statutory cities and towns, home-rule cities and counties,
school districts and a variety of water, sewer and other special districts, all
with various constitutional and statutory authority to levy taxes and incur
indebtedness. The major sources of revenue for payment of indebtedness are the
ad valorem property tax, which presently is imposed and collected solely at the
local level, sales and use taxes (for cities and counties) and revenue from
special projects. Residential real property is assessed at 9.74% of its actual
value for ad valorem taxes collected in 1998. All other property is assessed at
29% of its actual value, except producing mines and oil and gas properties. Oil
and gas properties are assessed at 87.5%. In 1996, the last year for which such
information is currently available, the assessed valuation of all real and
personal property in Colorado was $33,595,086,130, an increase of 3.5% from 1995
levels. In 1995 and 1996, $2,668,403,531 and $2,784,138,646, respectively, were
collected in property taxes throughout Colorado.

Risk Factors for the Connecticut Fund. Traditionally, Connecticut has been
viewed primarily as a manufacturing and industrial state. While manufacturing
remains an important sector of the State's economy, other sectors, particularly,
finance, insurance, real estate, trade (wholesale and retail) and services have
expanded to provide diversification tending to somewhat dilute the influence of
manufacturing. As of January 1, 1998, manufacturing provided approximately 17%
of total Connecticut employment, while the service sector provided approximately
34.1% of the State's employment.

In recent years, a variety of factors, including difficulties in the
banking and insurance industries in New England (which resulted in the
tightening of credit), the reduction in defense employment (resulting from an
overall decline in federal defense spending), and the softening of the real
estate and construction markets, have impeded the growth of the Connecticut
economy. Since 1993, however, the State's economy has begun a modest recovery.
Helped by a strong national economy, the State's economy continued to grow
during the 1997 Fiscal Year and indicators of future economic activity are
showing an upward trend. For instance, Connecticut housing starts increased by
10.9% from the third quarter of 1996 to the third quarter of 1997 and new
business starts increased by 25.4% over the same period.

Connecticut's seasonally adjusted October 1997 unemployment rate of 4.7%
represents a decrease from the 1996 unemployment rate of 5.7% and is the same as
the national unemployment rate. During the first three quarters of 1997, the
State's job growth in non-farm employment was approximately 2%, close to the
national average job growth rate of 2.4% for the same period. Connecticut's
strongest job gains occurred in the service industry, primarily in recreational
services

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<PAGE>

and health care, while manufacturing, finance, insurance, and real estate
industries have continued to lose jobs. Much of the State's job growth has been
fueled by businesses with fewer than 100 employees. These businesses have
accounted for 60% of the State's net job gain over the last 20 years. However,
although the overall employment picture for the State is improving, many of
Connecticut's urban centers still have above average rates of unemployment.

Connecticut's per capita income for 1996, at $33,875, was the highest in
the nation and 40% above the national average. However, State median household
income, adjusted for inflation, declined by 7.8% from 1992 to 1997. In addition,
the State ranks fifth in the nation for income inequality, with the top fifth of
families earning 14.2 times more than the bottom fifth. This income disparity
may threaten the State's long-term prospects for growth.

The three major sources of revenue for the State are the personal income
tax, the sales and use taxes, and the corporation business tax. According to the
State Comptroller, the imposition of the personal income tax, which began in
Fiscal Year 1991, raised approximately $2.6 billion in revenues in Fiscal Year
1996 and approximately $2.8 billion in Fiscal Year 1997.

According to the State Comptroller, Fiscal Year 1997 ended with a General
Fund surplus of $252 million, the largest surplus in ten years. The State
Comptroller reported a surplus from the State's General Fund operations of
approximately $93 million for the Fiscal Year ended June 30, 1993 (excluding
proceeds received from deficit financing); a surplus of $51 million for the
Fiscal Year ended June 30, 1994, a deficit of $242 million for the Fiscal Year
ended June 30, 1995, and a surplus of $198 million for the Fiscal Year ended on
June 30, 1996. On March 2, 1998, the State Comptroller's office reported that
the General Fund is projected to show a surplus of approximately $282 million
for the 1998 Fiscal Year.

The State's General Fund balance sheet, however, which is presented using
Generally Accepted Accounting Principles, showed a cumulative deficit of $670
million at the end of Fiscal Year 1997, an increase of $30 million from the
prior year. Over the past five years, the General Fund balance sheet deficit has
increased by 33%. The State Comptroller attributes the cumulative deficit
primarily to the State's use of modified cash accounting for annual budgeting
purposes, which tends to misrepresent revenues and spending.

In addition to the General Fund, the State also operates several Special
Revenue Funds which are often used as a means of earmarking or reserving certain
revenues to finance particular activities. These include, among others, the
Transportation Fund, the Grant and Loan Programs Fund and the Housing Programs
Fund. These Special Revenue Funds are generally funded by each fund's operating
revenues. According to the State Comptroller's report, the Special Revenue Funds
incurred an aggregate net operating deficit of $347 million in Fiscal Year 1997
(excluding proceeds received from debt financing) which is a decrease from the
$389 million deficit incurred in the prior year. The 1997 deficit was incurred
primarily by the Grant and Loan Programs Fund ($297 million operating deficit)
and was financed by bond proceeds.

When the operations of all of the State's governmental funds are
considered, the State showed an overall deficit of $95 million in Fiscal Year
1997. This deficit is at its lowest level in a decade, and is substantially
smaller than the Fiscal Year 1996 deficit of $191 million. The State has shown
operating deficits in each of the last ten years.

Connecticut's net State bonded debt was $9.2 billion at the end of Fiscal
Year 1997, an increase of $248 million (or 3%) over 1996. In each of Fiscal
Years 1995 and 1996, the State issued

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<PAGE>

approximately $1.0 billion in long-term general obligation bonds. In Fiscal Year
1997, the State issued approximately $.9 billion in bonds. Debt service for
bonded debt, as a percentage of governmental expenditures, increased to 9.1% for
Fiscal Year 1997 from 8.0% for Fiscal Year 1996. Connecticut, as rated by
Moody's, has the highest per capita debt in the nation. Public bonded debt per
capita increased to $2,774 for Fiscal Year 1997 from $2,670 for the prior year
and is currently more than double the 1990 level.

In addition to bonded debt, the State has other long-term obligations
which, for Fiscal Year 1997, primarily consisted of unfunded pension obligations
of $6.4 billion, unfunded payments to employees for compensated absences of $260
million, unfunded workers' compensation payments of $283 million, and capital
leases of $49 million. When these obligations are added to the State's bonded
debt, Connecticut's total State debt for Fiscal Year 1997 was $16.3 billion, a
$357 million increase over the prior year. This high debt level could impact
bond ratings, increase interest cost on all borrowings, and reduce the State's
flexibility in future budgets due to the higher fixed costs for debt service.

Historically, state operating deficits have been funded by appropriations
from a Budget Reserve fund comprised of unappropriated surpluses from prior
Fiscal Years. However, to help fund a cumulative Fiscal Year 1991 General Fund
deficit of approximately $1.2 billion, the State issued Economic Recovery Fund
Notes in the amount of $966 million in Fiscal Year 1992, $25 million in Fiscal
Year 1993, and $236.1 million in November of 1995. Payments of principal and
interest on the Economic Recovery Fund Notes are projected to be paid from tax
revenues transferred from the State's General Fund to the Economic Recovery
Fund, a fund specifically established for the purpose of retiring the Economic
Recover Fund notes. For the 1994, 1995 and 1996 Fiscal Years, $149.6 million,
$106.6 million and $89.5 million, respectively, were transferred from the
General Fund to the Economic Recovery Fund. The balance of Economic Recovery
Notes outstanding as of June 30, 1997 was $157.1 million. The State Comptroller
has reserved $166.7 million of the State's Fiscal Year 1997 General Fund surplus
for the retirement of the outstanding Economic Recovery Notes.

For Fiscal Year 1997, Connecticut general obligation bonds were rated Aa3,
AA-, and AA by Moody's, S&P, and Fitch Investors Service ("Fitch"),
respectively. Fitch reduced its rating from AA+ in March of 1995 due to the
State's weak recovery from the recession, continuing defense industry cutbacks,
and downsizing and mergers in the insurance and financial sectors. For Fiscal
Year 1997, transportation-related special tax obligation bonds were rated A1,
AA-and AA-, by Moody's, S&P and Fitch, respectively.

The authorization and issuance of State and municipal debt, including the
purpose, amount and nature thereof, the method and manner of incurring such
debt, the maturity and terms of repayment thereof, and other related matters are
governed by statute. Pursuant to various public acts or special bond acts, the
State has authorized and issued bonds for a variety of projects and purposes.
The State has no constitutional or other limit on its power to issue obligations
or incur indebtedness other than that it may only borrow for public purposes.
Section 3-21 of the Connecticut General Statutes does, however, provide that no
indebtedness for borrowed money payable from the General Fund tax receipts of
the State may be authorized by the General Assembly except such as shall not
cause the aggregate amount of such indebtedness (with certain exclusions) to
exceed 1.6 times the total estimated General Fund tax receipts of the State
during the Fiscal Year in which any such authorization will become effective.

In general, the State has borrowed money through the issuance of general
obligation bonds, the payment of which is made from the General Fund and backed
by the full faith and credit of the

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<PAGE>

State. However, the State also has the power to authorize, and has authorized
and issued, revenue bonds payable from project revenues and to some extent,
supported by a pledge of certain taxes. Such bonds are not backed by the full
faith and credit of the State. For example, the State adopted legislation that
provides for the issuance of the transportation-related special tax obligation
bonds, the proceeds of which are to be used to pay for improvements to the
State's transportation system. The bonds are payable solely from motor vehicle,
motor fuel and other transportation-related taxes and fees, charges and other
receipts pledged therefor and deposited in the Special Transportation Fund. The
amount of revenues for any such project is dependent on the occurrence of future
events and may thus differ materially from projected amounts.

In addition, the State has established various Statewide authorities and
two regional water authorities, one of which has since become independent, to
finance revenue producing projects. Five of such Statewide authorities have the
power to incur, under certain circumstances, indebtedness for which the State
has contingent or, in limited cases, direct liability. In addition, recent State
statutes have been enacted with respect to certain bonds issued by the City of
West Haven for which the State has direct guarantee liability. From time to
time, pursuant to public or special acts, the State has created or authorized
the creation of other authorities with power to incur indebtedness and to
finance projects, such as a Statewide health and educational facilities
authority. Indebtedness of such authorities does not constitute a liability or
debt of the State.

The State is a party to numerous legal proceedings. According to the State
Attorney General, most of these proceedings are unlikely to have a material
adverse affect on the State's finances. There are, however, several legal
proceedings which, if decided against the State, may result in material future
expenditures for expanded services or capital facilities or may impair future
revenue sources. It is not possible to determine the outcome of these
proceedings or to estimate the effects of adverse decisions on the State's
financial position.

Risk Factors for the Florida Fund. The following information is a brief
summary of factors affecting the economy of the state and does not purport to be
a complete description. This summary is based on publicly available information.
The Florida Fund has not independently verified the information.

Municipal instruments of Florida issuers may be adversely affected by
political, economic and legal conditions and developments within the state of
Florida. In addition, the Florida constitution and statutes mandate a balanced
budget as a whole, and require each of the separate funds (General Revenue Fund,
Trust Funds and Working Capital Fund) within the budget to be kept in balance
from currently available revenues each State fiscal year (July 1 -June 30). The
balanced budget requirement necessitates a continuous evaluation of receipts and
expenditures and makes Florida vulnerable to a sharp unexpected decrease in
revenues.

The state of Florida is not authorized by law to issue obligations to fund
governmental operations; but is authorized to issue bonds pledging its full
faith and credit to finance or refinance the cost of state fixed capital outlay
projects upon approval by a vote of the electors. However, Florida may issue
revenue bonds without a vote to finance or refinance the cost of state fixed
capital outlay projects which are payable solely from funds other than state tax
revenues. Municipal instruments issued by cities, counties and other
governmental authorities are payable either from their general revenues
(including ad valorem and other taxes) within their jurisdiction or revenues
from the underlying project. Revenue obligations issued by such governmental
bodies and other entities are customarily payable only from revenues from the
particular project or projects involved. The limitations on the state of Florida
and its governmental agencies and Florida local governmental agencies may
inhibit the ability of such issuers

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<PAGE>

to repay existing municipal indebtedness and otherwise may affect their credit
standing. In addition, the ability of such issuers to repay revenue bonds will
be dependent on the success of the particular project to which such bonds
relate.

The state of Florida has grown dramatically. In 1950, Florida was the
twentieth most populous state with a population of 2.8 million. In 1980, Florida
was the seventh most populous state with a population of 9.7 million. As of
April 1, 1996, Florida's population was approximately 14.41 million, ranking
Florida as the fourth most populous state nationally and the most populous of
the southeastern states.

Florida's growth is partially caused by the number of retirees moving to
take advantage of the favorable climate. In-migration has historically been a
major driving force of Florida's economy. However, nationally, the growth in the
number of young adults and retirees, the two groups most likely to move to
Florida, is expected to decline significantly, as a result of changes in the
overall age structure of the U.S. population. Demographers expect Florida's
population growth in the 1990's to be significantly below the level of the
1980's. Since 1985, the State's average annual rate of population increase has
been approximately 2.3%, as compared to an approximately 1.0% average annual
increase for the nation as a whole. The average annual rate of population
increase during the period 1991 to 1996 was 1.8%. The state's annual population
growth is expected to continue at close to 230,000 throughout the 1990's.

Florida's population growth is one reason why Florida's economy has
generally performed better than the nation as a whole. However, continued
population growth is no assurance of a strong economy. In addition, despite
projections for slower overall population growth, an acceleration in the growth
rate of Florida's school age population and over-80 population is expected,
increasing the demands for government services particularly in the education and
health care areas.

While Florida is a leading site for retirement, it is also attracting a
significant number of working-age people. For instance, since 1985, the prime
working-age population (18-44 years of age) has grown at an average annual rate
of approximately 2.2%. As expected, job seekers moving to the State are settling
primarily in the metropolitan areas, such as Metro-Dade, Orlando, Tampa, St.
Petersburg and Jacksonville. The share of Florida's total working-age population
(18-59 years of age) to total state population is approximately 54% and is not
expected to change appreciably through the year 2000.

Because Florida has a proportionally greater retirement age population,
property income (dividends, interest, and rent) and transfer payments (including
social security and pension benefits, among other sources of income) are a
relatively more important source of income than in the nation, generally, and
the southeast. Property income, and transfer payments are typically less
sensitive to national business cycles than employment income and therefore, have
traditionally acted as a stabilizing force within Florida's economy during weak
economic periods. Florida's retirement age population, living in part on
interest income, will be adversely affected by any drops in interest rates.
Efforts at both the state and federal level are underway to reduce health care
expenditures and Florida relies more than most other states on federal Medicare
and Medicaid dollars targeted to the elderly. In addition, cuts in entitlements
such as Social Security could have an adverse impact on Florida's economy.
Feared entitlement cuts themselves have the effect of reducing the consumer
confidence of Florida's elderly population.

The service sector is Florida's largest employer. Florida is predominantly
a service-oriented state, in the bottom fifth of states in per capita value
added to the economy by manufacturing. In contrast, the southeast and the nation
have a greater proportion of manufacturing jobs which tend to pay higher

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<PAGE>

wages. Consolidations, restructurings and failures in the service sector, in
recent years, have adversely affected the Florida economy. In addition,
manufacturing jobs in Florida differ substantially from those available
nationwide and in the southeast, which are more concentrated in areas such as
heavy equipment, primary metals, chemicals and textile mill products. Florida
has a concentration of manufacturing jobs in high-tech and high value-added
sectors, such as electrical and electronic equipment, as well as printing and
publishing. These kinds of manufacturing jobs tend to be less cyclical than
other forms of manufacturing employment. Florida's manufacturing sector has kept
pace with the nation, at about 2.6% of the total U.S. manufacturing employment,
since the beginning of the 1990's. However, defense cutbacks and a diminished
space program will make it difficult to expand or even maintain Florida's
existing small high-tech manufacturing base.

In the area of international trade, Florida is considered well positioned
to take advantage of strong economic growth in Latin America. Florida's exports
to its top five Latin American markets (Brazil, Columbia, Argentina, Venezuela
and Dominican Republic) reached $10 billion in 1994.

During the period 1985 - 1996, the state's population increased an
estimated 26.1%. In the same period of time, Florida's total employment grew by
approximately 28.5%. In 1996, Florida's job base grew by about 164,100 or 2.7%,
however, a large portion of the new jobs were temporary positions. In 1997,
Florida's service industries constituted nearly 87% of total non-farm
employment. The average unemployment rate in Florida since 1986 has been
approximately 6.2%, while the national average is approximately 6.2%. In July,
1997, however, the unemployment rate in Florida was 5.0%.

Florida's economy has been and currently is dependent on the highly
cyclical construction and construction related manufacturing sectors. Florida's
single and multi-family housing starts accounted for approximately 8.5% of total
U.S. housing starts in 1995, although Florida's population is 5.4% of the U.S.
population. Total housing starts were 115,500 and 122,380 in 1995 and 1996,
respectively. Traditionally, Florida's rapid growth in population has been a
driving force behind Florida's construction industry. However, factors such as
Federal tax reform, the availability and cost of financing, overdevelopment,
impact and other development fees and Florida's growth management legislation
and comprehensive planning requirements may adversely affect construction
activity. Lower interest rates will tend to stimulate construction, while
increased rates will diminish construction activity.

Tourism is one of Florida's most important industries. Approximately 42.5
million domestic and international tourists visited Florida in 1996. In terms of
business activities and state tax revenues, tourists in Florida effectively
represented additional residents, spending their dollars predominantly at eating
and drinking establishments, hotels and motels, and amusement and recreation
parks. Visitors to the state tend to arrive by aircraft slightly more so than by
automobile. The state's tourist industry over the years has become more
sophisticated, attracting visitors year-round, thus, to a degree, reducing its
seasonality. Besides a sub-tropical climate and clean beaches that attract
people in the winter months, the state has added, among other attractions, a
variety of amusement and educational theme parks. This diversification has
helped to reduce the seasonal and cyclical character of the industry and has
effectively stabilized tourist related employment as a result.

The greatest single source of tax receipts in Florida is the sales and use
tax, which accounted for approximately $11.46 billion of revenue in the
1995-1996 fiscal year. The state's dependence on sales taxes keeps the state
susceptible to economic downturns which could cause a reduction in sales tax
collections.

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<PAGE>

Florida depends more on sales taxes than most other states. This reliance
has increased over time primarily because of a constitutional prohibition of a
personal income tax and the reservation of ad valorem property taxes to local
governments. The State does not levy ad valorem taxes on real property or
tangible personal property. Counties, school districts and municipalities are
authorized by law, and special districts may be authorized by law, to levy ad
valorem taxes.

Slightly less than 10% of the sales tax is designated for local governments
and is distributed to the counties in which it is collected for local use by
such counties and their municipalities. In addition, local governments may have
(by referendum) limited authority to assess discretionary sales surtaxes within
their counties.

Due to its involvement in a wide range of activities and the complexity of
its system of taxation, Florida is a party to various legal actions. The
outcomes of some of these actions could significantly reduce Florida's ability
to collect taxes, force Florida to refund taxes already collected, require the
State to pay damage awards, or result in the loss of valuable state property.
Furthermore, past and pending litigation, to which Florida is not a party, may
create precedents which may effectively result in future costs or revenue
losses. In addition, the issuers may be involved in a variety of litigation
which could have a significant adverse impact on their financial standing.

Florida's local governments operate in a restrictive legal and political
fiscal environment. They are faced with State imposed revenue raising and
revenue expenditure constraints, fast paced population growth, and citizen's
expectations for expanded services without higher property taxes. The Florida
Constitution preempts to the State all revenue sources not specifically provided
by law, except for the ad valorem property tax. It also limits levies of local
governments to 10 mills ($10 per thousand dollars of taxable assessed
valuation). A constitutionally mandated homestead tax exemption ($25,000) also
has eroded the tax base of many less populated counties. In addition, a recent
constitutional amendment limits the ability of local governments to increase the
assessed valuation of homestead property, which, together with the 10 mill
limitation, could have a substantial adverse affect on local governments in the
future. The State also requires that agricultural property be assessed according
to its value in current use rather than its fair market value. Florida's local
governments cannot impose a personal income or payroll tax.

Florida's Growth Management Act requires local governments to prepare
growth plans for approval by the State. These growth plans must insure that new
development will not be permitted unless adequate infrastructure such as roads,
sewer, water and parks are available concurrently with the development. Known as
"concurrency," this requirement has put heavy economic and political pressure on
local governments. In addition, the Growth Management Act has spawned litigation
involving local governments, which itself consumes resources, and in which an
adverse outcome can adversely affect the local governments involved.

In November, 1994, the voters of Florida approved the State legislature's
joint resolution to amend the Florida Constitution. This amendment limits the
amount of taxes, fees, licenses and charges imposed by the legislature and
collected during any fiscal year to the amount of revenues allowed for the prior
fiscal year, plus an adjustment for growth. Growth is defined as the amount
equal to the average annual rate of growth in Florida personal income over the
most recent twenty quarters times the State revenues allowed for the prior
fiscal year. The revenues allowed for any fiscal year can be increased by a
two-thirds vote of the State legislature. Any excess revenues generated must be
put into the Budget Stabilization Fund until it is fully funded and then
refunded to taxpayers. Included among the categories of revenues which are
exempt from the revenue limitation, however, are revenues pledged to State
bonds.

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<PAGE>

The value of Florida municipal instruments may also be affected by general
conditions in the money markets or the municipal bond markets, the levels of
Federal income tax rates, the supply of tax-exempt bonds, the size of offerings,
maturity of the obligations, the credit quality and rating of the issues and
perceptions with respect to the level of interest rates.

General obligation bonds issued by the state of Florida have consistently
been rated Aa and AA by Moody's and S & P, respectively. There is no assurance
that such ratings will be maintained for any given period of time or that they
may not be lowered, suspended or withdrawn entirely by such rating agencies, or
either of them if circumstances warrant. Any such downward change in, suspension
of, or withdrawal of such ratings, may have an adverse affect on the market
price of Florida municipal instruments. Moreover, the rating of a particular
series of revenue bonds or municipal obligations relates primarily to the
project, facility, governmental entity or other revenue source which will fund
repayment.

Florida's rapid growth is straining resources but has also permitted the
expansion of local governments and creates greater economic depth and diversity.
While infrastructure developments have lagged behind population growth, it is
expected that more infrastructure projects will be created, thereby increasing
Florida's governmental indebtedness and the issuance of additional municipal
instruments.

While the bond ratings and some of the information presented above may
indicate that Florida is in satisfactory economic health, there can be no
assurance that there will not be a decline in economic conditions or that
particular municipal instruments in the portfolio of the Florida Fund will not
be adversely affected by any changes in the economy. In addition, the economic
condition in Florida as a whole is only one factor affecting individual
municipal instruments, which are subject to the influence of a multitude of
local political, economic and legal conditions and developments.

Risk Factors for the Georgia Fund. The Georgia Fund will concentrate its
investments in debt obligations of the State of Georgia and guaranteed revenue
debt of its instrumentalities (the "Georgia Obligations"). The Georgia
Obligations may be adversely affected by economic and political conditions and
economic and legal developments within the State of Georgia. The information
contained herein is not intended to be a complete discussion of all relevant
risk factors, and there may be other factors not discussed herein, such as "Year
2000" risks, that may adversely affect the value of the payment of interest and
principal on the Georgia Obligations.

For fiscal years 1998 and 1999, the Georgia General Assembly authorized
$343,568,000 and $485,170,000 in general obligation debt, respectively, with
existing obligations at end of fiscal year 1997 totaling $4,635,930,000. The
1997B and 19997C series of Georgia general obligation bonds are rated Aaa, AAA,
and AAA by Moody's, S&P, and Fitch, respectively.

Georgia's net revenue collections for the fiscal year ending June 30, 1997,
amounted to $10,520,607,344.63, a 5.8% increase from the previous fiscal year,
but slightly lower than originally projected. Estimated revenue from taxes and
fees for fiscal year 1998 is projected to be $11,233,000,000, with an additional
$515,000,000 in lottery proceeds.

According to the Department of Labor for the State of Georgia, Georgia's
current unemployment rate is approximately 3.8%, placing Georgia below the
national average unemployment rate. Georgia's low unemployment rate is not
expected to decrease significantly. Total employment in Georgia is projected to
increase by over twenty percent by the year 2005, with the largest increases
forecasted in

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<PAGE>

service industries. Georgia's population is expected to grow steadily with
projected population to increase to over eight million people by the year 2010.

Risk Factors for the Maryland Fund. Some of the significant financial
considerations relating to the investments of the Maryland Fund are summarized
below. This information is derived principally from official statements and
preliminary official statements released on or before February 6, 1998, relating
to issues of Maryland obligations and does not purport to be a complete
description.

The State's total expenditures for the fiscal years ending June 30, 1995,
June 30, 1996 and June 30, 1997 were $13.528 billion, $14.169 billion and
$14.787 billion, respectively. As of February 26, 1998, it was estimated that
total expenditures for fiscal year 1998 would be $15.743 billion. The State's
General Fund, representing approximately 55% - 60% of each year's total budget,
had an unreserved surplus on a budgetary basis of $132.5 million in fiscal year
1995, an unreserved surplus of $13.1 million in fiscal year 1996, and an
unreserved surplus of $207.2 million in fiscal year 1997 (of which $144.5
million was designated for fiscal year 1998 operations). The State Constitution
mandates a balanced budget.

In April 1997, the General Assembly approved the $15.438 billion 1998
fiscal year budget. The Budget includes $3.1 billion in aid to local governments
(reflecting a $200 million increase in funding over 1997. The Revenue
Stabilization Account was established in 1986 to retain State revenues for
future needs and to reduce the need for future tax increases. It is anticipated
that the balance of the Revenue Stabilization Account as of June 30, 1998 will
be $554 million. The 1998 Budget does not include any proposed expenditures
dependent on additional revenue from new or broad-based taxes. When the 1998
Budget was enacted, it was estimated that the general fund unreserved surplus on
a budgetary basis at June 30, 1998, would be approximately $27.9 million; as of
February 6, 1998 that surplus estimation had risen to $283 million.

In January of 1998, the Governor submitted his proposed fiscal year 1999
Budget to the General Assembly. The Budget includes $3.3 billion in aid to local
governments (reflecting a $167 million increase over 1998), and $40.7 million in
general fund deficiency appropriations for fiscal year 1998.* It is estimated
that the general fund surplus on a budgetary basis at June 30, 1999 will be
approximately $1.3 million. In addition, it is estimated that the balance in the
Revenue Stabilization Account of the State Reserve Fund at June 30, 1999 will be
$696 million.

The public indebtedness of Maryland and its instrumentalities is divided
into three basic types. The State issues general obligation bonds for capital
improvements and for various State-sponsored projects. The State Constitution
prohibits the contracting of State debt unless the debt is authorized by a law
levying an annual tax or taxes sufficient to pay the debt service within 15
years and prohibiting the repeal of the tax or taxes or their use for another
purpose until the debt has been paid. The Department of Transportation of
Maryland issues limited, special obligation bonds for transportation purposes
payable primarily from specific, fixed-rate excise taxes and other revenues
related mainly to highway use. Certain authorities issue obligations payable
solely from specific non-tax enterprise fund revenues and for which the State
has no liability and has given no moral obligation assurance.

- --------
* The Budget incorporates the first full year of the five-year phase-in of
the 10% reduction in personal income taxes estimated to result in a
reduction of revenues of $125 million in fiscal year 1999.

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According to recent available ratings, general obligation bonds of the
State of Maryland are rated "Aaa" by Moody's and "AAA" by S&P, as are those of
the largest county of the State, i.e., Montgomery County in the suburbs of
Washington, D.C. General obligation bonds of Baltimore County, a separate
political entity surrounding Baltimore City and the third largest county in the
State, are rated "Aaa" by Moody's and "AAA" by S&P. General obligation bonds of
Prince George's County, the second largest county, which is also in the suburbs
of Washington, D.C., are rated "Aa" by Moody's and "AA-" by S&P. The general
obligation bonds of those other counties of the State that are rated by Moody's
carry an "A" rating or better except for those of Allegheny County, which are
rated "Baa". The general obligation bonds of Baltimore City, one of the most
populous municipalities in Maryland, are rated "A1" by Moody's and "A" by S&P.
The Washington Suburban Sanitary District, a bi-county agency providing water
and sewerage services in Montgomery and Prince George's Counties, issues general
obligation bonds rated "A" by Moody's and "AA" by S&P. Most Maryland Health and
Higher Education Authority and State Department of Transportation revenue bonds
issues have received an "A" rating or better from Moody's. See Appendix A for a
description of municipal bond ratings.

While the ratings and other factors mentioned above indicate that Maryland
and its principal subdivisions and agencies are overall in satisfactory economic
health, there can, of course, be no assurance that this will continue or that
particular bond issues may not be adversely affected by changes in state or
local economic or political conditions.

Risk Factors for the Massachusetts Fund. Some of the significant financial
considerations relating to the investments of the Massachusetts Fund are
summarized below. This information is derived principally from official
statements and preliminary official statements released on or before April 1,
1998, relating to issues of Massachusetts obligations and does not purport to be
a compete description.

Annual expenditures by the Commonwealth of Massachusetts for programs and
services provided by state government for fiscal years 1990 and 1991 exceeded
total current year revenues. The fiscal 1990 and 1991 budgetary deficits were in
effect funded by the issue of $1.42 billion of bonds. Total revenues and other
sources exceeded total expenditures and other uses in fiscal 1992, 1993, 1994,
1995, 1996 and 1997 by approximately $312.3 million, $13.1 million, $26.8
million, $136.7 million, $446.4 million and $221.0 million, respectively.

The Commonwealth's fiscal 1998 budget is based on estimated total mass
revenues and other sources of approximately $19.273 billion. Total expenditures
and other uses for fiscal 1998 are estimated at approximately $19.373 billion.
The fiscal 1998 budget proposed that the $100 million difference between
estimated revenues and other sources and estimated expenditures and other uses
be provided for by application of the beginning fund balances for fiscal 1998.
The fiscal 1998 budget is based upon numerous spending and revenue estimates,
the achievement of which cannot be assured.

On January 27, 1998 the Governor submitted his fiscal 1999 budget
recommendations to the legislature which provide for budgeted expenditures and
other uses of approximately $19.49 billion. The recommended fiscal 1999 spending
level is approximately $641.7 million above the fiscal 1998 budgeted
expenditures and other uses of $18.848 billion. The Governor's recommendations
project fiscal 1999 ending fund balances of approximately $906 million. The
Governor's recommendations are, of course, subject to legislative consideration.

In Massachusetts the tax on personal property and real estate is the
principal source of tax revenues available to cities and towns to meet local
costs. "Proposition 2 1/2", an initiative petition adopted by the voters of the
Commonwealth of Massachusetts on November 4, 1980, limits the power of

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Massachusetts cities and towns and certain tax-supported districts and public
agencies to raise revenue from property taxes to support their operations,
including the payment of debt service, by limiting the amount by which the total
property taxes may increase from year to year. The reductions in local revenues
and anticipated reductions in local personnel and services resulting from
Proposition 2 1/2 created strong demand for substantial increases in
Commonwealth funded local aid, which increased significantly in fiscal years
1982 through 1989. The effect of this increase in local aid was to shift a major
part of the impact of Proposition 2 1/2 to the Commonwealth. Because of
decreased Commonwealth revenues, local aid declined significantly in fiscal
1990, 1991 and 1992. Local aid increased somewhat in fiscal 1993, 1994, 1995,
1996 and 1997 and is expected to increase again in fiscal 1998.

Limitations on Commonwealth tax revenues have been established by enacted
legislation approved by the Governor on October 25, 1986 and by public approval
of an initiative petition on November 4, 1986. The two measures are inconsistent
in several respects, including the methods of calculating the limits and the
exclusions from the limits. The initiative petition, unlike its legislative
counterpart, contains no exclusion for debt service on Commonwealth bond and
notes or for payments on Commonwealth guarantees. Commonwealth tax revenues in
fiscal 1987 exceeded the limit imposed by the initiative petition resulting in
an estimated $29.2 million reduction which was distributed to taxpayers in the
form of a tax credit against calendar year 1987 personal income tax liability
pursuant to the provisions of the initiative petition. Tax revenues since fiscal
1988 have not exceeded the limit set by either the initiative petition or the
legislative enactment.

The Commonwealth maintains financial information on a budgetary basis.
Since fiscal year 1986, the Comptroller also has prepared annual financial
statements in accordance with generally accepted accounting principals (GAAP) as
defined by the Government Accounting Standards Board. GAAP basis financial
statements indicate that the Commonwealth ended fiscal 1990, 1991, 1992, 1993
and 1994 with fund deficits of approximately $1.896 billion, $761.2 million,
$381.6 million, $184.1 million and $72 million, respectively. GAAP basis
financial statements for fiscal 1995 indicate that the Commonwealth ended such
year with a fund equity of approximately $287.4 million. GAAP basis financial
statements for fiscal 1996 indicate that the Commonwealth ended such year with a
fund equity of $709.2 million. GAAP basis financial statements for fiscal 1997
indicate that the Commonwealth ended such year with a fund equity of $1.096
billion.

Risk Factors for the Michigan Fund. The information set forth below is
derived in part from the official statements prepared in connection with the
issuance of Michigan municipal bonds and similar obligations and other sources
that are generally available to investors. The information is provided as
general information intended to give a recent historical description and is not
intended to indicate future or continuing trends in the financial or other
positions of the State of Michigan (the "State").

The principal sectors of Michigan's diversified economy are manufacturing
of durable goods (including automobiles and components and office equipment),
tourism and agriculture. As reflected in historical employment figures, the
State's economy has lessened its dependence upon durable goods manufacturing,
however, such manufacturing continues to be an important part of the State's
economy. These particular industries are highly cyclical and in the period
1995-96 operated at somewhat less than full capacity but at higher levels than
in the immediate prior years. The cyclical nature of these industries and the
Michigan economy can adversely affect the revenue streams of the State and its
political subdivisions because it may adversely impact tax sources, particularly
sales taxes, income taxes and single business taxes.

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<PAGE>

The State finances its operations through the State's General Fund and
special revenue funds. The General Fund receives revenues of the State that are
not specifically required to be included in the special revenue funds. The
majority of the revenues from State taxes are from the State's personal income
tax, single business tax, use tax and sales tax. Significant portions of tax
revenues are designated for the State's School Aid Fund and are transferred to
school districts for the financing of primary and secondary school operations.

The Michigan State General Fund balances for the 1989-90 and 1990-91 fiscal
years were negative $310 million and $169.4 million, respectively. This negative
balance had been eliminated as of the end of fiscal year 1991-92, which ended
September 30, 1992. General Fund surplus at the end of fiscal years 1992-93
through 1995-96 was transferred, as required by statute, to the Counter-Cyclical
Budget and Economic Stabilization Fund ("BSF"). A General Fund surplus for
fiscal year 1996-97, which ended September 30, 1997, is expected to result in a
preliminary unreserved BSF balance at September 30, 1997 of $1.175 billion. The
State's Annual Financial report for fiscal years ending September 30 is
generally available at the end of March of the following year.

Beginning in 1993, the Michigan Legislature enacted several statutes which
significantly affect Michigan property taxes and the financing of primary and
secondary school operations. The property tax and school finance reform measures
included a ballot proposal ("Proposal A") and constitutional amendment which was
approved by voters on March 15, 1994. Under Proposal A as approved, the State
sales and use tax rates were increased from 4% to 6%, the State income tax and
cigarette tax were increased, the Single Business Tax imposed on business
activity within the state was decreased and, beginning in 1994, a State property
tax of 6 mills is now imposed on all real and personal property currently
subject to the general property tax. Proposal A contains additional provisions
regarding the ability of local school districts to levy supplemental property
taxes for operating purposes as well as a limit on assessment increases for each
parcel of property, beginning in 1995 to the lesser of 5% or the rate of
inflation.

Under Proposal A, much of the additional revenue generated by the new taxes
will be dedicated to the State School Aid Fund. Proposal A shifts significant
portions of the cost of local school operations from local school districts to
the State and raises additional State revenues to fund these additional State
expenses. These additional revenues will be included within the State's
constitutional revenue limitations and may impact the State's ability to raise
additional revenues in the future.

In July, 1997, the Michigan Supreme Court issued a decision in cases filed
by many of Michigan=s local and intermediate school districts against the State
regarding the manner in which the State disburses funds to school districts for
special education and special education transportation, bilingual education,
driver education and school lunch programs, including a case captioned Donald
Durant, et al v State of Michigan. The court held that money damages estimated
at $212 million are owed to 84 school districts and legislation has been enacted
to pay that amount from the BSF. Approximately 400 other local school districts
also asserted claims similar to Durant against the State. Those claims have been
settled and legislation has also been passed authorizing transfers from the BSF
and expenditures from the General Fund aggregating in excess of $900 million to
local and intermediate school districts over the next 15 years.

Currently, the State's general obligation bonds are rated Aa1 by Moody's,
AA+ by Standard & Poor's and AA by Fitch. Moody's upgraded its rating from A1 to
Aa in July, 1995. To the extent that the portfolio of the Michigan Fund is
comprised of revenue or general obligations of local governments or authorities,
rather than general obligations of the State of Michigan, ratings on such
Michigan

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<PAGE>

obligations will be different from those given to the State of Michigan and
their value may be independently affected by economic matters not directly
impacting the State.

Risk Factors for the Minnesota Fund. The information set forth below is
derived from official statements prepared in connection with the issuance of
obligations of the State of Minnesota and other sources that are generally
available to investors. The information is provided as general information
intended to give a recent historical description and is not intended to indicate
further or continuing trends in the financial or other positions of the State of
Minnesota. Such information constitutes only a brief summary, relates primarily
to the State of Minnesota, does not purport to include details relating to all
potential issuers within the State of Minnesota whose securities may be
purchased by the Minnesota Fund, and does not purport to be a complete
description.

The State of Minnesota has experienced certain budgeting and financial
problems since 1980.

In February 1992 the Commissioner of Finance estimated the Accounting
General Fund balance at June 30, 1993, at negative $569 million. The balance at
June 30, 1995, was projected at negative $1.75 billion.

The 1992 Legislature reduced expenditures by $262 million for the biennium
ending June 30, 1993, enacted revenue measures expected to increase revenue by
$149 million, and reduced the budget reserve by $160 million to $240 million.

After the Legislature adjourned in April 1992, the Commissioner of Finance
estimated the Accounting General Fund balance at June 30, 1993, at $2.4 million,
and projected the balance at June 30, 1995, at negative $837 million. A November
1992 forecast estimated the balance at June 30, 1993, at positive $217 million
and projected the balance at June 30, 1995, at negative $769 million.

A March 1993 forecast projected an Accounting General Fund balance at June
30, 1995, at negative $163 million out of a budget for the biennium of
approximately $16.7 billion, and estimated a balance at June 30, 1997, at
negative $1.6 billion out of a budget of approximately $18.7 billion.

The 1993 Legislature authorized $16.519 billion in spending for the
1993-1995 biennium, an increase of 13.0 percent from 1991-1993 expenditures.
Resources for the 1993-1995 biennium were projected to be $16.895 billion,
including $657 million carried forward from the previous biennium. The $16.238
billion in projected non-dedicated and dedicated revenues was 10.3 percent
greater than in the previous biennium and included $175 million from revenue
measures enacted by the 1993 Legislature. The Legislature increased the health
care provider tax to raise $79 million, transferred $39 million into the
Accounting General Fund and improved collection of accounts receivable to
generate $41 million.

After the Legislature adjourned in May 1993, the Commissioner of Finance
estimated that at June 30, 1995, the Accounting General Fund balance would be
$16 million and the budget reserve, as approved by the 1993 Legislature, would
be $360 million. The Accounting General Fund balance at June 30, 1993, was $463
million.

The Commissioner of Finance, in a November 1993 forecast, estimated the
Accounting General Fund balance at June 30, 1995, at $430 million, due to
projected increases in revenues and reductions in expenditures, and the balance
at June 30, 1997, at $389 million. The Commissioner recommended that the budget
reserve be increased to $500 million. He estimated that if current laws and
policies continued unchanged, revenue would grow 7.7 percent and expenditures
6.0 percent in the 1995-1997 biennium.

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<PAGE>

A March 1994 forecast projected an Accounting General Fund balance at June
30, 1995, at $623 million, principally due to a projected $235 million increase
in revenues to $16.6 billion for the biennium. The balance at June 30, 1997, was
estimated to be $247 million.

The 1994 Legislature provided for a $500 million budget reserve;
appropriated to school districts $172 million to allow the districts, for
purposes of state aid calculations, to reduce the portion of property tax
collections that the school districts must recognize in the fiscal year during
which they receive the property taxes; increased expenditures $184 million; and
increased expected revenues $4 million.

Of the $184 million in increased expenditures, criminal justice initiatives
totaled $45 million, elementary and higher education $31 million, environment
and flood relief $18 million, property tax relief $55 million, and transit $11
million. A six-year strategic capital budget plan was adopted with $450 million
in projects financed by bonds supported by the Accounting General Fund. Other
expenditure increases totaled $16.5 million.

Included in the expected revenue increase of $4 million were conformity
with federal tax changes to increase revenues $27.5 million, a sales tax
phasedown on replacement capital equipment and miscellaneous sales tax
exemptions decreasing revenues $17.3 million, and other measures decreasing
revenues $6.2 million.

After the Legislature adjourned in May 1994, the Commissioner of Finance
estimated the Accounting General Fund balance at June 30, 1995, at $130 million.

The Commissioner of Finance, in a November 1994 forecast, estimated the
Accounting General Fund balance at June 30, 1995, at $268 million, due to
projected increases in revenues and decreases in expenditures, and the balance
at June 30, 1997, at $190 million.

A February 1995 forecast projected an Accounting General Fund balance at
June 30, 1995, at $383 million, due to a $93.5 million increase in projected
revenues and a $21.0 million decrease in expenditures. The balance at June 30,
1997, was projected at $250 million.

The 1995 Legislature authorized $18.220 billion in spending for the
1995-1997 biennium, an increase of $1.395 billion, 8.3 percent, from 1993-1995
expenditures. Resources for the 1995-1997 biennium were projected to be $18.774
billion, including $921 million carried forward from the previous biennium.

The Legislature authorized 7.1 percent more spending for elementary and
secondary education in the 1995-1997 biennium than in 1993-1995, 0.9 percent
more in local government aids, 14.2 percent more for health and human services,
2.3 percent more for higher education, and 25.1 percent more for corrections.
The Legislature set the budget reserve at $350 million and established a
supplementary reserve of $204 million in view of predicted federal cutbacks.

After the Legislature adjourned in May 1995, the Commissioner of Finance
estimated that at June 30, 1997, the Accounting General Fund balance would be
zero. The Accounting General Fund balance at June 30, 1995, was $481 million.

The Commissioner of Finance, in a November 1995 forecast, estimated the
Accounting General Fund balance at June 30, 1997, at $824 million, due to a $490
million increase in revenues from those

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<PAGE>

projected in May 1995, a $199 million reduction in projected expenditures, and a
$135 million increase in the amount carried forward from the 1993-1995 biennium.
An improved national economic outlook increased projected net sales tax revenue
$257 million and reduced projected human services expenditures $231 million. The
Commissioner estimated the Accounting General Fund balance at June 30, 1999, at
negative $28 million.

Only $15 million of the $824 million projected 1995-1997 surplus was
available for spending. The statutes require that an additional $15 million be
placed in the supplementary budget reserve, and an additional $794 million must
be appropriated to school districts to allow the districts, for purposes of
state aid calculations, to eliminate the 48 percent of property tax collections
that the school districts must recognize in the fiscal year during which they
receive the property taxes.

A February 1996 forecast projected an Accounting General Fund balance at
June 30, 1997, at $873 million, due to a $104 million increase in projected
revenues, a $19 million increase in expenditures, and a $36 million reduction in
the June 30, 1995, ending balance. The amount available for spending increased
from $15 million to $64 million.

In February 1996, the Commissioner of Finance estimated the Accounting
General Fund balance at June 30, 1999, at $54 million.

The 1996 Legislature reduced the State of Minnesota's commitment to
eliminate the so-called school recognition shift. The 1995 Legislature had voted
to allow school districts, for purposes of state aid calculations, to eliminate
the 48 percent of property tax collections that the school districts must
recognize in the fiscal year during which they receive the property taxes. The
1996 Legislature raised the percentage for the 1995-1997 biennium from zero to 7
percent, saving the State $116 million.

The 1996 Legislature increased expenditures $130 million, including $37
million for elementary education and youth development; $14 million for higher
education; $17 million for health systems and human services reforms; $16
million for public safety and criminal justice; and $36 million for
transportation, environment and technology. The Legislature also approved $614
million in capital projects to be funded by general obligation bonds and
appropriations and increased expected revenues $5 million.

After the Legislature adjourned in April 1996, the Commissioner of Finance
estimated the Accounting General Fund balance at June 30, 1997, at $1 million.
The Accounting General Fund balance at June 30, 1996, was $445 million.

The Commissioner of Finance, in a November 1996 forecast, estimated the
Accounting General Fund balance at June 30, 1997, at $793 million, due to a $646
million increase in revenues from those projected in April 1996, a $209 million
reduction in expenditures, and $63 million in other changes. The longest period
of national economic growth since World War II, through mid-1999, was forecast.
Individual income taxes were forecast to be $427 million more than projected in
April 1996, and sales taxes $81 million more. Of the $209 million reduction in
forecast expenditures, $199 million were health and human services expenditures.

Existing statutes require the first $114 million of the forecast balance to
be dedicated to a new education aid reserve for use in the 1997-1999 biennium.
Another $157 million must be used to increase from 85 to 90 percent the portion
of state aid to school districts that is paid in the fiscal year during which
the districts become entitled to the aid.

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<PAGE>

In November 1996, the Commissioner of Finance estimated the Accounting
General Fund balance at June 30, 1999, at $1.4 billion.

A February 1997 forecast projected an Accounting General Fund balance at
June 30, 1997, at $866 million (after taking into account the $114 million and
$157 million items referred to above), due to a $236 million increase in
projected revenues and a $108 million decrease in expenditures. The balance at
June 30, 1999, was projected at $1.7 billion.

The 1997 Legislature, in a regular session and June and August special
sessions, authorized $20.924 billion in spending for the 1997-1999 biennium, an
increase of $2.231 billion, or 11.8 percent, from 1995-1997 expenditures.
Resources for the 1997-1999 biennium were projected to be $21.946 billion,
including $1.630 billion carried forward from the previous biennium.

The Legislature authorized 14.8 percent more spending for elementary and
secondary education spending in the 1997-1999 biennium than in 1995-1997, 17.6
percent more for health and human services, 12.5 percent more in local
government aids, 10.7 percent more for higher education, and 0.3 percent more
for all other expenditures. The Legislature set the General Fund budget reserve
at $522 million. The cash flow account was set at $350 million, and a property
tax reform reserve account of $46 million was created for future restructuring
of the property tax system. Other reserves totaled $72 million.

After the Legislature adjourned its second special session in August 1997,
the Commissioner of Finance estimated that at June 30, 1999, the Accounting
General Fund balance would be positive $32 million. The Accounting General Fund
balance at June 30, 1997 was an estimated $861 million.

The Commissioner of Finance, in a November 1997 forecast, estimated the
Accounting General Fund balance at June 30, 1999, at $1.360 billion, $1.328
billion more than estimated after the 1997 legislature adjourned, due to a $729
million increase in projected revenues, a $256 million reduction in projected
expenditures, $21 million increase in dedicated reserves, and a $364 million
increase in the projected amount carried forward from the 1995-1997 biennium.
Higher than anticipated individual income tax payments were the major source of
$272 million in additional revenues in the first half of 1997, and human
services savings were the principal source of $92 million in reduced
expenditures. The Commissioner estimated the Accounting General Fund balance at
June 30, 2001, at $1.284 billion.

Only $453 million of the $1.360 billion projected 1997-1999 surplus was
available for spending. The statutes allocate the first $81 million of the
forecast balance to fund K-12 education tax credits and deductions enacted in
1997. Sixty percent of the remainder plus interest, $826 million, is added to a
property tax reform account.

A February 1998 forecast projected an Accounting General Fund balance at
June 30, 1999, at $1.952 billion, due to a $507 million increase in projected
revenues, a $90 million decrease in expenditures, and a $5 million increase in
dedicated reserves. The balance at June 30, 2001, was projected at $2.137
billion.

The State of Minnesota has no obligation to pay any bonds of its political
or governmental subdivisions, municipalities, governmental agencies, or
instrumentalities. The creditworthiness of local general obligation bonds is
dependent upon the financial condition of the local government issuer, and the
creditworthiness of revenue bonds is dependent upon the availability of
particular designated revenue sources or the financial conditions of the
underlying obligors. Although most of the bonds owned by the Minnesota Fund are
expected to be obligations other than general obligations of the

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State of Minnesota itself, there can be no assurance that the same factors that
adversely affect the economy of the State generally will not also affect
adversely the market value or marketability of such other obligations, or the
ability of the obligors to pay the principal of or interest on such obligations.

At the local level, the property tax base has recovered after its growth
was slowed in many communities in the early 1990s by overcapacity in certain
segments of the commercial real estate market. Local finances are also affected
by the amount of state aid that is made available. Further, various of the
issuers within the State of Minnesota, as well as the State of Minnesota itself,
whose securities may be purchased by the Minnesota Fund, may now or in the
future be subject to lawsuits involving material amounts. It is impossible to
predict the outcome of these lawsuits. Any losses with respect to these lawsuits
may have an adverse impact on the ability of these issuers to meet their
obligations.

Legislation enacted in 1995 provides that it is the intent of the Minnesota
legislature that interest income on obligations of Minnesota governmental units,
and exempt-interest dividends that are derived from interest income on such
obligations, be included in the net income of individuals, estates, and trusts
for Minnesota income tax purposes if it is judicially determined that the
exemption by Minnesota of such interest or such exempt-interest dividends
unlawfully discriminates against interstate commerce because interest income on
obligations of governmental issuers located in other states, or exempt-interest
dividends derived from such obligations, is so included. This provision applies
to taxable years that begin during or after the calendar year in which such
judicial decision becomes final, regardless of the date on which the obligations
were issued, and other remedies apply for previous taxable years. The United
States Supreme Court in 1995 denied certiorari in a case in which an Ohio state
court upheld an exemption for interest income on obligations of Ohio
governmental issuers, even though interest income on obligations of non-Ohio
governmental issuers was subject to tax. In 1997, the United States Supreme
Court denied certiorari in a subsequent case from Ohio, involving the same
taxpayer and the same issue, in which the Ohio Supreme Court refused to
reconsider the merits of the case on the ground that the previous final state
court judgment barred any claim arising out of the transaction that was the
subject of the previous action. It cannot be predicted whether a similar case
will be brought in Minnesota or elsewhere, or what the outcome of such case
would be. Should an adverse decision be rendered, the value of the securities
purchased by the Minnesota Fund might be adversely affected, and the value of
the shares of the Minnesota Fund might also be adversely affected.

In July 1997 the State's bond ratings were Aaa by Moody's, AAA by S&P, and
AAA by Fitch.

Economic difficulties and the resultant impact on State and local
government finances may adversely affect the market value of obligations in the
portfolio of the Minnesota Fund or the ability of respective obligors to make
timely payment of the principal and interest on such obligations.

Risk Factors for the Missouri Fund. The following is a discussion of
certain risk factors relevant to the Missouri Fund. The Missouri Fund will
concentrate its investments in debt obligations of the State of Missouri and its
local governmental entities ("Missouri Obligations"). The value of and the
payment of interest and principal on the Missouri Obligations may be adversely
affected by economic and political conditions and developments within or without
the State of Missouri. The information contained herein is not intended to be a
complete discussion of all relevant risk factors, and there may be other factors
not discussed herein that may adversely affect the value of the Missouri
Obligations. The facts discussed herein were obtained primarily from published
information regarding Missouri state entities. The information relates
exclusively to the State of Missouri and is not intended to include any details
relating to debt obligations of local governmental entities located in the State
of

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<PAGE>

Missouri that may be acquired by the Missouri Fund. The discussion is limited to
the general economic conditions in the State of Missouri.

Population. The following information was obtained from the report of the
Bureau of the Census, United States Department of Commerce, in the 1991
Statistical Abstract of the United States (the "1990 Census"). As of 1990, the
population of the State of Missouri was 5,117,073, which caused Missouri to rank
15th in total population among the states. The portion of Missouri's population
that was comprised of individuals classified as minorities was 13.1% as compared
to the United States ("U.S.") average of 24.4%. According to the 1990 Census,
the population of the State of Missouri increased 4.1% from 1980 to 1990, while
the population of the U.S. increased 9.8% during the same period. Comparatively,
during the decade between 1970 and 1980, Missouri's population increased 5.1%
while the U.S. population increased 11.4%. The Missouri Department of Economic
Development has projected that the population of Missouri will increase 3.5%
from 1990 to 2000 and 2.4% from 2000 to 2010, so that Missouri will have a total
estimated population of approximately 5,458,000 by 2010. Without an adequate
population to support a meaningful tax base, state tax revenues may not be
sufficient for the State of Missouri to make payments on its debt obligations.

Economy. Missouri's economy is divided primarily among agriculture,
manufacturing, services, trade and government. The U.S. Bureau of Labor
Statistics reported in January 1998, that Missouri's largest non-agricultural
employers were services with 28.0% of the non-agricultural work force, trade
(wholesale and retail) with 23.5% of the non-agricultural work force,
manufacturing with 16.0% of the non-agricultural work force and government with
15.6% of the non-agricultural work force. According to the U.S. Department of
Commerce, Missouri's gross state product, the aggregate of all economic activity
and wealth produced in the State of Missouri, rose from $53.1 billion in 1980 to
$101.5 billion in 1990, representing an average annual increase of approximately
6.7%. During the same period, the U.S. gross national product increased
approximately 7.0% per year. The annual per capita personal income for the State
of Missouri for 1994, 1995 and 1996 was $20,717, $21,627 and $22,864,
respectively, while the U.S. annual per capita income for the same years was
$21,846, $23,193 and $24,231. The University of Missouri in Columbia, Missouri
(the "University") has projected that the per capita income for Missouri
residents will increase 3.9% in calendar year 1998 and will rise approximately
4.5% in both 1999 and 2000; while per capita income for U.S. residents will
increase 3.4%, 4.8% and 4.9%, respectively, during the same periods. Inadequate
state gross product or per capita income could adversely affect the State's tax
revenues and, therefore, its ability to meet its current debt obligations.

Employment. The Missouri Department of Labor and Industrial Relations has
reported that Missouri's unemployment rates for fiscal years 1995, 1996 and 1997
were 4.6%, 4.3% and 4.2%, respectively, while the U.S. unemployment rates for
the same periods were 5.7%, 5.7% and 5.2%. The University has projected that
Missouri's unemployment rate for calendar year 1998 will be 3.6%, dropping to
3.5% in 1999, and remaining at 3.5% in the year 2000, while the U.S.
unemployment rate for the same periods will be 4.5% in each of years 1998-2000.
If the State has significant unemployment in future years, the State's tax
revenues may not be adequate to pay its debt obligations.

State Revenues. The State of Missouri operates from a General Revenue Fund
("General Fund"). The General Fund includes funds received from tax revenues and
federal grants. For fiscal year 1997, the State derived approximately 17.0% of
the General Fund revenue from sales and use taxes, 33.9% from individual income
taxes and 4.7% from corporate income taxes.

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The Missouri Constitution imposes a limit on the amount of taxes that may
be imposed by the General Assembly during any fiscal year. This limit is related
to total state revenues for fiscal year 1981, as defined in Article X, Sections
16 through 24 of the Missouri State Constitution, and is adjusted annually in
accordance with a formula related to increases in the average personal income of
Missouri residents for certain designated periods. Inadequate tax revenues due
to the constitutional limitations may adversely affect the State's ability to
pay its debt obligations.

Federal grants account for approximately 26.4% of the General Fund revenues
for fiscal year 1997. No assurances can be given that the amount of federal
grants previously provided to the State will continue, and the amount of federal
grants received by the State may have an effect on its ability to pay its debts.

The U.S. District Courts in St. Louis and Kansas City ordered the State to
make payments totaling $227.1 million during fiscal year 1997 and $273.9 million
during fiscal year 1996 to fund the State's share of certain court-ordered
desegregation plans. These amounts constituted approximately 3.5% of the State's
General Fund revenue (exclusive of federal grants) for fiscal year 1997 and 4.5%
of the State's General Fund revenue (exclusive of federal grants) for fiscal
year 1996. In 1997, the U.S. District Court approved a plan in which the State
would be required to make desegregation payments totaling $314 million during
the 1996-1997, 1997-1998, and 1998-1999 school years. After the 1998-1999 school
year, the State, under the plan approved by the District Court, will no longer
be obligated to make court-ordered desegregation payments.

The Missouri State Constitution mandates a balanced annual state budget.
The requirement of a balanced state budget may affect the ability of the State
of Missouri to repay its debt obligations. For fiscal year 1996, the General
Fund revenue, minus federal grants, amounted to $5,778.0 million, which
represented a 7.2% increase in General Fund revenue over the previous fiscal
year. The balance in the General Fund as of the end of the 1996 fiscal year was
$1,482.1 million. This represented a 90.0% increase in the General Fund balance
from the end of fiscal year 1995.

For fiscal year 1997, the State budgeted, exclusive of federal grants,
$6,000.3 million in General Fund revenue, which represented a 3.8% increase from
the actual revenue amount for fiscal year 1996. However, for fiscal year 1997,
the actual General Fund revenue, exclusive of federal grants, was approximately
$6,199 million, which was 3.3% higher than budgeted and represented a 7.3%
increase from fiscal year 1996 The actual General Fund balance at the end of
fiscal year 1997 was $1,705.1 million, which was 15.1% higher than the balance
at the end of fiscal year 1996. This increase, along with increases in fiscal
years 1992, 1993, 1994, 1995 and 1996 helped to offset decreases in fiscal years
1990 and 1991 which had reduced the General Fund balance from $436.5 million at
the end of fiscal year 1989 to $214.7 million at the end of fiscal year 1991.
For fiscal year 1998, the State of Missouri budgeted, exclusive of federal
grants, $6,245 million in General Fund revenue, which represents a 0.7% increase
from the actual revenue amount for fiscal year 1997. There are no assurances
that the revenues and fund balances budgeted will be attained in the future.
Decreases in revenues and the General Fund balance could adversely affect the
State's ability to pay its debt obligations.

State Bond Indebtedness. The State of Missouri is barred by Article III,
Section 37 of the Missouri State Constitution from issuing debt instruments to
fund government operations. However, it is authorized to issue bonds to finance
or refinance the cost of capital projects upon approval by the voters. In the
past, the State has issued two types of bonds to raise capital - general
obligation bonds and revenue bonds. The State has authorized and issued general
obligation bonds through two state agencies for two specific needs. Water
Pollution Control Bonds have been issued to provide funds for

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the protection of the environment through the control of water pollution. State
Building Bonds have been issued to provide funds to improve state buildings and
property. Payments on the general obligation bonds are made from the General
Fund. Therefore, if the State is unable to increase its tax revenues, the
State's ability to make the payments on the existing obligations may be
adversely affected.

In addition to state general obligation bonds, the State of Missouri has
statutes that enable certain local political or governmental authorities, such
as cities, counties and school districts, to issue general obligation bonds.
These local general obligation bonds are required to be registered with the
State Auditor's Office. Local general obligation bonds are backed by the general
revenues (including ad valorem and other taxes) of the particular local
governmental or political authority issuing such bonds. The State of Missouri
generally has no obligation with respect to such bonds.

The State is also authorized to issue revenue bonds. Revenue bonds
generally provide funds for a specific project, and repayments are generally
limited to the revenues from that project. However, the State may enact a tax
specifically to repay the State's revenue bonds. Therefore, a reduction of
revenues from a project financed by revenue bonds may adversely affect the
State's ability to make payments on such bonds. No assurances can be given that
the State will receive sufficient revenues from the projects, or that the State
will enact and collect a tax to be used to make the required payments on such
bonds.

As of June 30, 1997, according to the Committee on Legislative Research of
the State of Missouri, the State of Missouri had outstanding total state general
obligation bond debt amounting to $1,017,490,000 in principal and $549,133,521
in interest to be paid over the period such debt remains outstanding. On the
same date, the State had outstanding total state revenue bond debt amounting to
$114,680,000 in principal and $53,781,402 in interest to be paid over the period
such debt remains outstanding. In addition to the state bond debt, as of June
30, 1997, the total outstanding principal amount of debt issued by independent
statutory authorities in Missouri was $12,432,950,539. Factors that may
adversely affect the ability of the issuers to repay their debts include (1)
statutory and constitutional limitations on the State of Missouri, and its
agencies and local political and governmental authorities and (2) the success of
the projects to which the debts relate.

Missouri Bond Ratings. S&P and Moody's rating service of state bond issuers
generally rate a bond issuer's ability to repay debt obligations. The general
obligation bonds issued by the State of Missouri are currently rated AAA by S&P
and Aaa by Moody's, the highest rating for each agency. However, prolonged
uncertainty over the State's current financial outlook could impair the State's
ability to maintain such ratings. No assurances can be given that the State's
current ratings will be maintained for any given period or that such ratings
will not be lowered, suspended or withdrawn entirely by either rating agency.
Any reduction in, suspension of, or withdrawal of such ratings may have an
adverse effect on the resale market price of Missouri bonds. With respect to the
rating of revenue bonds, such rating generally depends on the amount of the
revenue from the specific project.

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 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

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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.

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New Jersey is the ninth largest state in population and the fifth smallest
in land area. With an average of 1,071 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 over
one-fifth of the country's population. The extensive facilities of the Port
Authority of New York and New Jersey, the Delaware River Port Authority and the
South Jersey Port Corporation across the Delaware River from Philadelphia
augment the air, land and water transportation complex which has influenced most
of New Jersey's economy. This central location in the northeastern corridor, the
transportation and port facilities and proximity to New York City make New
Jersey an attractive location for corporate headquarters and international
business offices. A number of Fortune Magazine's top 500 companies maintain
headquarters or major facilities in New Jersey, and many foreign-owned firms
have located facilities in New Jersey.

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. In 1976, voters
approved casino gambling for Atlantic City, which has become an important New
Jersey tourist attraction.

New Jersey's population grew rapidly in the years following World War II,
before slowing to an annual rate of 0.27 percent in the 1970s. Between 1980 and
1990, the annual growth rose to 0.49 percent and between 1990 and 1995,
accelerated to .52 percent (according to the U.S. Census Bureau). While this
rate of growth is less than that for the United States, it compares favorably
with other Middle Atlantic States.

The small increase in New Jersey's total population during the past quarter
century masks the redistribution of population within New Jersey. There has been
a significant shift from the northeastern industrial areas toward the four
coastal counties (Cape May, Atlantic, Ocean and Monmouth) and toward the central
New Jersey counties of Hunterdon, Somerset and Middlesex.

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). By the beginning of the national
recession of 1990-1991, construction activity had already been declining in New
Jersey for nearly two years, growth had tapered off markedly in the service
sectors and the long-term downward trend of factory employment had accelerated,
partly because of a leveling off of industrial demand nationally. The onset of
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.

New Jersey has benefited from the national recovery. New Jersey's recovery
is in its sixth year and appears to be sustainable now that the national economy
has "soft landed." Economic growth in New Jersey continues at an above-average
pace relative to the region since the early 1990s recession. New Jersey has
recovered to its pre-recession employment peak, but growth lags national
economic performance by most measures. Unemployment rates have decreased to 6.2%
through 1997 compared with the 1992 recessionary peak of 8.4%.

Since the recession, business investment expenditures and consumer spending
have increased substantially in the nation as well as in New Jersey. Capital and
consumer spending may continue to rise due to the sustained character of the
recovery, although the interest-sensitive homebuilding industry may provide only
a moderate amount of stimulus in New Jersey. The employment and income

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growth that has and is taking place may lead to further growth in consumer
outlays. Reasons for cautious optimism in New Jersey include increasing
employment levels, a declining jobless rate, and a higher-than-national level of
per capita personal income.

If the nation's economic growth rate slows business expansion could become
somewhat more subdued in New Jersey. However, New Jersey's economy should have
enough momentum to keep its trend line pointing upwards. Its growth potential is
not yet limited by the labor supply constraints beginning to affect some other
parts of the country.

Looking further ahead, prospects for New Jersey appear favorable. While
growth is likely to be slower than in the nation, the locational advantages that
have served New Jersey well for many years will still be there. Structural
changes that have been going on for years can be expected to continue, with job
creation concentrated most heavily in the service industries.

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.

Risk Factors for New York Insured. New York Insured is highly sensitive and
vulnerable to the fiscal stability of New York State (the "State") and its
subdivisions, agencies, instrumentalities and authorities that issue the
Municipal Instruments in which New York Insured concentrates its investments.
The following information as to certain risk factors associated with New York
Insured's concentration in Municipal Instruments issued by New York issuers is
only a brief summary, does not purport to be a complete description, and is
based upon disclosure in Official Statements relating to offers of Municipal
Instruments, and other publicly available information, prior to the end of
March, 1998. No representation is made herein as to the accuracy or adequacy of
such information, or as to the existence of any adverse changes in such
information after the date thereof.

The State's budget for the 1997-98 fiscal year was enacted by the
Legislature on August 4, 1997, more than four months after the start of the
fiscal year. Prior to adoption of the budget, the Legislature enacted
appropriations for disbursements considered to be necessary for State operations
and other purposes, including necessary appropriations for all State-supported
debt service.

Moderate growth in the State economy is projected in 1998 and 1999 for
employment, wages and personal income, although the growth rates should lessen
gradually during the course of the two years. Personal income is estimated to
have grown by 5.4 percent in 1996, fueled in part by a continued large increase
in financial sector bonus payments, and is projected to grow 4.7 percent in 1998
and 4.4 percent in 1999. Increases in bonus payments at year end 1998 are
projected to be modest, a substantial change from the rate of increase of the
last few years. Overall employment growth will continue at a modest rate,
reflecting the slowing growth in the national economy, continued spending
restraint in government, and restructuring in the health care, social service,
and banking sectors.

Executive Budget. The Governor presented his 1998-99 Executive Budget to
the Legislature on January 20, 1998. The Executive Budget contains financial
projections for the State's 1997-98 through 2000-2001 fiscal years, detailed
estimates of receipts and a proposed Capital Program and Financing Plan for the
1997-98 through 2002-03 fiscal years. As provided by law, the Governor is
required to prepare amendments to his 1998-99 Executive Budget and such
amendments must be reflected in a revised Financial Plan on or before February
19, 1998. There can be no assurance that the Legislature will enact into law the
Executive Budget as proposed by the Governor, or that the State's adopted budget
projections will not differ materially and adversely from the projections set
forth herein.

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The 1998-99 Financial Plan is projected to be balanced on a cash basis in
the General Fund. Total General Fund receipts, including transfers from other
funds, are projected to be $36.22 billion, an increase of $1.02 billion over
projected receipts in the current fiscal year. Total General Fund disbursements,
including transfers to other funds, are projected to be $36.18 billion, an
increase of $1.02 billion over the projected expenditures (including
prepayments), for the current fiscal year. As compared to the 1997-98 State
Financial Plan, the Executive Budget proposes a year-to-year growth in General
Fund spending of 2.89 percent. State Funds spending (i.e., General Fund plus
other dedicated funds, with the exception of federal aid) is projected to grow
by 8.5 percent. Spending from All Governmental Funds (excluding transfers) is
proposed to increase by 7.6 percent from the prior fiscal year.

Current law and programmatic requirements are primarily responsible for the
year-to-year growth in General Fund spending. These include a current law
increase in school aid ($607 million), cost and enrollment growth in handicapped
education ($91 million) and Medicaid ($212 million), and employee contract
increases and inflation adjustments for State agency operations. The Executive
Budget also includes increases of $84 million for corrections programs to cover
new capacity demands and $152 million for mental health programs to finance
current law increases and the expansion of community beds. Other spending growth
reflects a requested increase of $108 million for the Judiciary and $117 million
for long term debt service. New spending is partially offset by reductions of
$453 million in capital projects transfers due to the financing of the Community
Enhancement Facility Program ("CEFAP") from resources available in 1997-98, $37
million in welfare assistance savings, $36 million from lower spending in
General State charges and $68 million in lower transfers primarily due to the
elimination of the Lottery transfer made in 1997-98.

The 1998-99 Financial Plan projects that the State will end 1998-99 with a
closing balance in the General Fund of $500 million, which reflects $400 million
in the Tax Stabilization Reserve Fund and $100 million in the Contingency
Reserve Fund, following an anticipated deposit $35 million in the latter fund
during the year.

The Division of the Budget has expressed its belief that the economic
assumptions and projections of receipts and disbursements accompanying the
1998-99 Executive Budget are reasonable. However, the economic and financial
condition of the State may be affected by various financial, social, economic
and political factors. Those factors can be very complex, can vary from fiscal
year to fiscal year, and are frequently the result of actions taken not only by
the State but also by entities, such as the federal government, that are outside
the State's control. Because of the uncertainty and unpredictability of changes
in these factors, their impact cannot be fully included in the assumptions
underlying the State's projections. For example, there can be no assurance that
the Legislature will enact the Governor's proposals or that the State's actions
will be sufficient to preserve budgetary balance or to align recurring receipts
and disbursements in either 1998-99 or in future fiscal years.

The State Financial Plan is based upon forecasts of national and State
economic activity developed through both internal analysis and review of State
and national economic forecasts prepared by commercial forecasting services and
other public and private forecasters. Economic forecasts have recently failed to
predict accurately the timing and magnitude of changes in the national and the
State economies. Many uncertainties exist in forecasts of both the national and
State economies, including consumer attitudes toward spending the extent of
corporate and governmental restructuring, federal fiscal and monetary policies,
the level of interest rates and the condition of the world economy, which could
have an adverse effect on the State. There can be no assurance that the State
economy will not

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experience results in the current fiscal year that are worse than predicted,
with corresponding material and adverse effects on the State's projections of
receipts and disbursements.

Projections of total State receipts in the State Financial Plan are based
on the State tax structure in effect during the fiscal year and on assumptions
relating to basic economic factors and their historical relationships to State
tax receipts. In preparing projections of State receipts, economic forecasts
relating to personal income, wages, consumption, profits and employments have
been particularly important. The projection of receipts from most tax or revenue
sources is generally made by estimating the change in yield of such tax or
revenue source caused by economic and other factors, rather than by estimating
the total yield of such tax or revenue source from its estimated tax base. The
forecasting methodology, however, ensures that State fiscal year estimates for
taxes that are based on a computation of annual liability, such as the business
and personal income taxes, are consistent with estimates of total liability
under such taxes.

Projections of total State disbursements are based on assumptions relating
to economic and demographic factors, levels of disbursements for various
services provided by local governments (where the cost is partially reimbursed
by the State), and the results of various administrative and statutory
mechanisms in controlling disbursements for State operations. Factors that may
affect the level of disbursements in the fiscal year include uncertainties
relating to the economy of the nation and the State, the policies of the federal
government, and changes in the demand for and use of State services.

The Division of the Budget ("DOB") believes that its projections of
receipts and disbursements relating to the current State Financial Plan, and the
assumptions on which they are based, are reasonable. Actual results, however,
could differ materially and adversely from the projections set forth in this
Annual Information Statement. In the past, the State has taken management
actions and made use of internal sources to address potential State Financial
Plan shortfalls, and DOB believes it could take similar actions should variances
occur in it projections for the current fiscal year.

In recent years, State actions affecting the level of receipts and
disbursements, the relative strength of the State and regional economy, actions
of the federal government and other factors, have created structural budget gaps
for the State. These gaps resulted from a significant disparity between
recurring revenues and the costs of maintaining or increasing the level of
support for State programs. To address a potential imbalance in any given fiscal
year, the State would be required to take actions to increase receipts and/or
reduce disbursements as it enacts the budget for that year, and under the State
Constitution, the Governor is required to propose a balanced budget each year.
There can be no assurance, however, that the Legislature will enact the
Governor's proposals or that the State's actions will be sufficient to preserve
budgetary balance in a given fiscal year or to align recurring receipts and
disbursements in future fiscal years.

Other actions taken in the 1997-98 adopted budget add further pressure to
future budget balance in New York State. For example, the fiscal effects of tax
reductions adopted in the 1997-98 budget are projected to grow more
substantially beyond the 1998-99 fiscal year, with incremental costs averaging
in excess of $1.3 billion annually over the last three years of the tax
reduction program. These incremental costs reflect the phase-in of State-funded
school property tax and local income tax relief, the phase-out of the
assessments on medical providers, and reductions in estate and gift levies,
utility gross receipts taxes, and the State sales tax on clothing. The full
annual cost of the enacted tax reduction package is estimated at approximately
$4.8 billion when fully effective in State fiscal year 2001-02. In addition, the
1997-98 budget included multi-year commitments for school aid and
pre-kindergarten early learning programs which could add as much as $1.4 billion
in costs when fully annualized in fiscal year 2001-02. These spending
commitments are subject to annual appropriation.

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The forecast of General Fund receipts in 1998-99 incorporates several
Executive Budget tax proposals that, if enacted, would further reduce receipts
otherwise available to the General Fund by approximately $700 million during
1998-99. The Executive Budget proposes accelerating school tax relief for senior
citizens under the School Tax Relief initiative (STAR), which is projected to
reduce General Fund receipts by $537 million in 1998-99. The proposed reduction
supplements STAR tax reductions already scheduled in law, which are projected at
$187 million in 1998-99. The Budget also proposes several new tax-cut
initiatives and other funding changes that are projected to further reduce
receipts available to the General Fund by over $200 million.

Disbursements from the category of Grants to Local Governments constitute
approximately 67.9 percent of all General Fund spending, and include payments to
local governments, non-profit providers and individuals. Disbursements in this
category are projected to increase by $931 million to $24.55 billion in 1998-99,
or 3.9 percent above 1997-98. The largest increases are for school aid and
Medicaid.

School aid is projected at $9.47 billion in 1998-99, an increase of $607
million on a State fiscal year basis. This increase funds both the balance of
aid payable for the 1997-98 school year and a proposed 1998-99 school year
increase of $518 million. Medicaid costs are estimated to increase $212 million
to $5.68 billion, about the same spending level as in 1994-95. After adjusting
1997-98 spending for the one-time acceleration of a 53rd weekly Medicaid payment
scheduled for 1998-99, Medicaid spending is projected to increase by $348
million or 6.5 percent. The adjustment eliminates this extraordinary payment in
1997-98 for purposes of comparison with 1998-99. Spending in local assistance
programs for higher education, handicapped education, mental hygiene, local
public health and revenue sharing are also proposed to increase.

Uncertainties with regard to the economy present the largest potential risk
to future budget balance in New York State. This risk includes either a
financial market or broader economic "correction," a risk heightened by the
relatively lengthy expansions currently underway. The securities industry is
more important to the New York economy than the national economy, and a
significant deterioration in stock market performance could ultimately produce
adverse changes in wage and employment levels. In addition, a normal "forecast
error" of one percentage point in the expected growth rate could cumulatively
raise or lower receipts by $1 billion by the last year of the 1998 through 2001
projection period. On the other hand, the national or State economy may continue
to perform better than projected, which could produce beneficial short-term
results in State receipts.

An additional risk to the State Financial Plan arises from the potential
impact of certain litigation and federal disallowances now pending against the
State, which could produce adverse effects on the State's projections of
receipts and disbursements. The Financial Plan assumes no significant federal
disallowances or other federal actions that could affect State finances, but has
reserves of $500 million in the event of such an action.

On August 11, 1997 President Clinton exercised his line-item veto powers to
cancel a provision in the federal Balanced Budget Act of 1997 that would have
deemed New York State's health care provider taxes to be approved by the federal
government. New York and several other states have used hospital rate
assessments and other provider tax mechanisms to finance various Medicaid and
health insurance programs since the early 1980s. The State's process of taxation
and redistribution of health care dollars was sanctioned by federal legislation
in 1987 and 1991. However, the federal Health Care Financing Administration
(HCFA) regulations governing the use of provider taxes require the State to seek
waivers from HCFA that grant explicit approval of the provider taxing system now
in place. The State filed the majority of these waivers with HCFA in 1995 but
has yet to receive final approval.

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The Balanced Budget Act of 1997 provision passed by Congress was intended
to rectify the uncertainty created by continued inaction on the State's waiver
requests. A federal disallowance of the State's provider tax system could
jeopardize up to $2.6 billion in Medicaid reimbursement received through
December 31, 1998. The President's veto message valued any potential
disallowance at $200 million. The Financial Plan projections do not anticipate
any provider tax disallowance.

On October 9, 1997 the President offered a corrective amendment to the HCFA
regulations governing such taxes. The Governor stated that this proposal did not
appear to address all of the State's concerns, and negotiations are ongoing
between the State and HCFA. In addition, The City of New York and other affected
parties in the health care industry have filed a lawsuit challenging the
constitutionality of the President's line-item veto.

Authorities. The fiscal stability of the State is related, in part, to the
fiscal stability of its public authorities (i.e., public benefit corporations
created by State law, other than local authorities). There are numerous public
authorities, with various responsibilities, including those which finance,
construct and/or operate revenue producing public facilities. As of September
30, 1996, there were 17 public authorities that had outstanding debt of $100
million or more, and the aggregate outstanding debt, including refunding bonds,
of all State public authorities was $75.4 billion, only a portion of which
constitutes State-supported or State-related debt.

Public authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself and may issue bonds and
notes within the amounts and restrictions set forth in legislative
authorization. State legislation authorizes financing techniques for public
authorities such as State (i) guarantees of public authority obligations, (ii)
lease-purchase and contractual-obligation financing arrangements and (iii)
statutory moral obligation provisions. The State's access to the public credit
markets could be impaired, and the market price of its outstanding debt may be
materially adversely affected, if any of its public authorities, particularly
those using the financing techniques specified above, were to default on their
respective obligations. Public authority operating expenses and debt service
costs are generally paid by revenues generated by the project financed or
operated, such as tolls charged for the use of highways, bridges or tunnels,
rentals charged for housing units, and charges for occupancy at medical care
facilities. In addition, certain statutory arrangements provide for State local
assistance payments, otherwise payable to localities, to be made under certain
circumstances to certain public authorities. The State has no obligation to
provide additional assistance to localities whose local assistance payments have
been paid to public authorities under these arrangements. However, in the event
that such local assistance payments are so diverted, the affected localities
could seek additional State assistance.

Some public authorities also receive moneys from State appropriations to
pay for the operating costs of certain of their programs. For example, the
Metropolitan Transportation Authority receives the bulk of this money in order
to carry out mass transit and commuter services.

Municipalities. The counties, cities, towns and villages of the State are
political subdivisions of the State with the powers granted by the State
Constitution and statutes. As the sovereign, the State retains broad powers and
responsibilities with respect to the finances and welfare of such subdivisions
as well as school districts, fire districts and other district corporations,
especially in the areas of education and social services. Certain localities
have experienced financial problems and have requested and received additional
State assistance during the last several State fiscal years. The fiscal
stability of the State is thus related to the fiscal stability of its
localities, including The City of New

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York. A number of factors could affect localities during the State's 1997-98 and
1998-1999 fiscal years and thereafter.

New York City

The fiscal health of the State may be affected by the fiscal health of The
City of New York ("the City"), which continues to require significant financial
assistance form the State. The City depends on State aid both to enable the City
to balance its budget and to meet its cash requirements. The State could also be
affected by the ability of the City, and certain entities issuing debt for the
benefit of the City, to market their securities successfully in the public
credit markets. The City has achieved balanced operating results for each of its
fiscal years since 1981 as reported in accordance with the then-applicable GAAP
standards. Although the City has balanced its budget since 1981, estimates of
the City's future revenues and expenditures, which are based on numerous
assumptions, are subject to various uncertainties. If, for example, expected
Federal or State aid is not forthcoming; if unforeseen developments in the
economy significantly reduce revenues derived from economically sensitive taxes,
or necessitate increased expenditures for public assistance; if the City should
negotiate wage increases for its employees greater than the amounts provided for
in the City's financial plan; or if other uncertainties materialize that reduce
expected revenues or increase projected expenditures, then, to avoid operating
deficits, the City may be required to implement additional actions, including
increases in taxes and reductions in essential City services. The City might
also seek additional assistance from the State.

In response to the City's fiscal crisis in 1975, the State took action to
assist the City in returning to fiscal stability. Among those actions, the State
established the Municipal Assistance Corporation for The City of New York
("MAC") to provide financing assistance to the City; the New York State
Financial Control Board (the "Control Board") to oversee the City's financial
affairs; and the Office of the State Deputy Comptroller for the City of New York
("OSDC") to assist the Control Board in exercising its powers and
responsibilities. A "Control Period" existed from 1975 to 1986, during which the
City was subject to certain statutorily-prescribed fiscal controls. Although the
Control Board terminated the Control Period in 1986 when certain statutory
conditions were met and suspended certain Control Board powers, upon the
occurrence or "substantial likelihood and imminence" of the occurrence of
certain events, including (but not limited to) a City operating budget deficit
of more than $100 million or impaired access to the public credit markets, the
Control Board is required by law to reimpose a Control Period. Currently, the
City and its Covered Organizations (i.e., those which receive or may receive
moneys from the City directly, indirectly or contingently) operate under a
four-year financial plan which the City prepares annually and periodically
updates. The City's financial plan includes its capital, revenue and expense
projections and outlines proposed gap-closing programs for years with projected
budget gaps.

The City's projections are based on various assumptions and contingencies,
some of which are uncertain and may not materialize. Unforeseen developments and
changes in major assumptions could significantly affect the City's ability to
balance its budget as required by State law and to meet its annual cash flow and
financing requirements.

Implementation of the City's financial plan is also dependent upon the
ability of the City and certain entities issuing debt for the benefit of the
City to market their securities successfully. The City issues securities to
finance, refinance and rehabilitate infrastructure and other capital needs, as
well as for seasonal financing needs. In order to help the City to avoid
exceeding its State Constitutional general debt limit, the State created the New
York City Transitional Finance Authority to finance a portion of the City's
capital program. Despite this additional financing mechanism, the City currently

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projects that, if no further action is taken, it will reach its debt limit in
City fiscal year 1999-2000. On June 2, 1997, an action was commenced seeking a
declaratory judgment declaring the legislation establishing the Transitional
Finance Authority to be unconstitutional. If such legislation were voided,
projected contracts for City capital projects would exceed the City's debt
limit. Future developments concerning the City or entities issuing debt for the
benefit of the City, and public discussion of such developments, as well as
prevailing market conditions and securities credit ratings, may affect the
ability or cost to sell securities issued by the City or such entities and may
also affect the market for their outstanding securities.

The staffs of the Control Board, OSDC and the City Comptroller issue
periodic reports on the City's financial plans which analyze the City's
forecasts of revenues and expenditures, cash flow, and debt service
requirements, as well as compliance with the financial plan, as modified, by the
City and its Covered Organizations. According to recent staff reports, while
economic recovery in New York City has been slower than in other regions of the
country, a surge in Wall Street profitability resulted in increased tax revenues
and generated a substantial surplus for the City in City fiscal year 1996-97.
Although several sectors of the City's economy have expanded recently,
especially tourism and business and professional services, City tax revenues
remain heavily dependent on the continued profitability of the securities
industries and the course of the national economy. These reports have also
indicated that recent City budgets have been balanced in part through the use of
non-recurring resources; that the City's financial plan tends to rely on actions
outside its direct control; that the City has not yet brought its long-term
expenditure growth in line with recurring revenue growth; and that the City is
therefore likely to continue to face substantial budget gaps between forecast
revenues and expenditures in future years that must be closed with reduced
expenditures and/or increased revenues. In addition to these monitoring
agencies, the Independent Budget Office ("IBO") has been established pursuant to
the City Charter to provide analysis to elected officials and the public on
relevant fiscal and budgetary issues affecting the City.

Other Localities

Certain localities outside The City of New York have experienced financial
problems and have requested and received additional State assistance during the
last several State fiscal years. The potential impact on the State of any future
requests by localities for additional assistance is not included in the
projections of the State's receipts and disbursements for the State's 1997-98
fiscal year.

Fiscal difficulties experienced by the City of Yonkers resulted in the
re-establishment of the Financial Control Board for the City of Yonkers by the
State in 1984. That Board is charged with oversight of the fiscal affairs of
Yonkers. Future actions taken by the State to assist Yonkers could result in
increased State expenditures for extraordinary local assistance.

Beginning in 1990, the City of Troy experienced a series of budgetary
deficits that resulted in the establishment of a Supervisory Board for the City
of Troy in 1994. The Supervisory Board's powers were increased in 1995, when
Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the City of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding.

Eighteen municipalities received extraordinary assistance during the 1996
legislative session through $50 million in special appropriations targeted for
distressed cities, aid that was largely continued in 1997. Twenty-eight
municipalities are scheduled to share the more than $32 million in targeted
unrestricted aid allocated in the 1997-98 budget. An additional $21 million will
be dispersed among all cities, towns and villages, a 3.97 percent increase in
General Purpose State Aid.

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Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. In 1995, the total indebtedness of all localities in
the State other than The City of New York was approximately $19.0 billion. A
small portion (approximately $102.3 million) of that indebtedness represented
borrowing to finance budgetary deficits and was issued pursuant to State
enabling legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than The City of New York authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding. Eighteen
localities had outstanding indebtedness for deficit financing at the close of
their fiscal years ending in 1995.

From time to time, Federal expenditure reductions could reduce, or in some
cases eliminate, Federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities. If
the State, The City of New York or any of the public authorities of the State
were to suffer serious financial difficulties jeopardizing their respective
access to the public credit markets, the marketability of notes and bonds issued
by localities within the State could be adversely affected. Localities also face
anticipated and potential problems resulting from certain pending litigation,
judicial decisions and long-range economic trends. Long-range potential problems
of declining urban population, increasing expenditures and other economic trends
could adversely affect localities and result in increasing State assistance in
the future.

Litigation. Various legal proceedings in which the State is involved
concern State finances, State programs and miscellaneous civil rights, real
property, contract and other tort claims in which the State is a defendant and
the potential monetary claims against the State sought are substantial,
generally in excess of $100 million. These proceedings or the initiation of new
proceedings could adversely affect the financial condition of the State in the
1997-98 fiscal year or thereafter. There can be no assurance that adverse
decisions in legal proceedings against the State would not exceed the amount of
the resources available for the payment of judgments.

Risk Factors for the North Carolina Fund. North Carolina state and
municipal securities may be adversely affected by economic and political
conditions and developments within the State of North Carolina.

Economic Profile. The economic profile of the State consists of a
combination of agriculture, industry and tourism. The State is moving away from
its traditional agricultural base towards a service and goods producing economy.
The State labor force reflects this increased emphasis toward non-agricultural
production. According to the North Carolina Employment Security Commission,
total non-agricultural employment as of February 1998 was approximately
3,703,600 jobs, of which 830,100 were in the manufacturing industry. These
figures have risen since 1991, when total non-agricultural employment was
approximately 3,072,200, of which 826,100 jobs were in the manufacturing
industry. Total non-agricultural employment is slightly higher than in 1997,
when there were approximately 3,666,800 jobs in this category, but the number of
manufacturing industry employees has dropped from 847,300 in 1997. A majority of
the employment that was available within the non-manufacturing industry as of
February 1998 was provided by retail trade, the services industry and the
government sector. In February 1998, retail trade provided approximately 641,400
jobs, services provided approximately 887,000 jobs and the government sector
provided approximately 606,000 jobs. All these figures were increased over 1997.

Based upon the available 1990 official census estimates of population
growth, the population of North Carolina increased 11.4% from 5,880,095 in 1980
to 6,632,448 in 1990. The Employment

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Security Commission estimates the unadjusted unemployment rate in February 1998
to have been 4.1% of the labor force, as compared with the nationwide unadjusted
unemployment rate of 5.0%. The North Carolina annual average unemployment rate
over the past eight years has ranged from a high of 5.9% in 1992 to a low of
3.5% in 1989.

Agriculture remains a basic economic element in North Carolina. North
Carolina ranked eighth (8th) in the nation in 1996 total farm income. Total
gross agricultural income in 1996 was approximately $7.9 billion, up from $6.7
billion in 1995. Poultry and eggs remain the leading source of agricultural
non-crop income in the State. Income from the production of poultry and eggs for
1996 was approximately $2.25 billion, accounting for approximately 28.7% of the
gross agricultural income. These figures are up from $2.0 billion in 1995. In
addition, tobacco production remains the leading source of agricultural crop
income in the State. Income from the production of tobacco for 1996 was
approximately $1 billion, accounting for approximately 13.1% of the gross
agricultural income. The amount of income received was up from $943 million in
1994, and down from $1.1 billion in 1992. The percentage of the State's gross
agricultural income from tobacco sales continues to decline from 21.2% in 1992,
and 14.8% in 1994. Federal legislation and regulatory measures regarding tobacco
production and marketing, along with international competition have and are
expected to continue to affect tobacco farming in North Carolina. Changes in
such factors or any other adverse conditions in the tobacco farming sector could
have negative effects on farm income and the North Carolina economy as a whole.
However, despite two major hurricanes in the major producing areas in 1996,
total production of flue-cured tobacco, one of North Carolina's largest
agricultural commodities, increased 21% from the year before. Burley tobacco
production also increased 24% from 1995.

In 1997 there were approximately 57,000 farms in the State, compared to
60,000 in 1992 and 72,000 in 1978. Even though the total number of farms in
North Carolina has decreased, the diversity of agriculture in North Carolina and
a continuing push in agriculture marketing efforts have protected farm income
from some of the wide variations that have been experienced in other states
where most of the agricultural economy is dependent on a small number of
agricultural commodities. According to the State Commissioner of Agriculture, in
1996 North Carolina ranked first in the nation in the production of flue-cured
tobacco, total tobacco, turkeys raised and sweet potatoes; second in the
production of cucumbers for pickles, the number of hogs and pigs on farms, hogs
and pigs cash receipts, and trout sales; third in net farm income, poultry and
egg products cash receipts and greenhouse and nursery cash receipts; fourth in
commercial broilers, peanuts, blueberries and strawberries; fifth in burley
tobacco; sixth in rye; and seventh in apples, watermelons, cotton, catfish sold
and cash receipts from livestock, dairy and poultry. A strong agribusiness
sector also supports farmers with farm inputs (fertilizer, insecticide,
pesticide and farm machinery) and processing of commodities produced by farmers
(vegetable canning and cigarette manufacturing).

The North Carolina Department of Commerce, Travel and Tourism Division, has
reported in 1996 approximately $9.8 billion was spent on travel and tourism in
the State, making tourism the second largest industry in North Carolina. This is
compared to approximately $9.2 billion in 1995, $8.5 billion in 1994, $8.0
billion in 1993, $7.4 billion in 1992 and $7.0 billion in 1991. In 1996 the
State's travel industry generated more than $730 million in state and local
taxes and provided approximately 167,100 full-time tourism-related jobs. The
greatest number of visitors to the State come from Virginia, South Carolina,
Florida, New York, Pennsylvania, and Maryland.

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Legislative and Judicial Developments. The following represents an overview
of the State budgetary system and a discussion of legislation passed by the
General Assembly in recent years along with current judicial developments
effecting the State budget and fiscal health.

In North Carolina the issuance of municipal debt is overseen by the North
Carolina Local Government Commission. This Commission is composed of nine
members including the State Treasurer, the Secretary of State, the State
Auditor, and the Secretary of Revenue. This Commission handles the approval,
sale, and delivery of all local bonds and notes issued in North Carolina and
monitors certain fiscal and accounting standards prescribed by The Local
Government Budget and Fiscal Control Act. No unit of local government can incur
bonded indebtedness without the Commission's prior approval. If approved, the
obligations are sold by the Commission on a sealed bid basis. The Commission
then monitors the local unit's debt service through a system of monthly reports.

Over the past twenty years, North Carolina State debt obligations have
maintained ratings of Aaa in Moody's and AAA in S&P. There can be no assurance
that the State's current ratings will be maintained for any given period or that
such ratings will not be lowered, suspended or withdrawn entirely by either
rating agency.

The North Carolina State Constitution requires that the total expenditures
of the State for the fiscal period covered by the budget shall not exceed the
total receipts during that fiscal period plus the surplus remaining in the State
Treasury at the beginning of the period. The State has not realized any revenue
shortfalls in recent fiscal years. For the three most recent fiscal periods
ending June 30, 1995, 1996 and 1997 the State realized total budgetary credit
balances of approximately $680 million, $726.5 million and $759.3 million,
respectively. However, during the 1989-90 and 1990-91 fiscal years, the State
had revenue shortfalls of approximately $282.2 million and $644.5 million,
respectively, requiring the Governor and General Assembly to mandate significant
spending constraints through reductions in spending authorizations and hiring
restrictions to fulfill the constitutional requirement of maintaining a balanced
budget. Therefore, even though the State has not experienced any revenue
shortfalls in recent years, there is no guarantee that a budgetary credit
balance will continue to be realized in future periods.

The State budget is based upon a correlation between estimated revenues and
expenditures for the State and various State and non-State factors. These
factors include State and national economic conditions, federal government
legislation and policies, and international activities and economic conditions.
The General Fund and the Highway Fund represent the two major operating funds.

Revenues from the General Fund are used to finance virtually all
non-highway operations of the State Government, while revenues from the Highway
Fund, the majority of which are generated by taxes and fees related to motor
vehicles and highway use, are primarily used for the maintenance and upkeep of
the State highway system.

The Regular Session of the 1994 General Assembly authorized additional
General Fund expenditures of $1.02 billion in excess of the previously
authorized 1994-95 budget. A major portion of these additional expenses
consisted of a $427.1 million compensation package for public school teachers,
state employees and employees of state-funded local programs. The funding of
these additional expenditures came from the collection of additional revenues
and a reduction in existing programs.

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The 1995 General Assembly enacted a total 1995-97 State Budget of $36.4
billion, representing a 9.6% increase over the 1993-95 budget of $33.2 billion.
The 1995 General Assembly focused much of its attention on the continuing effort
of reducing the cost of government through downsizing organizations,
efficiencies in operations, and maximizing certain resources available to the
State. Through this effort, the General Assembly adopted budget reductions
totaling $170.8 million for 1995-96 and $162.3 million for 1996-97. These
reductions assisted in the enactment of a tax reduction package which was
expected to provide tax relief of $364.6 million in 1995-96 and $401.7 million
in 1996-97.

In 1996, the Governor recommended a comprehensive tax package similar to
the package recommended in 1995. The objective of the Governor's Comprehensive
Tax Policy continued to be the reduction of the tax burden on individuals and
families, and the enactment of tax incentives to encourage economic growth and
job creation. The Governor proposed (1) to reduce the sales tax on food from 4%
to 3%; (2) to increase the homestead exemption from $15,000 to $18,000 and the
maximum income eligibility from $11,000 to $15,000; (3) to lower the corporate
income tax rate, over a 4-year period, from 7.75% to 6.75%; and (4) to institute
a 7% income tax credit, taken over seven years, for investments and new
machinery and equipment. Most of the Governor's recommended tax relief program
was enacted by the General Assembly, with some modifications. The 1996 General
Assembly enacted a 1996-97 State Budget of $19.1 billion, comprised of $10.6
billion from the General Fund, $1.6 billion from the Highway Fund and Highway
Trust Fund, $4.9 billion from Federal Funds, and $2.0 billion from other
receipts such as tuition, fees, and other miscellaneous charges.

The 1996 General Assembly was advised by the Secretary of Revenue and the
Attorney General that certain provisions of the North Carolina Tax Code were
unconstitutional given recent Supreme Court decisions. These provisions gave
preferential tax treatment to North Carolina domiciled companies in apparent
violation of the Interstate Commerce Clause of the United States Constitution.
To avoid potential future lawsuits, legislation eliminated the following
preferences: (1) Income tax credit for distributing wine manufactured from
grapes grown in North Carolina; (2) Individual income tax credit for dividends
earned from North Carolina domiciled companies; and (3) Corporate income
deductions for dividends from North Carolina domiciled companies. In addition,
the income tax credit for qualified business investments was modified by
eliminating the requirement that companies must be domiciled in North Carolina.

Additional questions were raised in 1996 when the United States Supreme
Court declared the North Carolina intangibles tax unconstitutional in Fulton
Corporation v. Justus. The North Carolina General Assembly initially responded
to the Fulton decision by announcing its intention to refund during the last
quarter of 1996, pending the approval by the State Supreme Court, intangibles
taxes which were paid under protest from 1991 (the date the case was originally
filed) until January, 1995 (the effective date of the General Assembly's repeal
of the tax). No such action, however, was taken. On December 27, 1996, the North
Carolina Superior Court, Wake County, certified a class action law suit against
the State of North Carolina seeking a refund of all intangibles taxes paid,
whether said taxes were paid with or without protest, during the 1991 through
1994 tax years. During the 1997 legislative session, Senate Bill 388 (S.L.
1997-17) and House Bill 96 (S.L. 1997-318) were passed and collectively directed
that no further action would be taken to collect additional taxes from the North
Carolina taxpayers, and that a refund would be paid to qualified out-of-state
companies who had previously paid the higher intangibles tax. This finally
resolves the issue addressed by the Fulton decision.

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The 1997 General Assembly enacted a 1997-99 State Budget of $42.3 billion
($21.1 billion for 1997-98, and $21.2 billion for 1998-99), comprised of $24
billion from the General Fund, $1.6 billion from the Highway Fund and Highway
Trust Fund, $10.6 billion from Federal Funds, and $3.6 billion from other
receipts such as tuition, fees, and other miscellaneous charges.

Both the 1995 and 1996 Sessions of the North Carolina General Assembly
enacted significant tax relief packages, reducing individual income, corporate
income, sales and use, and other General Fund tax schedules. Additional
reductions in General Fund taxes were enacted by the 1997 Session. The most
significant change was a further decrease in the state sales tax rate on food
consumed at home to 2% effective July 1, 1998. State corporate and individual
income taxes are based upon federal taxable income. Updating the state tax
statutes for recent changes in the Internal Revenue Code resulted in a net tax
reduction for North Carolina taxpayers. The 1997 Session enacted numerous small
tax reductions ranging from a modification of the Ports Tax Credit to a sales
exemption for audiovisual masters. On the plus side, the General Assembly
enacted new withholding requirements for nonresident workers and increased the
filing fee paid by corporations. Overall, the 1997 tax law changes reduced
General Fund revenue by an estimated $96 million, bringing the 3-year total
reductions since 1996 to $734 million in 1998-99.

Consistent with the expected increase in North Carolina total personal
income, baseline (economy-driven) tax revenue growth is projected at 6.1% for
1997-98 and 6.4% for 1998-99, after adjusting for 1996-97 capital gains. As
consumer attitudes remain positive, sales and use tax receipts are projected to
expand at a 6.0% average rate during the 1997-99 biennium. Corporate income
taxes should increase, but at a slower rate as U.S. corporate profits growth
moderates.

Following a record year in 1996-97, investment income is projected to
continue to expand during the upcoming biennium along with investable cash
balances. Judicial fees should grow by a strong 17.9% in 1997-98 due to the
court fee increase enacted by the 1997 Session of the General Assembly which is
estimated to yield an additional $12.6 million in fee income. Disproportionate
Share (Medicaid) Payments will represent $83.0 million in non-tax revenue to the
General Fund.

Risk Factors for the Ohio Fund. The Ohio Fund will invest most of its net
assets in securities issued by or on behalf of (or in certificates of
participation in lease-purchase obligations of) the State of Ohio, political
subdivisions of the State, or agencies or instrumentalities of the State or its
political subdivisions (Ohio Obligations). The Ohio Fund is therefore
susceptible to general or particular economic, political, or regulatory factors
that may affect issuers of Ohio Obligations. The following information
constitutes only a brief summary of some of the many complex factors that may
have an effect. The information does not apply to "conduit" obligations on which
the public issuer itself has no financial responsibility. This information is
derived from official statements of certain Ohio issuers published in connection
with their issuance of securities and from other publicly available information,
and is believed to be accurate. No independent verification has been made of any
of the following information.

Generally, the creditworthiness of Ohio Obligations of local issuers is
unrelated to that of obligations of the State itself, and the State has no
responsibility to make payments on those local obligations.

There may be specific factors that at particular times apply in connection
with investment in particular Ohio Obligations or in those obligations of
particular Ohio issuers. It is possible that the investment may be in particular
Ohio Obligations, or in those of particular issuers, as to which those

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factors apply. However, the information below is intended only as a general
summary, and is not intended as a discussion of any specific factors that may
affect any particular obligation or issuer.

The timely payment of principal and interest on Ohio Obligations has been
guaranteed by bond insurance purchased by the issuers, the Ohio Fund or other
parties. Those Ohio Obligations may not be subject to the factors referred to in
this section of the SAI.

Ohio is the seventh most populous state. The 1990 Census count of
10,847,000 indicated a 0.5% population increase from 1980. The Census estimate
for 1996 is 11,173,000.

While diversifying more into the service and other non-manufacturing areas,
the Ohio economy continues to rely in part on durable goods manufacturing
largely concentrated in motor vehicles and equipment, steel, rubber products and
household appliances. As a result, general economic activity, as in many other
industrially-developed states, tends to be more cyclical than in some other
states and in the nation as a whole. Agriculture is an important segment of the
economy, with over half the State's area devoted to farming and approximately
16% of total employment in agribusiness.

In prior years, the State's overall unemployment rate was commonly somewhat
higher than the national figure. For example, the reported 1990 average monthly
State rate was 5.7%, compared to the 5.5% national figure. However, for the last
seven years the State rates were below the national rates (4.9% versus 5.4% in
1996). The unemployment rate and its effects vary among geographic areas of the
State.

There can be no assurance that future national, regional or state-wide
economic difficulties, and the resulting impact on State or local government
finances generally, will not adversely affect the market value of Ohio
Obligations held by the Ohio Fund or the ability of particular obligors to make
timely payments of debt service on (or lease payments relating to) those
Obligations.

The State operates on the basis of a fiscal biennium for its appropriations
and expenditures, and is precluded by law from ending its July 1 to June 30
fiscal year (FY) or fiscal biennium in a deficit position. Most State operations
are financed through the General Revenue Fund (GRF), for which the personal
income and sales-use taxes are the major sources. Growth and depletion of GRF
ending fund balances show a consistent pattern related to national economic
conditions, with the ending FY balance reduced during less favorable and
increased during more favorable economic periods. The State has well-established
procedures for, and has timely taken, necessary actions to ensure
resource/expenditure balances during less favorable economic periods. Those
procedures included general and selected reductions in appropriations spending.

The 1992-93 biennium presented significant challenges to State finances,
successfully addressed. To allow time to resolve certain budget differences an
interim appropriations act was enacted effective July 1, 1991; it included GRF
debt service and lease rental appropriations for the entire biennium, while
continuing most other appropriations for a month. Pursuant to the general
appropriations act for the entire biennium passed on July 11, 1991, $200 million
was transferred from the Budget Stabilization Fund (BSF, a cash and budgetary
management fund) to the GRF in FY 1992.

Based on updated results and forecasts in the course of that FY, both in
light of a continuing uncertain nationwide economic situation, there was
projected and then timely addressed an FY 1992 imbalance in GRF resources and
expenditures. In response, the Governor ordered most State agencies to reduce
GRF spending in the last six months of FY 1992 by a total of approximately $184
million; the $100.4 million BSF balance and additional amounts from certain
other funds were transferred late in the FY to the GRF; and adjustments made in
the timing of certain tax payments.

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A significant GRF shortfall (approximately $520 million) was then projected
for FY 1993. It was addressed by appropriate legislative and administrative
actions, including the Governor's ordering $300 million in selected GRF spending
reductions and subsequent executive and legislative actions (a combination of
tax revisions and additional spending reductions). The June 30, 1993 ending GRF
fund balance was approximately $111 million, of which as a first step to
replenishment, $21 million was deposited in the BSF.

None of the spending reductions were applied to appropriations needed for
debt service or lease rentals relating to any State obligations.

The 1994-95 biennium presented a more affirmative financial picture. Based
on June 30, 1994 balances, an additional $260 million was deposited in the BSF.
The biennium ended June 30, 1995 with a GRF ending fund balance of $928 million,
of which $535.2 million was transferred into the BSF. The significant GRF fund
balance, after leaving in the GRF an unreserved and undesignated balance of $70
million, was transferred to the BSF and other funds including school assistance
funds and, in anticipation of possible federal program changes, a human services
stabilization fund.

From a higher than forecast 1996-97 mid-biennium GRF fund balance, $100
million was transferred for elementary and secondary school computer network
purposes and $30 million to a new State transportation infrastructure fund.
Approximately $400.8 million served as a basis for temporary 1996 personal
income tax reductions aggregating that amount. The 1996-97 biennium-ending GRF
fund balance was $834.9 million. Of that, $250 million goes to school building
construction and renovation, $94 million to the school computer network, $44.2
million for school textbooks and instructional materials and a distance learning
program, and $34 million to the BSF (which had March 17, 1998 balance of $862.7
million), with the $263 million balance to a State income tax reduction fund.

The GRF appropriations act for the 1997-98 biennium was passed on June 25,
1997 and promptly signed (after selective vetoes) by the Governor. All necessary
GRF appropriations for State debt service and lease rental payments then
projected for the biennium were included in that act. Recently passed
legislation increases the fiscal year 1999 GRF appropriation level for
elementary and secondary education, with the increase to be funded in part by
mandated small percentage reductions in State appropriations for various State
agencies and institutions. Expressly exempt from those reductions are all
appropriations for debt service, including lease rental payments.

The State's incurrence or assumption of debt without a vote of the people
is, with limited exceptions, prohibited by current State constitutional
provisions. The State may incur debt, limited in amount to $750,000, to cover
casual deficits or failures in revenues or to meet expenses not otherwise
provided for. The Constitution expressly precludes the State from assuming the
debts of any local government or corporation. (An exception is made in both
cases for any debt incurred to repel invasion, suppress insurrection or defend
the State in war.)

By 14 constitutional amendments, approved from 1921 to date (the latest
adopted in 1995,) Ohio voters authorized the incurrence of State debt and the
pledge of taxes or excises to its payment. At March 17, 1998, $1.06 billion
(excluding certain highway bonds payable primarily from highway use receipts) of
this debt was outstanding. The only such State debt at that date still
authorized to be incurred were portions of the highway bonds, and the following:
(a) up to $100 million of obligations for coal research and development may be
outstanding at any one time ($28.2 million outstanding); (b) $240 million of
obligations previously authorized for local infrastructure improvements, no more

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than $120 million of which may be issued in any calendar year ($945.5 million
outstanding) and (c) up to $200 million in general obligation bonds for parks,
recreation and natural resources purposes which may be outstanding at any one
time ($90.9 million outstanding, with no more than $50 million to be issued in
any one year).

The electors in 1995 approved a constitutional amendment extending the
local infrastructure bond program (authorizing an additional $1.2 billion of
State full faith and credit obligations to be issued over 10 years for the
purpose), and authorizing additional highway bonds (expected to be payable
primarily from highway use receipts). The latter supersedes the prior $500
million outstanding authorization, and authorizes not more than $1.2 billion to
be outstanding at any time and not more than $220 million to be issued in a
fiscal year.

The Constitution also authorizes the issuance of State obligations for
certain purposes, the owners of which do not have the right to have excises or
taxes levied to pay debt service. Those special obligations include obligations
issued by the Ohio Public Facilities Commission and the Ohio Building Authority,
and certain obligations issued by the State Treasurer, over $5.05 billion of
which were outstanding at March 17, 1998.

A 1990 constitutional amendment authorizes greater State and political
subdivision participation (including financing) in the provision of housing. The
General Assembly may for that purpose authorize the issuance of State
obligations secured by a pledge of all or such portion as it authorizes of State
revenues or receipts (but not by a pledge of the State's full faith and credit).

A 1994 constitutional amendment pledges the full faith and credit and
taxing power of the State to meeting certain guarantees under the State's
tuition credit program which provides for purchase of tuition credits, for the
benefit of State residents, guaranteed to cover a specified amount when applied
to the cost of higher education tuition. (A 1965 constitutional provision that
authorized student loan guarantees payable from available State moneys has never
been implemented, apart from a "guaranteed fund" approach funded essentially
from program revenues.)

The General Assembly has placed on the May 1998 primary election ballot a
proposed constitutional amendment dealing with State debt. If approved by
voters, it will authorize State general obligation debt to pay costs of
facilities for a system of common schools throughout the State and for state
supported and assisted institutions of higher education. That and other debt
represented by direct obligations of the State (such as that authorized by the
OPFC and OBA) could not be issued if future fiscal year total debt service on
those obligations to be paid from the GRF or net lottery proceeds exceeds 5% of
total State expenditures from the GRF and net lottery proceeds during the then
preceding fiscal year.

State and local agencies issue obligations that are payable from revenues
from or relating to certain facilities (but not from taxes). By judicial
interpretation, these obligations are not "debt" within constitutional
provisions. In general, payment obligations under lease-purchase agreements of
Ohio public agencies (in which certificates of participation may be issued) are
limited in duration to the agency's fiscal period, and are renewable only upon
appropriations being made available for the subsequent fiscal period.

Local school districts in Ohio receive a major portion (state-wide
aggregate approximately 44% in recent years) of their operating moneys from
State subsidies, but are dependent on local property taxes, and in 119 districts
from voter-authorized income taxes, for significant portions of their budgets.
Litigation, similar to that in other states, has been pending questioning the
constitutionality of Ohio's

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system of school funding. The Ohio Supreme Court has concluded that aspects of
the system (including basic operating assistance and the loan program referred
to below) are unconstitutional, and ordered the State to provide for and fund a
system complying with the Ohio Constitution, staying its order for a year (to
March 24, 1998) to permit time for responsive corrective actions, some of which
to March 17, 1998 are mentioned above. A small number of the State's 612 local
school districts have in any year required special assistance to avoid year-end
deficits. A program has provided for school district cash need borrowing
directly from commercial lenders, with diversion of State subsidy distributions
to repayment if needed. Recent borrowings under this program totalled $41.1
million for 28 districts in FY 1994, and $71.1 million for 29 districts in FY
1995 (including $29.5 million for one), $87.2 million for 20 districts in FY
1996 (including $42.1 million for one) and $113.2 million for 12 districts in
1997 (including $90 million to one for restructuring its prior loans).

Ohio's 943 incorporated cities and villages rely primarily on property and
municipal income taxes for their operations. With other subdivisions, they also
receive local government support and property tax relief moneys distributed by
the State.

For those few municipalities and school districts that on occasion have
faced significant financial problems, there are statutory procedures for a joint
State/local commission to monitor the fiscal affairs and for development of a
financial plan to eliminate deficits and cure any defaults. (Similar procedures
have recently been extended to counties and townships.) Since inception for
municipalities in 1979, these "fiscal emergency" procedures have been applied to
24 cities and villages; for 18 of them the fiscal situation was resolved and the
procedures terminated (one village is in preliminary "fiscal watch" status). As
of March 17, 1998, the 1996 school district "fiscal emergency" provision was
applied to four districts, and 12 were on preliminary "fiscal watch" status.

At present the State itself does not levy ad valorem taxes on real or
tangible personal property. Those taxes are levied by political subdivisions and
other local taxing districts. The Constitution has since 1934 limited to 1% of
true value in money the amount of the aggregate levy (including a levy for
unvoted general obligations) of property taxes by all overlapping subdivisions,
without a vote of the electors or a municipal charter provision, and statutes
limit the amount of that aggregate levy to 10 mills per $1 of assessed valuation
(commonly referred to as the "ten-mill limitation"). Voted general obligations
of subdivisions are payable from property taxes that are unlimited as to amount
or rate.

Risk Factors for the Oregon Fund. Oregon's economy historically has relied
heavily on the timber industry. Recently the State has encouraged
diversification of the economy, with emphasis on such industries as high
technology, foreign trade and tourism, but the timber industry remains a
significant component of the economy. The vitality of that industry is
particularly vulnerable to recessionary cycles. The availability of timber for
harvesting in Oregon remains in doubt as a result of the ongoing controversy
with respect to protection of the habitat of the Northern Spotted Owl.
Environmental groups are advocating restrictions on logging to protect the
habitat of this animal, which restrictions may have a significant adverse effect
on the timber industry. The federal government is also developing and
implementing a plan to restore native salmon runs in the pacific northwest. This
plan will necessarily involve some restrictions on the use of dams to generate
electricity on some of Oregon's major rivers. Oregon's economy is heavily
dependent on hydroelectric power, so it is uncertain how the salmon recovery
plan may impact the economy through utility rate increases. In November 1990,
Oregon voters approved Measure 5, a property tax limitation measure. Measure 5
put a cap on local ad valorem property taxes. In November 1996, Oregon voters
approved another property tax limitation, Measure 47. This measure provides for
a ten percent reduction in most ad valorem property taxes and contains further
limits on future increases. The interpretation and implementation of Measure 47
is being challenged and debated both in the Oregon legislature and in

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the courts, so it is uncertain exactly what the economic impact of this measure
will be. It is also uncertain how the legislature will restructure the general
fund in response to Measures 5 and 47. Alternatives may include budget cuts, a
sales tax or higher corporate and individual income taxes. Because of the
State's need to replace lost tax revenues, Measures 5 and 47 could adversely
affect the State's credit rating. If rating agencies were to lower Oregon's
credit rating, the State would have to pay a higher interest rate on the money
it borrows. There is a relatively inactive trading market for municipal
instruments of Oregon issuers in other than general obligations of the State.
The market price of these other municipal instruments may be particularly
sensitive to changes in the supply of, and the demand for, the instruments, and,
if the Oregon Fund were forced to sell a large volume of these instruments for
any reason, the value of the Oregon Fund's portfolio may be adversely affected.

Risk Factors for the Pennsylvania Fund. Pennsylvania may incur debt to
rehabilitate areas affected by disaster, debt approved by the electorate, debt
for certain capital projects (for projects such as highways, public
improvements, transportation assistance, flood control, redevelopment
assistance, site development and industrial development) and tax anticipation
debt payable in the fiscal year of issuance. Pennsylvania had outstanding
general obligation debt of $4,795.1 million at June 30, 1997. Pennsylvania is
not permitted to fund deficits between fiscal years with any form of debt. All
year-end deficit balances must be funded within the succeeding fiscal year's
budget. At March 1, 1998, all outstanding general obligation bonds of
Pennsylvania were rated AA- by S & P and Aa3 by Moody's (see Appendix A). There
can be no assurance that the current ratings will remain in effect in the
future. The Pennsylvania Fund assumes no obligation to update this rating
information. Over the five-year period ending June 30, 2003, Pennsylvania has
projected that it will issue bonds totaling $2,984.5 million and retire bonded
debt in the principal amount of $2,350.9 million. Certain agencies created by
Pennsylvania have statutory authorization to incur debt for which Pennsylvania
appropriations to pay debt service thereon is not required. As of December 31,
1997, total combined debt outstanding for these agencies was $8,225 million. The
debt of these agencies is supported by assets of, or revenues derived from, the
various projects financed and is not an obligation of Pennsylvania. Some of
these agencies, however, are indirectly dependent on Pennsylvania
appropriations. The only obligations of agencies in Pennsylvania that bear a
moral obligation of Pennsylvania are those issued by the Pennsylvania Housing
Finance Agency ("PHFA"), a state-created agency which provides housing for lower
and moderate income families, and The Hospitals and Higher Education Facilities
Authority of Philadelphia (the "Hospital Authority"), an agency created by the
City of Philadelphia to acquire and prepare various sites for use as
intermediate care facilities for the mentally retarded. As of December 31, 1997,
PHFA has $2,631.1 million of revenue bonds and notes outstanding.

Numerous local government units in Pennsylvania issue general obligation
debt, including counties, cities, boroughs, townships and school districts.
School district obligations are supported indirectly by Pennsylvania. The
issuance of non-electoral general obligation debt is limited by constitutional
and statutory provision. Electoral debt., i.e., that approved by the voters, is
unlimited. In addition, local government units and municipal and other
authorities may issue revenue obligations that are supported by the revenues
generated from particular projects or enterprises. Examples include municipal
authorities (frequently operating water and sewer systems), municipal
authorities formed to issue obligations benefiting hospitals and educational
institutions, and industrial development authorities, whose obligations benefit
industrial or commercial occupants. In some cases, sewer or water revenue
obligations are guaranteed by taxing bodies and have the credit characteristics
of general obligation debt.

Pennsylvania historically has been identified as a heavy industry state,
although that reputation has changed with the decline of the coal, steel and
railroad industries and the resulting diversification of Pennsylvania's
industrial composition. The major new sources of growth are in the service
sector,

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including trade, medical and health services, education and financial
institutions. Manufacturing has fallen behind both the services sector and the
trade sector as the largest single source of employment in Pennsylvania.

Since 1985, employment in Pennsylvania has grown at an annual rate of 1.03
percent, while employment for the Middle Atlantic region and for the United
States for the same period has grown by approximately .41 percent and 1.8
percent per year, respectively. Pennsylvania's average annual unemployment rate
since 1986 has generally not been more than one percent greater or lesser than
the nation's annual average unemployment rate. The seasonally adjusted
unemployment rate for Pennsylvania for January, 1998 was 4.6 percent compared to
4.7 percent for the United States. The unadjusted unemployment rate for
Pennsylvania and the United States for January, 1998 was 4.8 percent and 4.7
percent, respectively. The population of Pennsylvania, 12.02 million people as
of July 1, 1997, according to the U. S. Bureau of the Census, represents an
increase from the July 1, 1988 estimate of 11.85 million. Per capita income in
Pennsylvania for calendar year 1996 of $24,803 was higher than the per capita
income of the United States of $24,426. Pennsylvania's General Fund, which
receives all tax receipts and most other revenues and through which debt service
on all general obligations of Pennsylvania are made, closed fiscal years ended
June 30, 1995, June 30, 1996 and June 30, 1997 with positive fund balances of
$688 million, $635 million and $1,365 million, respectively.

Pennsylvania is currently involved in certain litigation where adverse
decisions could have an adverse impact on its ability to pay debt service. For
example, in Baby Neal v. Commonwealth, the American Civil Liberties Union filed
a lawsuit against the Commonwealth seeking an order that would require the
Commonwealth to provide additional funding for child welfare services. County of
Allegheny v. Commonwealth of Pennsylvania involves litigation regarding the
state constitutionality of the statutory scheme for county funding of the
judicial system. In Pennsylvania Association of Rural and Small Schools v.
Casey, the constitutionality of Pennsylvania's system for funding local school
districts has been challenged. No estimates for the amount of these claims are
available.

Risk Factors for the Virginia Fund. The Commonwealth of Virginia has had a
tradition of low debt, and a large proportion of its general obligation bonds
has been supported by particular revenue-producing projects. However, use of
non-general obligation debt, which is not subject to constitutional limits on
borrowing, has changed the Commonwealth's debt profile. During the last decade,
the Commonwealth has expended its limited obligation borrowings through various
financing vehicles such as the Virginia Public Building Authority, the Virginia
College Building Authority and a substantial transportation bonding program. In
1991, the Virginia Supreme Court in a case know as the Dykes decision, on a
split vote upheld on rehearing, the ability of counties to enter into
obligations which were "subject to appropriation" and confirmed that such
obligations were not to be considered as "debts" under the Virginia
Constitution.

While the Commonwealth has had a long history of sound financial
operations, variations of a cyclical nature have occurred during he past several
years. Since the Virginia Constitution requires a balanced budget, the 1998-2000
biennium budget, as adopted by the Virginia General Assembly at its 1998
session, reflected spending cuts, deferrals and fund transfers (principally from
state lottery proceeds) to accommodate anticipated modest revenue growth. The
Commonwealth expects to conclude the fiscal year ending June 30, 1998 with a
surplus of $103.8 million (on an accrual basis). There have been no provisions
in the Commonwealth's budget for general tax increases.

The Virginia General Assembly at its 1998 session approved a significant
reduction in personal property tax on vehicles or the "car tax" for citizens of
the Commonwealth. The personal property tax reduction will be paid initially to
the taxpayers from the Commonwealth and during later years, by

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reimbursement to localities from the Commonwealth. When combined with
significant financial assistance for school capital construction for localities,
the "car tax" relief will have an estimated effect on the biennium budget of
$533 million.

Virginia's economy is affected generally by economic trends throughout the
country and in the Mid-Atlantic region, and it is particularly influenced by
Federal civilian and military installations and the growth of suburban
communities around Washington, D.C. Also significant to the economy of Virginia
are manufacturing (such as electronic equipment, shipbuilding and chemical
products), minerals (chiefly coal), service sector occupations (including
banking and insurance), agriculture and tourism. Decelerating national growth
and a more moderate pace in Virginia construction activity are likely to produce
somewhat slower growth in Virginia during FY 1998. Virginia economic growth
accelerated in fiscal year 1996-1997 (FY97). For many key measures, the
Commonwealth's FY97 growth rates exceeded the nation's gains: for payroll
employment; total wages and salaries; payroll per job in seven out of nine
non-farm industry sectors; and retail sales. The stronger job growth pushed
Virginia's unemployment rate down to 4.3%, the lowest fiscal year unemployment
rates since FY90.

DIRECTORS OR TRUSTEES AND OFFICERS

The following table lists the Directors or Trustees and executive officers
of the Tax Free Funds, their age, business address and principal occupations
during the past five years. Unless otherwise noted, an individual's business
address is 95 Wall Street, New York, New York 10005.

Glenn O. Head*+ (72), President and Director or Trustee. Chairman of the Board
and Director, Administrative Data Management Corp. ("ADM"), FIMCO, Executive
Investors Management Company, Inc. ("EIMCO"), First Investors Corporation
("FIC"), Executive Investors Corporation ("EIC") and First Investors
Consolidated Corporation ("FICC").

James J. Coy (84), Emeritus Director or Trustee, 90 Buell Lane, East Hampton, NY
11937. Retired; formerly Senior Vice President, James Talcott, Inc. (financial
institution).

Roger L. Grayson* (41), Director or Trustee, FIC and FICC; President and
Director, First Investors Resources, Inc.; Commodities Portfolio Manager.

Kathryn S. Head*+ (42), Director or Trustee, 581 Main Street, Woodbridge, NJ
07095. President and Director, FICC, ADM and FIMCO; Vice President and Director,
FIC and EIC; President EIMCO; Chairman, President and Director, First Financial
Savings Bank, S.L.A.

Rex R. Reed (76), Director or Trustee, 259 Governors Drive, Kiawah Island, SC
29455. Retired; formerly Senior Vice President, American Telephone & Telegraph
Company.

Herbert Rubinstein (76), Director or Trustee, 695 Charolais Circle, Edwards, CO
81632-1136. Retired; formerly President, Belvac International Industries, Ltd.
and President, Central Dental Supply.

Nancy Schaenen (66), Director or Trustee, 56 Midwood Terrace, Madison, NJ 07940.
Trustee, Drew University and DePauw University.

James M. Srygley (65), Director or Trustee, 33 Hampton Road, Chatham, NJ 07982.
Principal, Hampton Properties, Inc. (property investment company).

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<PAGE>

John T. Sullivan* (66), Director or Trustee and Chairman of the Board; Director,
FIMCO, FIC, FICC and ADM; Of Counsel, Hawkins, Delafield & Wood, Attorneys.

Robert F. Wentworth (68), Director or Trustee, RR1, Box 2554, Upland Downs Road,
Manchester Center, VT 05255. Retired; formerly financial and planning executive
with American Telephone & Telegraph Company.

Joseph I. Benedek (40), Treasurer and Chief Financial Officer, 581 Main Street,
Woodbridge, NJ 07095. Treasurer, FIC, FIMCO, EIMCO and EIC; Comptroller and
Treasurer, FICC.

Concetta Durso (63), Vice President and Secretary. Vice President, FIMCO, EIMCO
and ADM; Assistant Vice President and Assistant Secretary, FIC and EIC.

Clark D. Wagner (39), Vice President. Vice President, First Investors Series
Fund, Executive Investors Trust, First Investors Insured Tax Exempt Fund, Inc.
and First Investors Government Fund, Inc.; Chief Investment Officer, FIMCO.

- ----------

* These Directors or Trustees may be deemed to be "interested persons," as
defined in the 1940 Act.

+ Mr. Glenn O. Head and Ms. Kathryn S. Head are father and daughter.

The Directors or Trustees and officers, as a group, owned less than 1% of
either Class A or Class B shares of any Fund.

All of the officers and Directors or Trustees, except for Mr. Wagner, hold
identical or similar positions with 14 other registered investment companies in
the First Investors Family of Funds. Mr. Head is also an officer and/or Director
of First Investors Asset Management Company, Inc., First Investors Credit
Funding Corporation, First Investors Leverage Corporation, First Investors
Realty Company, Inc., First Investors Resources, Inc., N.A.K. Realty
Corporation, Real Property Development Corporation, Route 33 Realty Corporation,
First Investors Life Insurance Company, First Financial Savings Bank, S.L.A.,
First Investors Credit Corporation and School Financial Management Services,
Inc. Ms. Head is also an officer and/or Director of First Investors Life
Insurance Company, First Investors Credit Corporation, School Financial
Management Services, Inc., First Investors Credit Funding Corporation, N.A.K.
Realty Corporation, Real Property Development Corporation, First Investors
Leverage Corporation and Route 33 Realty Corporation.

The following table lists compensation paid to the Trustees of Multi-State
Insured for the fiscal year ended December 31, 1997.

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<PAGE>

Pension or Total Compensation
Retirement From First
Aggregate Benefits Accrued Estimated Annual Investors Family
Compensation as Part of Fund Benefits Upon of Funds Paid to
Trustee From Fund* Expenses Retirement Trustee*
- ------- ------------ ---------------- ---------------- ------------------
<S> <C> <C> <C> <C>
James J. Coy** $1,422.28 $-0- $-0- $15,500.00
Roger L. Grayson -0- -0- -0- -0-
Glenn O. Head -0- -0- -0- -0-
Kathryn S. Head -0- -0- -0- -0-
Rex R. Reed 3,413.47 -0- -0- 37,200.00
Herbert Rubinstein 3,413.47 -0- -0- 37,200.00
James M. Srygley 3,413.47 -0- -0- 37,200.00
John T. Sullivan -0- -0- -0- -0-
Robert F. Wentworth 3,413.47 -0- -0- 37,200.00
Nancy Schaenen 2,560.10 -0- -0- 27,900.00
</TABLE>

The following table lists compensation paid to the Directors of New York
Insured for the fiscal year ended December 31, 1997.

Pension or Total Compensation
Retirement From First
Aggregate Benefits Accrued Estimated Annual Investors Family
Compensation as Part of Fund Benefits Upon of Funds Paid to
Director From Fund* Expenses Retirement Director*
- ------- ------------ ---------------- ---------------- ------------------
<S> <C> <C> <C> <C>
James J. Coy** $ 750.00 $-0- $-0- $15,500.00
Roger L. Grayson -0- -0- -0- -0-
Glenn O. Head -0- -0- -0- -0-
Kathryn S. Head -0- -0- -0- -0-
Rex R. Reed 3,920.21 -0- -0- 37,200.00
Herbert Rubinstein 1,800.00 -0- -0- 37,200.00
James M. Srygley 1,800.00 -0- -0- 37,200.00
John T. Sullivan -0- -0- -0- -0-
Robert F. Wentworth 1,800.00 -0- -0- 37,200.00
Nancy Schaenen 1,350.00 -0- -0- 27,900.00
</TABLE>

* Compensation to officers and interested Directors or Trustees of the Tax Free
Funds is paid by the Adviser. In addition, prior to December 31, 1997,
compensation to non-interested Directors or Trustees of the Tax Free Funds was
voluntarily paid by the Adviser. Commencing January 1, 1998, compensation to
non-interested Directors or Trustees of the Tax Free Funds is being paid by each
Tax Free Fund.

** On March 27, 1997, Mr. Coy resigned as a Director or Trustee of the Tax Free
Funds. Mr. Coy did not resign due to a disagreement on any matters relating to
the Tax Free Funds' operations, policies or practices. Mr. Coy currently serves
as an emeritus Director or Trustee.

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<PAGE>

MANAGEMENT

Investment advisory services to each Fund are provided by First Investors
Management Company, Inc. pursuant to separate Investment Advisory Agreements
(each, an "Advisory Agreement") dated June 13, 1994. Each Advisory Agreement was
approved by the Board of Directors or Trustees of the applicable Tax Free Fund,
including a majority of the Directors or Trustees who are not parties to such
Tax Free Fund's Advisory Agreement or "interested persons" (as defined in the
1940 Act) of any such party ("Independent Directors or Trustees"), in person at
a meeting called for such purpose and by a majority of the public shareholders
of the applicable Fund.

Pursuant to each Advisory Agreement, FIMCO shall supervise and manage each
Fund's investments, determine each Fund's portfolio transactions and supervise
all aspects of each Fund's operations, subject to review by the applicable
Fund's Directors or Trustees. Each Advisory Agreement also provides that FIMCO
shall provide the applicable Tax Free Fund with certain executive,
administrative and clerical personnel, office facilities and supplies, conduct
the business and details of the operation of such Fund and assume certain
expenses thereof, other than obligations or liabilities of such Fund. Each
Advisory Agreement may be terminated, with respect to a Fund, at any time
without penalty by the applicable Tax Free Fund's Directors or Trustees or by a
majority of the outstanding voting securities of such Fund, or by FIMCO, in each
instance on not less than 60 days' written notice, and shall automatically
terminate in the event of its assignment (as defined in the 1940 Act). Each
Advisory Agreement also provides that it will continue in effect, with respect
to a Fund, for a period of over two years only if such continuance is approved
annually either by the applicable Tax Free Fund's Directors or Trustees or by a
majority of the outstanding voting securities of such Fund, and, in either case,
by a vote of a majority of that Tax Free Fund's Independent Directors or
Trustees voting in person at a meeting called for the purpose of voting on such
approval.

Under each Advisory Agreement, each Fund pays the Adviser an annual fee,
paid monthly, according to the following schedule:

Annual
Average Daily Net Assets Rate
- ------------------------ ----

Up to $250 million.................................................... 0.75%
In excess of $250 million up to $500 million.......................... 0.72
In excess of $500 million up to $750 million.......................... 0.69
Over $750 million..................................................... 0.66

The Adviser has an Investment Committee composed of George V. Ganter, Glenn
O. Head, Nancy W. Jones, Patricia D. Poitra, Michael O'Keefe, Dennis T.
Fitzpatrick, Jack B. Wolfman, Clark D. Wagner and Richard Guinnessey. The
Committee usually meets weekly to discuss the composition of the portfolio of
each Fund and to review additions to and deletions from the portfolios.

For the fiscal years ended December 31, 1995 and 1996, New York Insured's
advisory fees were $1,564,094 and $1,560,042, respectively. For the fiscal year
ended December 31, 1997, New York Insured's advisory fees were $1,395,057, net
of a waiver of $99,647. For the fiscal years ended December 31, 1995, 1996 and
1997, the advisory fees for each Fund of Multi-State Insured were as follows:

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<PAGE>

Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
December 31, 1995 December 31, 1996 December 31, 1996
----------------------- ------------------------ ------------------------
Advisory Advisory Advisory
Fees Paid Waived Fees Paid Waived Fees Paid Waived
--------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Arizona Fund $27,587 $41,379 $26,244 $39,365 $27,731 $41,596
California Fund 84,232 42,116 79,511 39,755 76,622 38,311
Colorado Fund -0- 25,413 5,249 21,354 7,434 20,443
Connecticut Fund 65,966 57,720 79,378 46,237 84,693 42,347
Florida Fund 74,240 84,845 105,908 65,431 120,464 60,232
Georgia Fund -0- 20,345 5,070 20,076 6,763 18,598
Maryland Fund -0- 61,997 22,998 52,298 34,866 52,299
Massachusetts Fund 111,740 55,870 115,570 57,785 115,772 57,887
Michigan Fund 169,741 84,871 183,687 91,843 192,800 96,401
Minnesota Fund 19,536 39,073 23,793 38,278 25,010 37,516
Missouri Fund -0- 12,994 2,797 11,237 3,867 10,634
New Jersey Fund 345,714 86,428 356,775 89,194 362,925 90,731
North Carolina Fund -0- 33,343 8,394 32,903 12,358 33,984
Ohio Fund 77,612 67,910 92,492 53,424 96,209 48,105
Oregon Fund -0- 43,844 20,635 44,975 34,558 6,501
Pennsylvania Fund 185,169 92,584 206,105 103,052 220,283 110,141
Virginia Fund 99,511 87,072 112,307 66,048 112,117 56,058
</TABLE>

In addition, for the fiscal year ended December 31, 1997, the Adviser
voluntarily reimbursed expenses for the Funds as follows: Arizona Fund -
$19,517; California Fund - $16,445; Colorado Fund - $12,702; Connecticut Fund -
$20,624; Florida Fund - $15,625; Georgia Fund - $12,778; Maryland Fund -
$26,563; Massachusetts Fund - $24,099; Minnesota Fund - $21,522; Missouri Fund -
$9,801; North Carolina Fund - $17,280; Ohio Fund - $25,725; Oregon Fund -
$25,926; and Virginia Fund - $24,479.

Each Fund bears all expenses of its operations other than those incurred by
the Adviser or Underwriter under the terms of its advisory or underwriting
agreements. Fund expenses include, but are not limited to: the advisory fee;
shareholder servicing fees and expenses; custodian fees and expenses; legal and
auditing fees; expenses of communicating to existing shareholders, including
preparing, printing and mailing prospectuses and shareholder reports to such
shareholders; and proxy and shareholder meeting expenses.

UNDERWRITER

Each Tax Free Fund has entered into an Underwriting Agreement
("Underwriting Agreement") with First Investors Corporation ("Underwriter" or
"FIC") which requires the Underwriter to use its best efforts to sell shares of
the Funds. Pursuant to each Underwriting Agreement, the Underwriter shall bear
all fees and expenses incident to the registration and qualification of the
Funds' shares. In addition, the Underwriter shall bear all expenses of sales
material or literature, including prospectuses and proxy materials, to the
extent such materials are used in connection with the sale of the Funds' shares,
unless a Fund has agreed to bear such costs pursuant to a plan of distribution.
See "Distribution Plans." Each Underwriting Agreement was approved by the
applicable Tax Free Fund's Board of Directors or Trustees, including a majority
of the Independent Directors or Trustees. Each Underwriting Agreement provides
that it will continue in effect, with respect to a Fund, from year to year only
so long as such continuance is specifically approved at least annually by the
applicable Tax Free Fund's Board of Directors or Trustees or by a vote of a
majority of the outstanding voting securities of that Fund, and in either case
by the vote of a majority of the applicable Tax

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<PAGE>

Free Fund's Disinterested Directors or Trustees, voting in person at a meeting
called for the purpose of voting on such approval. Each Underwriting Agreement
will terminate automatically in the event of its assignment.

For the fiscal years ended December 31, 1995, 1996 and 1997, FIC received
underwriting fees with respect to New York Insured of $372,094, $367,316 and
$226,611, respectively. For the same periods relating to New York Insured, FIC
reallowed an additional $66,820, $7,893 and $27,388, respectively, to
unaffiliated dealers. For the fiscal years ended December 31, 1995, 1996 and
1997, underwriting fees with respect to Multi-State Insured were as follows:

Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
December 31, 1995 December 31, 1996 December 31, 1997
------------------------------- -------------------------------- -------------------------------
Amounts Additional Amounts Amounts Additional Amounts Amounts Additional Amounts
Received Reallowed to Received Reallowed to Received Reallowed to
by FIC Unaffiliated Dealers by FIC Unaffiliated Dealers by FIC Unaffiliated Dealers
------ -------------------- ------ -------------------- ------ --------------------
<S> <C> <C> <C> <C> <C> <C>
Arizona Fund $ 44,034 $ 11,959 $ 32,744 $ 8,473 $ 47,265 $ 28,254
California Fund 60,316 73,860 34,287 62,012 34,549 40,919
Colorado Fund 19,703 1,865 23,887 513 22,986 3,371
Connecticut Fund 82,853 1,180 73,371 1,192 88,353 3,157
Florida Fund 69,192 35,117 85,251 49,977 90,128 21,909
Georgia Fund 34,592 2,031 25,802 -0- 9,904 1,479
Maryland Fund 46,485 24,155 50,732 51,489 28,980 34,323
Massachusetts Fund 94,207 770 91,291 11,839 69,708 7,469
Michigan Fund 85,095 66,718 80,095 76,362 64,340 78,672
Minnesota Fund 17,882 566 22,753 -0- 15,731 7,662
Missouri Fund 6,159 -0- 10,431 257 2,496 -0-
New Jersey Fund 181,391 48,275 212,267 29,821 165,891 6,121
North Carolina Fund 15,684 6,122 33,156 18,160 29,711 17,527
Ohio Fund 44,826 16,113 76,251 33,032 47,202 15,307
Oregon Fund 99,226 10,676 167,278 6,528 104,286 3,273
Pennsylvania Fund . 87,083 147,749 102,567 166,931 66,376 81,858
Virginia Fund 133,425 17,310 109,041 4,237 64,270 10,550

</TABLE>

DISTRIBUTION PLANS

As stated in the Funds' Prospectuses, pursuant to a separate plan of
distribution for each class of shares adopted by each Tax Free Fund pursuant to
Rule 12b-1 under the 1940 Act ("Class A Plan" and "Class B Plan;" and,
collectively, "Plans"), each Fund may reimburse or compensate, as applicable,
the Underwriter for certain expenses incurred in the distribution of that Fund's
shares and the servicing or maintenance of existing Fund shareholder accounts.

Each Plan was approved by the applicable Tax Free Fund's Board of Directors
or Trustees, including a majority of the Independent Directors or Trustees, and
by a majority of the outstanding voting securities of the relevant class of each
Fund. Each Plan will continue in effect, with respect to a Fund, from year to
year as long as its continuance is approved annually be either the applicable
Tax Free Fund's Board of Directors or Trustees or by a vote of a majority of the
outstanding voting

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<PAGE>

securities of the relevant class of shares of that Fund. In either case, to
continue, each Plan must be approved by the vote of a majority of the
Independent Directors or Trustees of the applicable Tax Free Fund. Each Tax Free
Fund's Board reviews quarterly and annually a written report provided by the
Treasurer of the amounts expended under the applicable Plan and the purposes for
which such expenditures were made. While each Plan is in effect, the selection
and nomination of the applicable Tax Free Fund's Independent Directors or
Trustees will be committed to the discretion of such Independent Directors or
Trustees then in office.

Each Plan can be terminated, with respect to a Fund, at any time by a vote
of a majority of the applicable Tax Free Fund's Independent Directors or
Trustees or by a vote of a majority of the outstanding voting securities of the
relevant class of shares of that Fund. Any change to each Class B Plan that
would materially increase the costs to that class of shares of a Fund or any
material change to each Class A Plan may not be instituted without the approval
of the outstanding voting securities of the relevant class of shares of that
Fund. Such changes also require approval by a majority of the applicable Tax
Free Fund's Independent Directors or Trustees.

In reporting amounts expended under the Plans to the Directors or Trustees,
FIMCO will allocate expenses attributable to the sale of each class of a Fund's
shares to such class based on the ratio of sales of such class to the sales of
both classes of shares. The fees paid by one class of a Fund's shares will not
be used to subsidize the sale of any other class of that Fund's shares.

In adopting each Plan, each Tax Free Fund's Board considered all relevant
information and determined that there is a reasonable likelihood that each Plan
will benefit each Fund and their class of shareholders. The Boards believe that
amounts spent pursuant to each Plan have assisted each Fund in providing ongoing
servicing to shareholders, in competing with other providers of financial
services and in promoting sales, thereby increasing the net assets of each Fund.

For the fiscal year ended December 31, 1997, New York Insured paid $588,985
pursuant to its Class A Plan. For the fiscal year ended December 31, 1997, each
Fund of Multi-State Insured paid the following amounts pursuant to their Class A
Plan: Arizona Fund - $17,838; California Fund - $30,406; Colorado Fund - $6,886;
Connecticut Fund - $30,411; Florida Fund - $46,863; Georgia Fund - $6,381;
Maryland Fund - $20,444; Massachusetts Fund - $45,042; Michigan Fund - $75,436;
Minnesota Fund - $16,589; Missouri Fund - $3,728; New Jersey Fund - $117,517;
North Carolina Fund - $12,101; Ohio Fund - $37,907; Oregon Fund - $21,725;
Pennsylvania Fund - $85,681; and Virginia Fund - $42,401. For the same period,
the Underwriter incurred the following Class A Plan-related expenses with
respect to each Fund:

<TABLE>
<CAPTION>
Compensation to Compensation to Compensation to
Fund Underwriter Dealers Sales Personnel
- ---- ----------- ------- ---------------
<S> <C> <C> <C>
New York Insured $448,592.74 $ 1,063.26 $139,329.00
Arizona Fund 7,900.18 1,906.82 8,031.00
California Fund 12,283.90 7,450.10 10,672.00
Colorado Fund 3,227.00 - 0 - 3,659.00
Connecticut Fund 12,626.10 2,002.90 15,782.00
Florida Fund 17,421.85 11,478.15 17,963.00
Georgia Fund 2,556.11 1,398.89 2,426.00
Maryland Fund 12,327.16 2,303.84 5,813.00
Massachusetts Fund 20,432.42 2,317.58 22,292.00
Michigan Fund 18,342.11 30,744.89 26,349.00
Minnesota Fund 7,352.17 3,365.83 5,871.00

</TABLE>

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<PAGE>

Compensation to Compensation to Compensation to
Fund Underwriter Dealers Sales Personnel
- ---- ----------- ------- ---------------
<S> <C> <C> <C>
Missouri Fund 1,849.86 461.14 1,417.00
New Jersey Fund 50,345.78 12,767.22 54,404.00
North Carolina Fund 6,402.29 608.71 5,090.00
Ohio Fund 12,790.31 7,783.69 17,333.00
Oregon Fund 9,602.13 783.87 11,339.00
Pennsylvania Fund 8,389.89 51,069.11 22,222.00
Virginia Fund 14,173.61 7,354.39 20,873.00
</TABLE>

For the fiscal year ended December 31, 1997, New York Insured paid $29,953
pursuant to its Class B Plan. For the fiscal year ended December 31, 1997, each
Fund of Multi-State Insured paid the following amounts pursuant to their Class B
Plan: Arizona Fund - $3,250; California Fund - $1,208; Colorado Fund - $2,735;
Connecticut Fund - $17,334; Florida Fund - $6,614; Georgia Fund - $1,908;
Maryland Fund - $13,994; Massachusetts Fund - $6,339; Michigan Fund - $8,424;
Minnesota Fund - $417; Missouri Fund - $704; New Jersey Fund - $17,297; North
Carolina Fund - $1,282; Ohio Fund - $2,869; Oregon Fund - $6,564; Pennsylvania
Fund - $12,159; and Virginia Fund - $12,227. For the same period, the
Underwriter incurred the following Class B Plan-related expenses with respect to
each Fund:

<TABLE>
<CAPTION>
Compensation to Compensation to Compensation to
Fund Underwriter Dealers Sales Personnel
- ---- ----------- ------- ---------------
<S> <C> <C> <C>
New York Insured $28,314.28 $419.56 $1,219.17
Arizona Fund 3,118.44 63.78 67.78
California Fund 2.04 1,181.33 24.63
Colorado Fund 275.32 2,369.76 89.92
Connecticut Fund 6,635.39 10,331.56 367.05
Florida Fund 3,546.36 2,922.57 145.07
Georgia Fund 1,566.87 159.96 181.17
Maryland Fund 1,321.20 12,543.57 129.22
Massachusetts Fund 5,456.84 654.26 236.89
Michigan Fund 625.25 7,684.64 114.11
Minnesota Fund 405.48 - 0 - 11.52
Missouri Fund 507.48 191.82 4.71
New Jersey Fund 15,447.51 - 0 - 1,849.49
North Carolina Fund 30.91 1,244.99 6.10
Ohio Fund 1,754.62 723.07 391.31
Oregon Fund 5,609.70 - 0 - 954.30
Pennsylvania Fund 10,878.94 1,071.98 208.08
Virginia Fund 11,218.04 - 0 - 1,008.96

</TABLE>

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<PAGE>

DETERMINATION OF NET ASSET VALUE

The municipal bonds in which each Fund invests are traded primarily in the
over-the-counter markets. Such securities are valued daily at their fair value
on the basis of valuations provided by a pricing service approved by the
applicable Tax Free Fund's Board. This service is provided by Muller Data
Corporation. The pricing service considers security type, rating, market
condition and yield data, as well as market quotations and prices provided by
market makers. With respect to each Fund, "when-issued securities" are reflected
in the assets of a Fund as of the date the securities are purchased.

The Funds may retain any insured municipal bond which is in default in the
payment of principal or interest until the default has been cured or the
principal and interest outstanding are paid by an insurer or the issuer of any
letter of credit or other guarantee supporting such municipal bond. In such
case, it is each Fund's policy to value the defaulted bond daily based upon the
value of a comparable bond which is insured and not in default. In selecting a
comparable bond, each Fund will consider security type, rating, market condition
and yield.

Each Tax Free Fund's Board may suspend the determination of a Fund's net
asset value for the whole or any part of any period (1) during which trading on
the New York Stock Exchange ("NYSE") is restricted as determined by the
Securities and Exchange Commission ("SEC") or the NYSE is closed for other than
weekend and holiday closings, (2) during which an emergency, as defined by rules
of the SEC in respect to the U.S. market, exists as a result of which disposal
by a Fund of securities owned by it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or (3) for such other period as
the SEC has by order permitted.

ALLOCATION OF PORTFOLIO BROKERAGE

Each Fund expects that purchases and sales of portfolio securities
generally will be principal transactions. Portfolio securities are normally
purchased directly from the issuer or from an underwriter or market maker for
the securities. There will usually be no brokerage commissions paid by the Fund
for such purchases. Purchases from underwriters will include the underwriter's
commission or concession and purchases from dealers serving as market makers
will include the spread between the bid and asked price.

At times the Adviser may engage in agency transactions and, in effecting
the purchase and sale of portfolio securities for the account of each Fund, will
seek best execution of trades either (1) at the most favorable and competitive
rate of commission charged by any broker or member of an exchange, or (2) at a
higher rate of commission if reasonable in relation to brokerage and research
services provided to the Fund or the Adviser by such member or broker. In
addition, upon the instruction of the applicable Tax Free Fund's Board, the
Advisor may use dealer concessions available in fixed-price underwritings to pay
for research services. Such services may include, but are not limited to, any
one or more of the following: information as to the availability of securities
for purchase or sale, statistical or factual information or opinions pertaining
to investments. The Adviser may use research and services provided to it by
brokers in servicing all the funds in the First Investors Group of Funds;
however, not all such services will be used by the Adviser in connection with
the Funds. No portfolio orders are placed with an affiliated broker, nor does
any affiliated broker participate in these commissions.

The Adviser may combine transaction orders placed on behalf of the Funds
and any other fund in the First Investors Group of Funds, any fund of Executive
Investors Trust and First Investors Life Insurance Company, affiliates of the
Funds, for the purpose of negotiating brokerage commissions or

-72-
<PAGE>

obtaining a more favorable transaction price; and where appropriate, securities
purchased or sold may be allocated in accordance with written procedures
approved by each Tax Free Fund's Board. Each Tax Free Fund's Board of Directors
or Trustees has authorized and directed the Adviser to use dealer concessions
available in fixed-price underwritings of municipal bonds to pay for research
services which are beneficial in the management of each Fund's portfolio. The
Funds did not pay brokerage commissions for the fiscal years ending December 31,
1995, 1996 and 1997.

REDUCED SALES CHARGES, ADDITIONAL EXCHANGE AND
REDEMPTION INFORMATION AND OTHER SERVICES

Reduced Sales Charges--Class A Shares

Reduced sales charges are applicable to purchases made at one time of Class
A shares of any one or more of the Funds or of any one or more of the Eligible
Funds, as defined in the Prospectus, by "any person," which term shall include
an individual, or an individual's spouse and children under the age of 21, or a
trustee or other fiduciary of a single trust, estate or fiduciary account
(including a pension, profit-sharing or other employee benefit trust created
pursuant to a plan qualified under section 401 of the Internal Revenue Code of
1986, as amended (the "Code"), although more than one beneficiary is involved;
provided, however, that the term "any person" shall not include a group of
individuals whose funds are combined, directly or indirectly, for the purchase
of redeemable securities of a registered investment company, nor shall it
include a trustee, agent, custodian or other representative of such a group of
individuals.

Ownership of Class A and Class B shares of any Eligible Fund, except as
noted below, qualify for a reduced sales charge on the purchase of Class A
shares. Class A shares purchased at net asset value, Class A shares of the Money
Market Funds, or shares owned under a Contractual Plan are not eligible for the
purchase of Class A shares of a Fund at a reduced sales charge through a Letter
of Intent or the Cumulative Purchase Privilege.

Letter of Intent. Any of the eligible persons described above may, within
90 days of their investment, sign a statement of intent ("Letter of Intent") in
the form provided by the Underwriter, covering purchases of Class A shares of
any one or more of the Funds and of the other Eligible Funds to be made within a
period of thirteen months, provided said shares are currently being offered to
the general public and only in those states where such shares may be legally
sold, and thereby become eligible for the reduced sales charge applicable to the
total amount purchased. A Letter of Intent filed within 90 days of the date of
investment is considered retroactive to the date of investment for determination
of the thirteen-month period. The Letter of Intent is not a binding obligation
on either the investor or the Fund. During the term of a Letter of Intent,
Administrative Data Management Corp. ("Transfer Agent") will hold Class A shares
representing 5% of each purchase in escrow, which shares will be released upon
completion of the intended investment.

Purchases of Class A shares made under a Letter of Intent are made at the
sales charge applicable to the purchase of the aggregate amount of shares
covered by the Letter of Intent as if they were purchased in a single
transaction. The applicable quantity discount will be based on the sum of the
then current public offering price (i.e., net asset value plus applicable sales
charge) of all Class A shares and the net asset value of all Class B shares of a
Fund and of the other Eligible Funds, including Class B shares of the Money
Market Funds, currently owned, together with the aggregate offering price of
purchases to be made under the Letter of Intent. If all such shares are not so
purchased, a price adjustment is made, depending upon the actual amount invested
within such period, by the redemption of sufficient Class A shares held in
escrow in the name of the investor (or by the investor paying the

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<PAGE>

commission differential). A Letter of Intent can be amended (1) during the
thirteen-month period if the purchaser files an amended Letter of Intent with
the same expiration date as the original Letter of Intent, or (2) automatically
after the end of the period, if total purchases credited to the Letter of Intent
qualify for an additional reduction in the sales charge. The Letter of Intent
privilege may be modified or terminated at any time by the Underwriter.

Cumulative Purchase Privilege. Upon written notice to FIC, Class A shares
of a Fund are also available at a quantity discount on new purchases if the then
current public offering price (i.e., net asset value plus applicable sales
charge) of all Class A shares and the net asset value of all Class B shares of a
Fund and of the other Eligible Funds, including Class B shares of the Money
Market Funds, previously purchased and then owned, plus the value of Class A
shares being purchased at the current public offering price, amount to $25,000
or more. Such quantity discounts may be modified or terminated at any time by
the Underwriter.

Purchase of Shares. When you open a Fund account, you must specify which
class of shares you wish to purchase. If not, your order will be processed as
follows: (1) if you are opening an account with a new registration with First
Investors your order will not be processed until the Fund receives notification
of which class of shares to purchase; (2) if you have existing First Investors
accounts solely in either Class A shares or Class B shares with the identical
registration, your investment in the Fund will be made in the same class of
shares as your existing account(s); (3) if you are an existing First Investors
shareholder and own a combination of Class A and Class B shares with an
identical registration, your investment in the Fund will be made in Class B
shares; and (4) if you own in the aggregate at least $250,000 in any combination
of classes, your investment will be made in Class A shares.

Systematic Investing

First Investors Money Line. This service allows you to invest in a Fund
through automatic deductions from your bank checking account, provided you have
Electronic Fund Transfers privileges. See "Electronic Fund Transfers," below.
Scheduled investments in the minimum amount of $50 per month or $600 per year
may be made bi-weekly, semi-monthly, monthly, quarterly, semi-annually or
annually. In order to invest $2,500 or more through First Investors Money Line,
a Medallion signature guarantee is required. See "Signature Guarantees." The
maximum amount which may be invested through First Investors Money Line is
$10,000 a month. Shares of the Fund are purchased at the public offering price
determined at the close of business on the investment date you select provided
the amount of the purchase is available funds in your designated bank account
two business days prior to the investment date selected. You may change the
amount or discontinue this service at any time by calling Shareholder Services
or writing to Administrative Data Management Corp., 581 Main Street, Woodbridge,
NJ 07095-1198, Attn: Control Dept. It takes between three and five business days
to process most changes you request be made to your Money Line service. Money
Line application forms are available from your Representative or by calling
Shareholder Services at 1-800-423-4026.

Automatic Payroll Investment. You also may arrange for automatic
investments in the minimum amount of $50 into a Fund on a systematic basis
through salary deductions, provided your employer has direct deposit
capabilities. Shares of the Fund are purchased at the public offering price
determined as of the close of business on the day the electronic fund transfer
is received by the Fund. You may change the amount or discontinue the service by
contacting your employer. An application is available from your Representative
or by calling Shareholder Services at 1-800-423-4026. Arrangements must also be
made with your employer's payroll department.

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<PAGE>

Cross-Investment of Cash Distributions. You may elect to invest in Class A
or Class B shares of a Fund at net asset value all the cash distributions from
the same class of shares of another Eligible Fund. The investment will be made
at the net asset value per share of the Fund, generally determined as of the
close of business, on the business day immediately following the record date of
any such distribution. You may also elect to invest cash distributions of a
Fund's Class A or Class B shares into the same class of another Eligible Fund,
including the Money Market Funds. The investment will be made at the net asset
value per share of the other fund, generally determined as of the close of
business, on the business day immediately following the record date of any such
distribution. Cash distributions from a Fund's Class B shares may only be
invested into an existing Class B share account. If your distributions are to be
invested in Class A shares in a new account, you must invest a minimum of $50
per month. To arrange for cross-investing, call Shareholder Services at
1-800-423-4026.

Systematic Withdrawal Plan. Shareholders who own noncertificated Class A or
Class B shares may establish a Systematic Withdrawal Plan ("Withdrawal Plan").
If you have a Fund account with a value of at least $5,000 and you have
dividends and other distributions reinvested, you may elect to receive monthly,
quarterly, semi-annual or annual checks for any designated amount (minimum $25).
You may have the payments sent directly to you or persons you designate.
Additionally, regardless of the amount of your Class A or Class B Fund account,
you may also elect to have the Systematic Plan payments automatically (i)
invested at net asset value in the same class of shares of any other Eligible
Fund, including the Money Market Funds, or (ii) paid to First Investors Life
Insurance Company for the purchase of a life insurance policy or a variable
annuity. If your Systematic Plan payments are to be invested in a new Class A
Eligible Fund account, you must invest a minimum of $600 per year. Systematic
Plan payments from a Class B account must be invested in an existing Class B
Eligible Fund account. Dividends and other distributions, if any, are reinvested
in additional shares of the same class of the Fund. Shareholders may add shares
to the Withdrawal Plan or terminate the Withdrawal Plan at any time. Withdrawal
Plan payments will be suspended when a distributing Fund has received notice of
a shareholder's death on an individual account. Payments may recommence upon
receipt of written alternate payment instructions and other necessary documents
from the deceased's legal representative. Withdrawal payments will also be
suspended when a payment check is returned to the Transfer Agent marked as
undeliverable by the U.S. Postal Service after two consecutive mailings.

Shareholders who own Class B shares may establish a Withdrawal Plan and
elect to receive up to 8% of the value of their account (calculated as set forth
below) each year without incurring any CDSC. Shares not subject to a CDSC (such
as shares representing reinvestment of distributions) will be redeemed first and
will count toward the 8% limitation. If the shares not subject to a CDSC are
insufficient for this purpose, then shares subject to the lowest CDSC will be
redeemed next until the 8% limit is reached. The 8% figure is calculated on a
pro rata basis at the time of the first payment made pursuant to the Plan and
recalculated thereafter on a pro rata basis at the time of each Plan payment.
Therefore, shareholders who have chosen the Plan based on a percentage of the
value of their account of up to 8% will be able to receive Plan payments without
incurring a CDSC. However, shareholders who have chosen a specific dollar amount
(for example, $100 per month) for their periodic Plan payment should be aware
that the amount of that payment not subject to a CDSC may vary over time
depending on the value of their account. For example, if the value of the
account is $15,000 at the time of payment, the shareholder will receive $100
free of the CDSC (8% of $15,000 divided by 12 monthly payments). However, if at
the time of a payment the value of the account has fallen to $14,000, the
shareholder will receive $93.33 free of any CDSC (8% of $14,000 divided by 12
monthly payments) and $6.67 subject to the lowest applicable CDSC. This
privilege may be revised or terminated at any time.

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<PAGE>

The withdrawal payments derived from the redemption of sufficient shares in
the account to meet designated payments in excess of dividends and other
distributions may deplete or possibly extinguish the initial investment,
particularly in the event of a market decline, and may result in a capital gain
or loss depending on the shareholder's cost. Purchases of additional shares of a
Fund concurrent with withdrawals are ordinarily disadvantageous to shareholders
because of tax liabilities and sales charges. To establish a Withdrawal Plan,
call Shareholder Services at 1-800-423-4026.

Electronic Fund Transfer. Shareholders may apply for the privilege of
making Electronic Fund Transfers ("EFT") between Fund accounts and a
predesignated bank account by completing an application and having all
shareholders' signatures guaranteed. If the bank account registration is not
identical to the Fund account, a signature guarantee of every bank account
holder who is not an owner of the Fund account is required. Shareholders may
choose EFT privileges for Money Line purchases, redemptions, dividend
distributions and Systematic Withdrawal Plan payments. The minimum EFT
redemption amount is $500 and the maximum is $50,000. Each Fund has the right,
at its sole discretion, to limit or terminate your ability to exercise the EFT
privileges at any time. Shareholders may not use EFT to redeem shares unless
they have been owned for at least 15 days.

Conversion of Class B Shares. Class B Shares of a Fund will automatically
convert to Class A shares of that Fund, based on the relative net asset values
per share of the two classes, as of the close of business on the first business
day of the month in which the eighth anniversary of the initial purchase of such
Class B shares occurs. For these purposes, the date of initial purchase shall
mean (1) the first business day of the month in which such Class B shares were
issued, or (2) for Class B shares obtained through an exchange or a series of
exchanges, the first business day of the month in which the original Class B
shares were issued. For conversion purposes, Class B shares purchased through
the reinvestment of dividends and other distributions paid in respect of Class B
shares will be held in a separate sub-account. Each time any Class B shares in
the shareholder's regular account (other than those in the sub-account) convert
to Class A shares, a pro rata portion of the Class B shares in the sub-account
also will convert to Class A shares. The portion will be determined by the ratio
that the shareholder's Class B shares converting to Class A shares bears to the
shareholder's total Class B shares not acquired through dividends and other
distributions.

The availability of the conversion feature is subject to the continuing
applicability of a ruling of the Internal Revenue Service ("IRS"), or the
availability of an opinion of counsel, that: (1) the dividends and other
distributions paid on Class A and Class B shares will not result in
"preferential dividends" under the Code; and (2) the conversion of shares does
not constitute a taxable event. If the conversion feature ceased to be
available, the Class B shares of the Fund would not be converted and would
continue to be subject to the higher ongoing expenses of the Class B shares
beyond eight years from the date of purchase. FIMCO has no reason to believe
that these conditions for the availability of the conversion feature will not
continue to be met.

If either Fund implements any amendments to its Class A Plan that would
increase materially the costs that may be borne under such Plan by Class A
shareholders, a new target class into which Class B shares will convert will be
established, unless a majority of Class B shareholders, voting separately as a
class, approve the proposal.

Waivers of CDSC on Class B Shares. The CDSC imposed on Class B shares does
not apply to: (a) any redemption by advisory accounts managed by the Adviser or
any of its affiliates or for shares held by the Adviser or any of its
affiliates; (b) any redemption or transfer of ownership of Class B shares
following the death or disability, as defined in Section 72(m)(7) of the Code,
of a shareholder if the Fund is provided with proof of death or disability and
with all documents required by the Transfer Agent

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<PAGE>

within one year after the death or disability; (c) any redemption of shares
purchased during the period April 29, 1996 through June 30, 1996 with the
proceeds from a redemption of shares of a fund in another fund group for which
no sales charge was paid, other than a money market fund or shares held in a
retirement plan account; and (d) certain redemptions pursuant to a Withdrawal
Plan (see "Systematic Withdrawal Plan"). For more information on what specific
documents are required, call Shareholder Services at 1-800-423-4026.

Signature Guarantees. The words "Signature Guaranteed" must appear in
direct association with the signature of the guarantor. Members of the STAMP
(Securities Transfer Agents Medallion Program), MSP (New York Stock Exchange
Medallion Signature Program), SEMP (Stock Exchanges Medallion Program) and FIC
are eligible signature guarantors. A notary public is not an acceptable
guarantor. Although each Fund reserves the right to require signature guarantees
at any other time, signature guarantees are required whenever: (1) the amount of
the redemption is over $50,000, (2) a redemption check is to be made payable to
someone other than the registered accountholder, other than major financial
institutions, as determined solely by the Fund and its agent, on behalf of the
shareholder, (3) a redemption check is to be mailed to an address other than the
address of record, preauthorized bank account, or to a major financial
institution for the benefit of a shareholder, (4) an account registration is
being transferred to another owner, (5) a transaction requires additional legal
documentation; (6) the redemption request is for certificated shares; (7) your
address of record has changed within 60 days prior to a redemption request; (8)
multiple owners have a dispute or give inconsistent instructions; (9) the
authority of a representative of a corporation, partnership, association or
other entity has not been established to the satisfaction of a Fund or its
agents; and (10) you elect EFT privileges.

Reinvestment after Redemption. If you redeem Class A or Class B shares in
your Fund account, you can reinvest within six months from the date of
redemption all or any part of the proceeds in shares of the same class of the
same Fund or any other Eligible Fund (including the Money Market Funds), at net
asset value, on the date the Transfer Agent receives your purchase request. If
you reinvest the entire proceeds of a redemption of Class B shares for which a
CDSC has been paid, you will be credited for the amount of the CDSC. If you
reinvest less than the entire proceeds, you will be credited with a pro rata
portion of the CDSC. All credits will be paid in Class B shares of the fund into
which the reinvestment is being made. The period you owned the original Class B
shares prior to redemption will be added to the period of time you own Class B
shares acquired through reinvestment for purposes of determining (a) the
applicable CDSC upon a subsequent redemption and (b) the date on which Class B
shares automatically convert to Class A shares. If your reinvestment is into a
new account, other than the Money Market Funds, it must meet the minimum
investment and other requirements of the fund into which the reinvestment is
being made. To take advantage of this option, send your reinvestment check along
with a written request to the Transfer Agent within six months from the date of
your redemption. Include your account number and a statement that you are taking
advantage of the "Reinvestment Privilege."

Telephone Transactions. Fund shares not held in certificate form may be
exchanged or redeemed by telephone provided you have not declined telephone
privileges. Telephone exchanges are also available from an individually
registered non-retirement account to an IRA account of the same class of shares
in the same name (provided an IRA application is on file).

As stated in the Funds' Prospectuses, the Tax Free Funds, the Adviser, the
Underwriter and their officers, directors, trustees and employees will not be
liable for any loss, damage, cost or expense arising out of any instruction (or
any interpretation of such instruction) received by telephone which they
reasonably believe to be authentic. In acting upon telephone instructions, these
parties use

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procedures which are reasonably designed to ensure that such instructions are
genuine, such as (1) obtaining some or all of the following information: account
number, address, social security number and such other information as may be
deemed necessary; (2) recording all telephone instructions; and (3) sending
written confirmation of each transaction to the shareholder's address of record.

Cancelled Checks. Copies of cancelled purchase, liquidation or dividend
checks will be provided to shareholders upon request. Shareholders will be
charged $10.00 per check.

Emergency Pricing Procedures. In the event that the Funds must halt
operations during any day that they would normally be required to price under
Rule 22c-1 under the 1940 Act due to an emergency ("Emergency Closed Day"), the
Funds will apply the following procedures:

1. The Funds will make every reasonable effort to segregate orders received
on the Emergency Closed Day and give them the price that they would have
received but for the closing. The Emergency Closed Day price will be calculated
as soon as practicable after operations have resumed and will be applied equally
to sales, redemptions and repurchases that were in fact received in the mail or
otherwise on the Emergency Closed Day.

2. For purposes of paragraph 1, an order will be deemed to have been
received by the Funds on an Emergency Closed Day, even if neither the Funds nor
the Transfer Agent is able to perform the mechanical processing of pricing on
that day, under the following circumstances:

(a) In the case of a mail order the order will be considered received
by a Fund when the postal service has delivered it to FIC's offices in
Woodbridge, New Jersey prior to the close of regular trading on the NYSE,
or at such other time as may be prescribed in its prospectus; and

(b) In the case of a wire order, including a Fund/SERV order, the
order will be considered received when it is received in good form by a FIC
branch office or an authorized dealer prior to the close of regular trading
on the NYSE, or such other time as may be prescribed in its prospectus.

3. If the Funds are unable to segregate orders received on the Emergency
Closed Day from those received on the next day the Funds are open for business,
the Funds may give all orders the next price calculated after operations resume.

4. Notwithstanding the foregoing, on business days in which the NYSE is not
open for regular trading, the Funds may determine not to price their portfolio
securities if such prices would lead to a distortion of the net asset value for
the Funds and their shareholders.

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TAXES

Federal Income Taxes

In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Code, a Fund-each Fund being treated as a separate
corporation for these purposes-must distribute to its shareholders for each
taxable year at least 90% of the sum of its investment company taxable income
(consisting generally of taxable net investment income and net short-term
capital gain) plus its net interest income excludable from gross income under
section 103(a) of the Code ("Distribution Requirement") and must meet several
additional requirements. For each Fund these requirements include the following:
(1) the Fund must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of securities, or other income (including gains
from options or futures) derived with respect to its business of investing in
securities ("Income Requirement"); (2) at the close of each quarter of the
Fund's taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. Government securities, securities of
other RICs and other securities, with those other securities limited, in respect
of any one issuer, to an amount that does not exceed 5% of the value of the
Fund's total assets; and (3) at the close of each quarter of the Fund's taxable
year, not more than 25% of the value of its total assets may be invested in
securities (other than U.S. Government securities or the securities of other
RICs) of any one issuer.

Dividends paid by a Fund will qualify as exempt-interest dividends as
defined in the Prospectuses, and thus will be excludable from gross income for
Federal income tax purposes by its shareholders, if the Fund satisfies the
requirement that, at the close of each quarter of its taxable year, at least 50%
of the value of its total assets consists of securities the interest on which is
excludable from gross income under section 103(a); each Fund intends to continue
to satisfy this requirement. The aggregate dividends excludable from a Fund's
shareholders' gross income may not exceed its net tax-exempt income.
Shareholders' treatment of dividends from a Fund under state and local income
tax laws may differ from the treatment thereof under the Code. Investors should
consult their tax advisers concerning this matter.

Dividends and other distributions declared by a Fund in October, November
or December of any year and payable to shareholders of record on a date in any
of those months are deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if the distributions are paid by the
Fund during the following January. Accordingly, those distributions are reported
by shareholders (or taxed to them in the case of taxable distributions) for the
year in which that December 31 falls.

Under the Taxpayer Relief Act of 1997, different maximum tax rates apply to
an individual's net capital gain depending on the individual's holding period
and marginal rate of federal income tax-generally, 28% for gain recognized on
capital assets held for more than one year but not more than 18 months and 20%
(10% for taxpayers in the 15% marginal tax bracket) for gain recognized on
capital assets held for more than 18 months. Pursuant to an Internal Revenue
Service notice, each Fund may divide each net capital gain distribution into a
28% rate gain distribution and a 20% rate gain distribution (in accordance with
the Fund's holding periods for the securities it sold that generated the
distributed gain) and its shareholders must treat those portions accordingly.

If shares of a Fund are sold at a loss after being held for six months or
less, the loss will be disallowed to the extent of any exempt-interest dividends
received on those shares, and any portion of

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the loss that is not disallowed will be treated as long-term, instead of
short-term, capital loss to the extent of any capital gain distributions
received on those shares.

Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax")
to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary (taxable) income for that year and capital
gain net income for the one-year period ending on October 31 of that year, plus
certain other amounts.

Tax-exempt interest attributable to certain private activity bonds ("PABs")
(including, to the extent a Fund receives interest on those bonds, a
proportionate part of the exempt-interest dividends it pays) is a Tax Preference
Item. Exempt-interest dividends received by a corporate shareholder also may be
indirectly subject to the Federal alternative minimum tax without regard to
whether the Fund's tax-exempt interest was attributable to those bonds. Entities
or other persons who are "substantial users" (or persons related to "substantial
users") of facilities financed by PABs or industrial development bonds ("IDBs")
should consult their tax advisers before purchasing shares of a Fund because,
for users of certain of these facilities, the interest on those bonds is not
exempt from Federal income tax. For these purposes, the term "substantial user"
is defined generally to include a "non-exempt person" who regularly uses in
trade or business a part of a facility financed from the proceeds of PABs or
IDBs.

Up to 85% of social security and certain railroad retirement benefits may
be included in taxable income for recipients whose modified adjusted gross
income (which includes income from tax-exempt sources such as a Fund) plus 50%
of their benefits exceeds certain base amounts. Exempt-interest dividends from a
Fund still are tax-exempt to the extent described in the Prospectus; they are
only included in the calculation of whether a recipient's income exceeds the
established amounts.

Each Fund may acquire zero coupon municipal securities issued with original
issue discount. As a holder of those securities, each Fund must account for the
portion of the original issue discount that accrues on the securities during the
taxable year, even if the Fund receives no corresponding payment on them during
the year. Because each Fund annually must distribute substantially all of its
net tax-exempt income and net tax-exempt interest, including any original issue
discount on Municipal Instruments, to satisfy the Distribution Requirement, a
Fund may be required in a particular year to distribute as a dividend an amount
that is greater than the total amount of cash it actually receives. Those
distributions will be made from a Fund's cash assets or from the proceeds of
sales of portfolio securities, if necessary. Each Fund may realize capital gains
or losses from those sales, which would increase or decrease its investment
company taxable income and/or net capital gain (the excess of net long-term
capital gain over net short-term capital loss).

Each Fund may invest in municipal bonds that are purchased, generally not
on their original issue, with market discount (that is, at a price less than the
principal amount of the bond or, in the case of a bond that was issued with
original issue discount, a price less than the amount of the issue price plus
accrued original issue discount) ("municipal market discount bonds"). Gain on
the disposition of a municipal market discount bond (other than a bond with a
fixed maturity date within one year from its issuance), generally is treated as
ordinary (taxable) income, rather than capital gain, to the extent of the bond's
accrued market discount at the time of disposition. Market discount on such a
bond generally is accrued ratably, on a daily basis, over the period from the
acquisition date to the date of maturity. In lieu of treating the disposition
gain as above, a Fund may elect to include market discount in its gross income
currently, for each taxable year to which it is attributable.

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If a Fund invests in any instruments that generate taxable income under
circumstances described in the Prospectus, distributions of the interest earned
thereon will be taxable to the Fund's shareholders as ordinary income to the
extent of its earnings and profits. Moreover, if a Fund realizes capital gain as
a result of market transactions, any distributions of that gain will be taxable
to its shareholders. There also may be collateral Federal income tax
consequences regarding the receipt of exempt-interest dividends by shareholders
such as S corporations, financial institutions and property and casualty
insurance companies. A shareholder falling into any such category should consult
its tax adviser concerning its investment in shares of a Fund.

The use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts, involves complex rules that will determine for
income tax purposes the amount, character and timing of recognition of the gains
and losses a Fund will realize in connection therewith. Gains from options and
futures derived by a Fund with respect to its business of investing in
securities will qualify as permissible income under the Income Requirement.

If a Fund has an "appreciated financial position"-generally, an interest
(including an interest through an option or futures contract or short sale) with
respect to any debt instrument (other than "straight debt") or partnership
interest the fair market value of which exceeds its adjusted basis-and enters
into a "constructive sale" of the same or substantially similar property, the
Fund will be treated as having made an actual sale thereof, with the result that
gain will be recognized at that time. A constructive sale generally consists of
a short sale, an offsetting notional principal contract or futures contract
entered into by the Fund or a related person with respect to the same or
substantially similar property. In addition, if the appreciated financial
position is itself a short sale or such a contract, acquisition of the
underlying property or substantially similar property will be deemed a
constructive sale.

State Income Taxes

Arizona. Interest on indebtedness incurred (directly and indirectly) by an
investor to purchase or carry an investment in the Arizona Fund should not be
deductible for Arizona income tax purposes to the extent that the Arizona Fund
holds tax-exempt obligations of the state of Arizona or obligations of the
United States, Puerto Rico, the Virgin Islands or Guam. The discussion of
Arizona taxes in the Prospectus assumes that in each taxable year the Arizona
Fund qualifies and elects to be taxed as a regulated investment company for
federal income tax purposes. In addition, such discussion assumes that in each
taxable year the Arizona Fund qualifies to pay exempt-interest dividends by
complying with the requirements of the Code that at least 50% of its assets at
the close of each quarter of its taxable year is invested in state, municipal or
other obligations, the interest on which is excluded from gross income for
federal income tax purposes pursuant to section 103(a) of the Code.

California. Corporations subject to the California franchise tax or
California corporate income tax are required to include in their gross income
and in income subject to the corporate alternative minimum tax all distributions
received from the California Fund, including exempt-interest dividends.
California law generally follows Federal law on matters such as denial or
limitation of deductions for short-term losses where exempt-interest dividends
have recently been received, wash sales, limitations on tax basis for certain
sales charges and the nondeductibility of interest on indebtedness incurred by
shareholders to purchase or carry shares of tax-exempt instruments, such as the
California Fund. It is the intent of the Fund, as represented to and relied upon
by California tax counsel in rendering their opinion, that except when
acceptable investments are unavailable for the California Fund, the California
Fund will maintain at least 80% of the value of its net assets in debt

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obligations of the State of California, its localities and political
subdivisions, which are exempt from regular Federal income tax and California
personal income tax.

Connecticut. Corporate shareholders of the Connecticut Fund subject to tax
in Connecticut will be required to include in net income, for purposes of
calculating the Connecticut corporation business tax, distributions made by the
Connecticut Fund and gains resulting from the redemption or sale of shares of
the Connecticut Fund. Such corporate shareholders, in determining net income,
will be entitled to deduct 70% of the amount of includable distributions that
qualify as dividends under Section 316 of the Code.

Florida. In the opinion of Rudnick & Wolfe, Florida tax counsel to
Multi-State Insured, under existing law, shareholders of the Florida Series will
not be subject to the Florida intangible personal property tax on their
ownership of Florida Fund shares or on distributions of income or gains made by
the Florida Fund to the extent that such distributions are attributable solely
to (i) obligations issued by the United States government and its agencies
(collectively, "Exempt Instruments") or (ii) to money, notes, bonds, and other
obligations issued by the State of Florida and its municipalities, counties, and
other taxing districts ("Florida Instruments"). If the Florida Fund is not
invested solely in Exempt Instruments and Florida Instruments, then the Florida
intangible personal property tax ("Intangible Tax") will apply as follows:

(a) The portion of the net asset value of the Florida Funds' portfolio
that is attributable to Exempt Instruments will be exempt from the
Intangible Tax.

(b) If the remaining portion of the net asset value of the Florida
Funds' portfolio, after removing the portion representing Exempt
Instruments, represents assets which are themselves exempt from the
Intangible Tax, then this portion will also be exempt from the Intangible
Tax.

(c) If the remaining portion of the net asset value of the Florida
Fund's portfolio, after removing the portion representing Exempt
Instruments, represents any asset which is subject to the Intangible Tax
under Florida law, then the remaining portion of the net asset value of the
Florida Series portfolio will be subject to the Intangible Tax.

Shareholders of the Florida Fund will be exempt from the Intangible Tax on
their shares to the extent that the net asset value of the Florida Funds'
portfolio is exempt. (The Florida Fund has no present intention of investing in
assets which will be subject to the Intangible Tax.)

Because Florida does not impose an income tax on individuals, individual
shareholders will not be subject to any Florida income tax on income or gains
distributed by the Florida Fund or on gains resulting from the redemption or
exchange of shares of the Florida Fund. Corporate shareholders will be subject
to the Florida income tax on all distributions received from the Florida Fund,
regardless of the tax-exempt status of interest received from the Florida Fund
which is attributable to bonds under section 103(a) of the Code or any other
Federal law; however, if a corporation does not have its commercial domicile
within the state of Florida, its non-business income generated from the Florida
Fund is not allocated as Florida income subject to Florida corporate income tax.
Non-business income includes capital gains and interest to the extent they do
not arise from transactions and activities in the regular course of a taxpayer's
business.

For Florida state income tax purposes, the Florida Fund itself will not be
subject to the Florida income tax so long as it has no income subject to Federal
taxation.

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Shareholders of the Florida Fund will be subject to Florida estate tax on
their Florida Fund shares only if they are Florida residents, certain natural
persons not domiciled in Florida, or certain natural persons not residents of
the United States. However, the Florida estate tax is limited to the amount of
the credit allowable under the Code (currently section 2011 and in some cases
section 2102 of the Code) for death taxes actually paid to the several states.

Neither interests held by shareholders of the Florida Fund nor Exempt
Instruments nor money, notes, bonds, and other obligations issued by the State
of Florida and its municipalities, counties, and other taxing districts held by
the Florida Fund will be subject to the Florida ad valorem property tax, the
Florida sales and use tax or the Florida documentary stamp tax.

Georgia. In the opinion of Kutak Rock, Georgia tax counsel to Multi-State
Insured, capital gains recognized as a result of the sale of shares in the
Georgia Fund can not be excluded for purposes of calculating the Georgia income
tax by individuals, estates, trusts or corporations.

Georgia tax counsel urges each potential investor in the Georgia Fund to
consult his or her own tax advisor regarding all Georgia Fund income tax related
matters specifically pertaining to them.

Maryland. In the opinion of Ober, Kaler, Grimes & Shriver, Maryland tax
counsel to Multi-State Insured, holders of shares of the Maryland Fund who are
individuals, corporations, estates or trusts and who are subject to Maryland
state and local income tax will not be subject to tax in Maryland on Maryland
Fund dividends to the extent that such dividends qualify as exempt-interest
dividends of a RIC under section 852(b)(5) of the Code and which are
attributable to (1) interest on tax-exempt obligations of the State of Maryland
or its political subdivisions or authorities, (2) interest on obligations of the
United States or an authority, commission, instrumentality, possession or
territory of the United States, or (3) gain realized by the Maryland Fund from
the sale or exchange of bonds issued by Maryland or a political subdivision of
Maryland or of the United States or an authority, commission or instrumentality
of the United States. To the extent that distributions of the Maryland Fund are
attributable to sources other than those described above, such as (1) interest
on obligations issued by states other than Maryland or (2) income from
repurchase contracts, such distributions will not be exempt from Maryland state
and local income taxes. In addition, gain realized by a shareholder upon a
redemption or exchange of Maryland Fund shares will be subject to Maryland
taxation. In the event the Maryland Fund fails to qualify as a regulated
investment company, the Maryland Fund would be subject to corporate Maryland
income tax and distributions would be taxable as ordinary income to the
shareholders. Maryland presently includes in taxable net income items of tax
preferences as defined in the Code. Interest paid on certain private activity
bonds constitutes a tax preference. Accordingly, subject to a threshold amount,
50% of any distributions on the Maryland Fund attributable to such private
activity bonds will not be exempt from Maryland state and local income taxes.
Interest on indebtedness incurred (directly or indirectly) by a shareholder of
the Maryland Fund to purchase or carry shares of the Maryland Fund will not be
deductible for Maryland state and local income tax purposes to the extent such
interest is allocable to exempt-interest dividends.

Massachusetts. Distributions to holders of shares of the Massachusetts Fund
who are subject to Massachusetts personal income tax that do not qualify as
exempt interest dividends, as defined in Code section 852(b)(5), or capital gain
dividends, as defined in Code section 852(b)(3)(C), directly attributable to
interest or capital gain exempt from Massachusetts taxation on obligations
issued by the Commonwealth of Massachusetts, its instrumentalities or its
political subdivisions will generally be subject to Massachusetts income tax.
Among the items that will not be subject to Massachusetts income tax are the
following: exempt interest dividends attributable to interest on obligations
issued by

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the Commonwealth of Puerto Rico, the government of Guam, the government of the
Virgin Islands or their respective authorities, and distributions attributable
to interest on obligations of the United States exempt from state income
taxation. The Massachusetts Fund must identify the items not subject to tax in a
written notice to the shareholders. The holders of shares of the Massachusetts
Fund may recognize taxable gain or loss upon an exchange or redemption of their
shares.

Michigan. In the opinion of Dickinson Wright PLLC, Michigan tax counsel to
Multi-State Insured, holders of the Michigan Fund will not be subject to the
Michigan income tax or single business tax on Michigan Fund dividends to the
extent that such distributions qualify as exempt-interest dividends of a RIC
under Code section 852(b)(5) which are attributable to interest on tax-exempt
obligations of the State of Michigan, its political or governmental
subdivisions, or its governmental agencies or instrumentalities (as well as
certain other Federally tax exempt obligations, the interest on which is exempt
from Michigan tax, such as certain obligations of Puerto Rico). To the extent
that distributions on the Michigan Fund are attributable to sources other than
those described above, such distributions, including, but not limited to, long,
mid or short-term capital gains, will not be exempt from Michigan income tax or
single business tax. Holders of the Michigan Fund are exempt from the Michigan
intangibles tax to the extent that the investment portfolio consists of the
aforementioned obligations and certain U.S. obligations. In addition, Michigan
Fund shares owned by certain financial institutions or by certain other persons
subject to the Michigan single business tax are not subject to Michigan
intangibles tax. (The Michigan intangibles tax is being phased out over a
four-year period beginning with 1994 and will be fully repealed as of January 1,
1998.) To the extent that distributions on the Michigan Fund are not subject to
Michigan income tax, they are not subject to the uniform city income tax imposed
by certain Michigan cities.

Minnesota. Minnesota Fund distributions, including exempt-interest
dividends, are not excluded in determining the Minnesota franchise tax on
corporations that is measured by taxable income and alternative minimum taxable
income. Such distributions may also be taken into account in certain cases in
determining the minimum fee that is imposed on corporations, S corporations and
partnerships. Interest on indebtedness incurred or continued by a shareholder to
purchase or carry shares of the Minnesota Fund will generally not be deductible
for regular Minnesota personal income tax purposes or Minnesota alternative
minimum tax purposes, in the case of shareholders who are individuals, estates
or trusts. Except during temporary defensive periods or when acceptable
investments are unavailable to the Minnesota Fund, at least 80% of the value of
the net assets of the Minnesota Fund will be maintained in debt obligations the
interest on which is exempt from the Federal income tax and the Minnesota
personal income tax, subject to the discussion in the Prospectus and this SAI
relating to legislation enacted in Minnesota in 1995. The Minnesota Fund seeks
to invest so that the 95% test described in the Prospectus will be met.

Minnesota presently imposes an alternative minimum tax on individuals,
estates, and trusts that is based, in part, on such taxpayers' Federal
alternative minimum taxable income, which includes Federal tax preference items.
Accordingly, exempt-interest dividends that constitute tax preference items for
purposes of the Federal alternative minimum tax, even though they are derived
from interest income on tax-exempt obligations of the State of Minnesota, or its
political or governmental subdivisions, municipalities, governmental agencies or
instrumentalities ("Minnesota Sources"), will be included in the base upon which
such Minnesota alternative minimum tax is computed. (The Minnesota Fund has no
present intention of investing in tax-exempt securities that are subject to the
Federal alternative minimum tax.) In addition, the entire portion of
exempt-interest dividends that is derived from sources other than the Minnesota
Sources is also subject to the Minnesota alternative minimum tax imposed on
individuals, estates, and trusts. Further, should the 95% test that is described
above fail to be met, all of the exempt-interest dividends that are paid by the
Minnesota

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Fund, including all of those that are derived from the Minnesota Sources, will
be subject to the Minnesota alternative minimum tax imposed on such
shareholders.

Missouri. In the opinion of Shook, Hardy & Bacon L.L.P, Missouri tax
counsel to Multi-State Insured, if a dividend paid by the Missouri Fund
qualifies as an exempt-interest dividend under the Code, the portion of such
exempt-interest dividend that is attributable to interest received by the
Missouri Fund on obligations of (1) Missouri or its political subdivisions
("Missouri Obligations"), or (2) territories or possessions of the United States
(to the extent Federal law exempts interest on such obligations from state
taxation), will not be subject to the Missouri income tax when received by a
shareholder of the Missouri Fund, provided that the Missouri Fund properly
designates such portion as an exempt dividend (a "Missouri Dividend") under
Missouri law. At the present time, the Missouri Fund does not intend to invest
in obligations the interest on which is subject to Federal income taxation.
However, to the extent any dividend (or portion thereof) paid by the Missouri
Fund is attributable to net interest earned by the Missouri Fund on obligations
of the United States, such dividend (or portion thereof) will not be subject to
the Missouri income tax when received by a shareholder of the Missouri Fund,
provided (1) the Missouri Fund properly designates such dividend (or portion
thereof) as a "state income tax exempt-interest dividend" under Missouri law,
and (2) the Missouri Fund and the shareholder meet certain recordkeeping
requirements specified under Missouri law. Except as provided in the preceding
paragraphs, the State of Missouri has no special exemption provisions for (1)
dividends received by shareholders of a RIC or (2) capital gains realized by
shareholders of a RIC upon the sale or exchange of shares of such RIC. Thus, in
the case of shareholders who are subject to the Missouri income tax and who,
under applicable law, are required to include capital gain, dividend and
interest income in their Missouri taxable income, all dividends, except Missouri
Dividends and dividends properly designated as "state income tax exempt-interest
dividends" under Missouri law, paid by the Missouri Fund to such shareholders,
and all gains realized by such shareholders on the redemption or sale of shares
of the Missouri Fund, will be subject to the Missouri income tax.

Except as set forth in paragraph (a) below, dividends received by (1) an
individual shareholder of the Missouri Fund who is not engaged in a trade or
business, or (2) any other shareholder of the Missouri Fund (a "Business
Taxpayer") who holds shares of the Missouri Fund for investment purposes and not
as part of its ordinary trade or business, will not be subject to the city
earnings and profits tax of St. Louis or Kansas City, Missouri (the "City Tax").
With respect to dividends received by a Business Taxpayer who holds shares as
part of its ordinary trade or business, each dividend (or portion thereof) paid
by the Missouri Fund that is attributable to interest earned on Missouri
Obligations, or on obligations of the United States or its possessions, will not
be subject to the City Tax; however, except as set forth in paragraph (b) below,
other dividends received by such Business Taxpayer (and all gains realized by
such Business Taxpayer on the redemption or sale of shares of the Missouri Fund)
will be subject to the applicable City Tax, to the extent such Business Taxpayer
is otherwise subject to such tax.

(a) The taxing authorities in St. Louis take the position that all of the
assets of a partnership or corporation having its business domicile in St. Louis
should be treated as held as part of such entity's ordinary trade or business.
Under this position, dividends received on shares of the Missouri Fund held by
such partnership or corporation, whether or not held for investment purposes,
could be subject to the City Tax of St. Louis. There is no express authority for
this position, and a taxpayer could take the position that dividends received by
any corporation or partnership that holds shares of the Missouri Fund for
investment purposes ("Investment Dividends") should not be subject to the City
Tax of St. Louis. Therefore, Shook, Hardy & Bacon P.C. specifically refrains
from expressing an opinion as to whether Investment Dividends received by a
partnership or corporation having its

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business domicile in St. Louis (to the extent such Investment Dividends are not
attributable to interest earned on Missouri Obligations, or on obligations of
the United States or its possessions to the City Tax of St. Louis.

(b) The enabling statutes for the City Tax do not indicate whether
obligations of territories (as opposed to possessions) of the United States are
exempt from the City Tax. Therefore, Shook, Hardy & Bacon P.C. specifically
refrains from expressing an opinion as to whether dividends attributable to
interest earned on obligations of territories of the United States are exempt
from the City Tax.

New York. Distributions to New York resident individual shareholders of New
York Insured that are attributable to sources other than from obligations issued
by or on behalf of the State of New York or any political subdivision thereof
will generally be includable in New York personal income of such shareholder.
Additionally, interest on indebtedness incurred or continued to purchase or
carry shares of New York Insured will not be deductible for New York personal
income tax purposes to the extent that such interest is allocable to
exempt-interest dividends paid by New York Insured.

New Jersey. Qualified investment funds described in N.J.S.A. 54A:6-14.1 are
any investment company or trust registered with the Securities and Exchange
Commission, or any series of such investment company or trust, which for the
calendar year in which the distribution is paid (a) has no investments other
than interest-bearing obligations, obligations issued at a discount, cash and
cash items (including receivables), and financial options, futures, forward
contracts or other similar financial instruments related to interest-bearing
obligations, obligations issued at a discount or bond indexes related thereto;
and (b) has not less than 80% of the aggregate principal amount of all of its
investments, excluding cash and cash items (including receivables) and financial
options, futures, forward contracts, or other similar financial instruments
related to interest-bearing obligations, obligations issued at a discount or
bond indexes related thereto to the extent the instruments are authorized by
section 851(b) of the Code, in obligations described in N.J.S.A. 54A:6-14.

New Jersey state and local bonds described in N.J.S.A. 54A:6-14 are
obligations (1) issued by or on behalf of the State of New Jersey or any county,
municipality, school or other district, agency, authority, commission,
instrumentality, public corporation, body corporate and politic or political
subdivision of the State of New Jersey, and (2) obligations statutorily free
from state or local taxation under any New Jersey or United States laws.

Except when acceptable investments are unavailable to the New Jersey Fund,
it will maintain at least 80% of the value of its investments in debt
obligations which are exempt from Federal income tax and New Jersey Gross Income
Tax. The New Jersey Fund will not invest in discount obligations other than
those described in N.J.S.A. 54A:6-14.

North Carolina. Based on the current provisions of Chapter 105 of the North
Carolina General Statutes and the North Carolina Administrative Code and the
current administrative position of the North Carolina Department of Revenue (the
"Revenue Department") as found in rules, bulletins and statements issued by the
Revenue Department, shareholders of the North Carolina Fund will be subject to
the tax consequences indicated below.

-86-
<PAGE>

subdivisions or a commission, an authority, or another agency of the State of
North Carolina or its political subdivisions, or (c) obligations of nonprofit
educational institutions organized or chartered under the laws of the State of
North Carolina. (All such obligations giving rise to interest exempt from North
Carolina taxation are collectively referred to as "North Carolina Exempt
Obligations".) Corporate shareholders of the North Carolina Fund that are
subject to North Carolina income taxation will not be subject to such tax on
North Carolina Fund dividend distributions to the extent of the net of (i)
distributions representing interest from North Carolina Exempt Obligations, less
(ii) related expenses.

The non-taxability of dividends paid by the North Carolina Fund to a
shareholder is conditioned upon the North Carolina Fund's providing a supporting
statement to the shareholder verifying the amount received by the shareholder
that represents distributions on North Carolina Exempt Obligations. In the
absence of a supporting statement, the total amount designated by the North
Carolina Fund as exempt from tax is subject to North Carolina income tax. The
North Carolina Fund will provide to the shareholders a supporting statement that
meets the Revenue Department's requirements.

Interest earned on obligations that are merely backed or guaranteed by the
United States Government do not represent direct obligations of the United
States or its possessions and do not qualify for exemption from North Carolina
income taxation. For instance, interest income realized on obligations of the
Federal National Mortgage Association and interest paid by the issuer of
mortgage-backed certificates guaranteed by the Federal government, Federal
agencies or corporations formed by the Federal government is not considered
income from obligations of the United States and is subject to North Carolina
income taxation. Also, interest paid in connection with repurchase agreements
issued by banks and savings and loan associations is subject to North Carolina
income taxation.

Interest from obligations issued under the borrowing power of Puerto Rico,
the Virgin Islands, Guam, a Federal Land Bank, a Federal Home Loan Bank, a
Federal Intermediate Bank, Farm Home Administration, Export-Import Bank of the
United States, Tennessee Valley Authority, Banks for Cooperatives, U.S. Treasury
bonds, notes, bills, certificates and savings bonds, Production Credit
Association, Student Loan Marketing Association, Commodity Credit Corporation,
Federal Deposit Insurance Corporation, Federal Farm Credit Bank, Federal
Financing Bank, Federal Savings and Loan Insurance Corporation, General
Insurance Fund, United States Postal Service, Resolution Funding Corporation, or
Financing Corporation (chartered by the Federal Housing Finance Board under 12
U.S.C. ss.1441) is considered to be interest from direct obligations of the
United States or its possessions and is tax-exempt for North Carolina income tax
purposes.

In general, a shareholder of the North Carolina Fund who is subject to
North Carolina income tax will recognize capital gains for North Carolina income
tax purposes to the same extent a shareholder would for Federal income tax
purposes when the North Carolina Fund makes a capital gain distribution or a
shareholder redeems or exchanges shares, except that distributions of gains are
exempt from North Carolina income tax to the extent attributable to the
disposition of certain obligations issued before July 1, 1995 by the State of
North Carolina or its agencies or political subdivisions.

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<PAGE>

Ohio. In the opinion of Squire, Sanders & Dempsey L.L.P., Ohio tax counsel
to Multi-State Insured, provided that the Ohio Fund continues to qualify as a
regulated investment company for Federal income tax purposes and that at all
times at least 50 percent of the value of the total assets of the Ohio Fund
consists of obligations issued by or on behalf of the State of Ohio, political
subdivisions thereof or agencies or instrumentalities of the State or its
political subdivisions ("Ohio Obligations") or similar obligations of other
states or their subdivisions, shareholders of the Ohio Fund who are otherwise
subject to the Ohio personal income tax, or municipal or school district income
taxes in Ohio will not be subject to such taxes on distributions with respect to
shares of the Ohio Fund to the extent that such distributions are properly
attributable to (1) interest on and profits made on the sale, exchange or other
disposition of Ohio Obligations or (2) interest on obligations of the United
States or its territories or possessions or of any authority, commission or
instrumentality of the United States that is exempt from state income taxes
under the laws of the United States (e.g., obligations issued by the Governments
of Puerto Rico, the Virgin Islands and Guam and their authorities and
municipalities) ("Federal and Possessions Obligations").

It is further the opinion of Squire, Sanders & Dempsey L.L.P. that, subject
to the proviso stated in the previous paragraph, shareholders who are otherwise
subject to the Ohio corporation franchise tax will not be required to include
distribution with respect to shares of the Ohio Fund in their tax base for
purposes of computing such tax on the net income basis to the extent that such
distributions are (1) properly attributable to interest on and profits made on
the sale, exchange or other disposition of Ohio Obligations, (2) exempt-interest
dividends for Federal income tax purposes, or (3) properly attributable to
interest on Federal and Possessions Obligations, provided, in the case of
interest Possessions Obligations, such interest is excluded from gross income
for federal income tax purposes. However, shares of the Ohio Fund will be
includable in a shareholder's tax base for purposes of computing the Ohio
corporation franchise tax on the net worth basis. Corporate shareholders that
are subject to Ohio municipal income tax will not be subject to such tax on
distributions received from the Ohio Fund to the extent such distributions
consist of interest on or gain from the sale, exchange, or other disposition of
Ohio Obligations.

Except when acceptable investments are unavailable to the Ohio Fund, it
will maintain at least 80% of the value of its net assets in obligations that
are exempt from Federal income tax and that are exempt from Ohio personal income
tax and the net income base of the Ohio corporation franchise tax.

Oregon. In the opinion of Weiss, Jensen, Ellis & Howard, Oregon tax counsel
to Multi-State Insured, shareholders of the Oregon Fund who are subject to the
Oregon personal income tax will not be required to include in their Oregon
personal income distributions from the Oregon Fund to the extent that (1) such
distributions qualify as exempt-interest dividends of a RIC under section
852(b)(5) of the Code that are attributable to interest from tax-exempt
obligations of the State of Oregon or its political subdivisions or authorities;
(2) such distributions are attributable to interest from obligations issued by
the territories of Guam, Puerto Rico, Samoa, Virgin Islands, or their
authorities, or the Commonwealth of Puerto Rico or its authority; or (3) such
distributions are attributable to interest from obligations issued by the U.S.
Government, its agencies and instrumentalities and are exempted from state
income tax under the laws of the United States. To the extent that distributions
from the Oregon Fund are attributable to sources other than those described in
the preceding sentence, such distributions will not be exempt from the Oregon
personal income tax. Also, distributions that qualify as capital gain dividends
under section 852(b)(3)(C) of the Code and that are includable in Federal gross
income will be includable as capital gains in Oregon income of a shareholder.

-88-
<PAGE>

Interest on indebtedness incurred (directly or indirectly) by a shareholder
of the Oregon Fund to purchase or carry shares of the Oregon Fund will not be
deductible for purposes of the Oregon personal income tax.

Shareholders of the Oregon Fund that are otherwise subject to the Oregon
corporate excise tax must include in income distributions with respect to shares
of the Oregon Fund.

Pennsylvania. Individual shareholders of the Pennsylvania Fund who are
otherwise subject to the Pennsylvania personal income tax will not be subject to
that tax on distributions of interest by the Pennsylvania Fund that are
attributable to obligations issued by Pennsylvania, public authorities,
commissions, boards or agencies created by Pennsylvania, political subdivisions
of Pennsylvania or public authorities created by any such political subdivision
or obligations of the United States and certain qualifying agencies,
instrumentalities, territories and possessions of the United States ("Exempt
Obligations"). Distributions of gains on Exempt Obligations will be subject to
Pennsylvania personal income taxes in the hands of shareholders who are
otherwise subject to the Pennsylvania personal income tax. Distributions
attributable to most other sources will not be exempt from Pennsylvania personal
income tax.

Shares of the Pennsylvania Fund that are held by individual shareholders
who are Pennsylvania residents will be exempt from the Pennsylvania county
personal property tax to the extent that the Pennsylvania Funds portfolio
consists of Exempt Obligations on the annual assessment date. Non-residents of
the Commonwealth of Pennsylvania are not subject to this tax. Individual
shareholders who are residents of Allegheny County, the City of Pittsburgh or
the School District of Pittsburgh, have no obligation to pay a personal property
tax. Corporations are not subject to Pennsylvania personal property taxes. For
shareholders who are residents of the City of Philadelphia, distributions of
interest derived from Exempt Obligations are not taxable for purposes of the
Philadelphia School District investment net income tax provided that the
Pennsylvania Fund reports to its investors the percentage of Exempt Obligations
held by it for the year. The Pennsylvania Fund will report such percentage to
its shareholders.

The Pennsylvania Department of Revenue takes the position that a regulated
investment company is a separate entity under Pennsylvania corporate net income
tax law and, therefore, the characteristics of income received by such company,
to the extent that such income would otherwise be includable in Pennsylvania
corporate taxable income, will not flow through to a corporate shareholder.
However, because the Pennsylvania corporate net income tax is based upon Federal
taxable income, items excluded from Federal taxable income and not required to
be added to taxable income by Pennsylvania law will also be excluded from
Pennsylvania corporate taxable income. Accordingly, "exempt-interest dividends,"
which are not required to be so added, are also excluded from the Pennsylvania
corporate taxable income. Gains on Exempt Obligations are, however, subject to
the corporate net income tax in the hands of a corporate shareholder. The
Pennsylvania Department of Revenue also takes the position that shares of funds
similar to the Pennsylvania Fund are not considered exempt assets of a
corporation for the purpose of determining its capital stock value subject to
the Pennsylvania capital stock and franchise taxes.

Except when acceptable investments are unavailable to the Pennsylvania
Fund, at least 80% of the value of its net assets will be maintained in debt
obligations of the Commonwealth of Pennsylvania, its localities and political
subdivisions, which are exempt from regular Federal income tax and Pennsylvania
personal income tax and personal property taxes.

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<PAGE>

Virginia. Individual shareholders of the Virginia Fund subject to Virginia
personal income tax will not be required to include in their gross income, for
Virginia personal income tax purposes, distributions made by the Virginia Fund
that, without regard to any exemption from Federal income tax, are derived from
interest in certain obligations for which a Virginia income tax exemption is
independently provided, including, among others, obligations issued under the
Virginia Public Finance Act, certain revenue bonds for transportation
facilities, and obligations issued by the Virginia Housing Development
Authority, the Virginia Education Loan Authority, and industrial development
authorities created pursuant to the Virginia Industrial Development and Revenue
Bond Act.

In general, an individual shareholder of the Virginia Fund who is a
Virginia resident will recognize capital gains for virginia income tax purposes
to the same extent that he or she would for Federal income tax purposes when the
Virginia Fund makes a capital gains distribution or the shareholder redeems or
sells shares. In certain instances, however, legislation creating the entity
issuing debt obligations expressly exempts profit on the sale of the obligation
from Virginia income taxation.

Interest on indebtedness incurred (directly or indirectly) by shareholders
to purchase or carry shares of the Virginia Fund will not be deductible for
Virginia income tax purposes.

PERFORMANCE INFORMATION

A Fund may advertise its performance in various ways.

Each Fund's "average annual total return" ("T") is an average annual
compounded rate of return. The calculation produces an average annual total
return for the number of years measured. It is the rate of return based on
factors which include a hypothetical initial investment of $1,000 ("P") over a
number of years ("n") with an Ending Redeemable Value ("ERV") of that
investment, according to the following formula:

T=[(ERV/P)^(1/n)]-1

The "total return" uses the same factors, but does not average the rate of
return on an annual basis. Total return is determined as follows:

(ERV-P)/P = TOTAL RETURN

Total return is calculated by finding the average annual change in the
value of an initial $1,000 investment over the period. In calculating the ending
redeemable value for Class A shares, each Fund will deduct the maximum sales
charge of 6.25% (as a percentage of the offering price) from the initial $1,000
payment and, for Class B shares, the applicable CDSC imposed on a redemption of
Class B shares held for the period is deducted. All dividends and other
distributions are assumed to have been reinvested at net asset value on the
initial investment ("P").

Return information may be useful to investors in reviewing a Fund's
performance. However, certain factors should be taken into account before using
this information as a basis for comparison with alternative investments. No
adjustment is made for taxes payable on distributions. Return will fluctuate
over time and return for any given past period is not an indication or
representation by a Fund of future rates of return on its shares. At times, the
Adviser may reduce its compensation or assume expenses of a Fund in order to
reduce the Fund's expenses. Any such waiver or reimbursement would increase the
Fund's return during the period of the waiver or reimbursement.

-90-
<PAGE>

Average annual return and total return computed at the public offering
price (maximum sales charge for Class A shares and applicable CDSC for Class B
shares) for the periods ended December 31, 1997 are set forth in the tables
below:

AVERAGE ANNUAL TOTAL RETURN(1)

<TABLE>
<CAPTION>
One Year Five Years Ten Years Life of Fund
------------------- ------------------ ------------------ ----------------------
Class A Class B Class A Class B Class A Class B Class A(2) Class B(3)
------- ------- ------- ------- ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
New York Insured (1.07)% (3.16)% 4.62% N/A 6.79% N/A N/A 6.76%
Arizona Fund (2.48) (4.36) 6.39 N/A N/A N/A 7.24% 8.25
California Fund (2.84) (4.36) 6.07 N/A 8.11 N/A N/A. 8.41
Colorado Fund (2.56) (4.55) 6.39 N/A N/A N/A 6.86 8.60
Connecticut Fund (1.95) (3.95) 5.63 N/A N/A N/A 6.57 7.70
Florida Fund (2.38) (4.38) 6.30 N/A N/A N/A 7.32 8.41
Georgia Fund (3.09) (5.07) 6.85 N/A N/A N/A 6.86 8.62
Maryland Fund (2.73) (4.81) 6.18 N/A N/A N/A 7.02 8.13
Massachusetts Fund (1.54) (3.41) 5.35 N/A 7.83 N/A N/A 7.37
Michigan Fund (2.52) (4.54) 5.94 N/A 8.28 N/A N/A 7.96
Minnesota Fund (1.80) (3.71) 4.99 N/A 7.28 N/A N/A 7.26
Missouri Fund (2.60) (4.60) 6.23 N/A N/A N/A 6.53 8.41
New Jersey Fund (1.56) (3.56) 5.35 N/A N/A N/A 7.23 7.17
North Carolina Fund (2.70) (4.71) 6.15 N/A N/A N/A 6.17 8.50
Ohio Fund (1.87) (3.73) 5.80 N/A 8.23 N/A N/A 7.94
Oregon Fund (3.09) (5.03) 5.90 N/A N/A N/A 6.00 8.41
Pennsylvania Fund (2.33) (4.23) 6.02 N/A N/A N/A 7.15 8.20
Virginia Fund (2.21) (4.19) 5.68 N/A N/A N/A 7.87 7.90
</TABLE>

- ----------
(1) All average annual total return figures reflect the maximum sales charge of
6.25%. Prior to July 1, 1993, the Fund's maximum sales charge was 6.90%.
Prior to January 29, 1989 the Fund's maximum sales charge was 7.25%.
Certain expenses of Multi-State Insured have been waived or reimbursed from
commencement of operations through December 31, 1997. Accordingly, return
figures are higher than they would have been had such expenses not been
waived or reimbursed.

(2) The inception dates for the Funds are as follows: Arizona Fund -- November
1, 1990; California Fund --February 23, 1987; Colorado Fund, Missouri Fund,
North Carolina Fund and Oregon Fund -- May 4, 1992; Connecticut Fund and
Maryland Fund -- October 8, 1990; Florida Fund -- October 5, 1990; Georgia
Fund -- May 1, 1992; Massachusetts Fund, Michigan Fund, Minnesota Fund and
Ohio Fund -- January 1, 1987; New Jersey Fund -- September 13, 1988;
Pennsylvania Fund and Virginia Fund -- April 30, 1990.

(3) The commencement of offering of Class B shares is January 12, 1995.

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<PAGE>

TOTAL RETURN(1)

<TABLE>
<CAPTION>
One Year Five Years Ten Years Life of Fund
------------------- ------------------ ------------------ ----------------------
Class A Class B Class A Class B Class A Class B Class A(2) Class B(3)
------- ------- ------- ------- ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
New York Insured (1.07) (3.16) 25.33% N/A 92.80% N/A N/A 21.45%
Arizona Fund (2.48) (4.36) 26.31 N/A N/A N/A 65.02% 26.55
California Fund (2.84) (4.79) 34.23 N/A 118.16 N/A N/A 27.09
Colorado Fund (2.56) (4.55) 36.33 N/A N/A N/A 45.70 27.76
Connecticut Fund (1.95) (3.95) 31.47 N/A N/A N/A 18.51 24.64
Florida Fund (2.38) (4.38) 35.74 N/A N/A N/A 66.84 27.11
Georgia Fund (3.09) (5.07) 39.30 N/A N/A N/A 45.65 27.85
Maryland Fund (2.73) (4.81) 34.95 N/A N/A N/A 63.36 26.11
Massachusetts Fund (1.54) (3.41) 29.75 N/A 112.51 N/A N/A 23.51
Michigan Fund (2.52) (4.54) 33.44 N/A 121.48 N/A N/A 25.54
Minnesota Fund (1.80) (3.71) 27.58 N/A 101.90 N/A N/A 23.15
Missouri Fund (2.60) (4.60) 35.31 N/A N/A N/A 43.12 27.12
New Jersey Fund (1.56) (3.56) 29.76 N/A N/A N/A 91.36 22.83
North Carolina Fund (2.70) (4.71) 34.77 N/A N/A N/A 40.46 27.43
Ohio Fund (1.87) (3.73) 32.60 N/A 120.48 N/A N/A 25.47
Oregon Fund (3.09) (5.03) 33.21 N/A N/A N/A 39.14 27.10
Pennsylvania Fund (2.33) (4.23) 33.95 N/A N/A N/A 69.87 26.36
Virginia Fund (2.21) (4.19) 31.85 N/A N/A N/A 67.73 25.32
</TABLE>

Average annual total return and total return may also be based on
investment at reduced sales charge levels or at net asset value. Any quotation
of return not reflecting the maximum sales charge will be greater than if the
maximum sales charge were used. Average annual total return and total return
computed at net asset value for the periods ended December 31, 1996 are set
forth in the tables below.

(3) The commencement of offering of Class B shares is January 12, 1995.

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<PAGE>

AVERAGE ANNUAL TOTAL RETURN(1)

<TABLE>
<CAPTION>
One Year Five Years Ten Years Life of Fund
------------------- ------------------ ------------------ ---------------------
Class A Class B Class A Class B Class A Class
B Class A(2) Class B(3)
------- ------- ------- ------- ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
New York Insured 7.82% 7.16% 5.97% N/A 7.48% N/A N/A 7.64%
Arizona Fund 9.28 8.36 7.78 N/A N/A N/A 8.20 9.11
California Fund 9.66 8.79 7.44 N/A 8.81 N/A N/A 9.26
Colorado Fund 9.37 8.55 7.78 N/A N/A N/A 8.08 9.45
Connecticut Fund 8.77 7.95 6.99 N/A N/A N/A 7.52 8.56
Florida Fund 9.18 8.38 7.68 N/A N/A N/A 8.28 9.27
Georgia Fund 10.00 9.07 8.24 N/A N/A N/A 8.07 9.48
Maryland Fund 9.59 8.81 7.56 N/A N/A N/A 7.97 8.99
Massachusetts Fund 8.27 7.41 6.71 N/A 8.53 N/A N/A 8.24
Michigan Fund 9.37 8.54 7.32 N/A 8.98 N/A N/A 8.82
Minnesota Fund 8.57 7.71 6.35 N/A 7.98 N/A N/A 8.14
Missouri Fund 9.44 8.60 7.61 N/A N/A N/A 7.74 9.27
New Jersey Fund 8.36 7.56 6.71 N/A N/A N/A 7.97 8.04
North Carolina Fund 9.56 8.71 7.53 N/A N/A N/A 7.38 9.36
Ohio Fund 8.64 7.73 7.18 N/A 8.93 N/A N/A 8.80
Oregon Fund 9.97 9.03 7.28 N/A N/A N/A 7.20 9.26
Pennsylvania Fund 9.14 8.23 7.40 N/A N/A N/A 8.04 9.06
Virginia Fund 9.03 8.19 6.98 N/A N/A N/A 7.78 8.76
</TABLE>
- -----------------------
(1) Certain expenses of Multi-State Insured have been waived or reimbursed from
commencement of operations through December 31, 1997. Accordingly, return
figures are higher than they would have been had such expenses not been
waived or reimbursed.

(3) The commencement of offering of Class B shares is January 12, 1995.

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<PAGE>

TOTAL RETURN(1)

<TABLE>
<CAPTION>
One Year Five Years Ten Years Life of Fund
------------------- ------------------ ------------------ ----------------------
Class A Class B Class A Class B Class A Class
B Class A(2) Class B(3)
------- ------- ------- ------- ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
New York Insured 7.28% 7.16% 33.66% N/A 105.69% N/A N/A 24.45%
Arizona Fund 9.28 8.36 45.46 N/A N/A N/A 75.96% 29.55
California Fund 9.66 8.79 43.15 N/A 132.67 N/A N/A 30.09
Colorado Fund 9.37 8.55 45.47 N/A N/A N/A 55.34 30.76
Connecticut Fund 8.77 7.95 40.20 N/A N/A N/A 69.01 27.64
Florida Fund 9.18 8.38 44.76 N/A N/A N/A 77.91 30.11
Georgia Fund 10.00 9.07 48.56 N/A N/A N/A 55.29 30.85
Maryland Fund 9.59 8.81 43.97 N/A N/A N/A 74.18 29.12
Massachusetts Fund 8.27 7.41 38.39 N/A 126.74 N/A N/A 26.51
Michigan Fund 9.37 8.54 42.38 N/A 136.24 N/A N/A 28.55
Minnesota Fund 8.57 7.71 36.04 N/A 115.43 N/A N/A 26.15
Missouri Fund 9.44 8.60 44.33 N/A N/A N/A 52.62 30.12
New Jersey Fund 8.36 7.56 38.37 N/A N/A N/A 104.09 25.83
North Carolina Fund 9.56 8.71 43.78 N/A N/A N/A 49.76 30.43
Ohio Fund 8.64 7.73 41.42 N/A 135.26 N/A N/A 28.47
Oregon Fund 9.97 9.03 42.07 N/A N/A N/A 48.35 30.10
Pennsylvania Fund 9.14 8.23 42.91 N/A N/A N/A 81.12 29.37
Virginia Fund 9.03 8.19 40.12 N/A N/A N/A 78.86 28.32
</TABLE>

Yield is presented for a specified thirty-day period ("base period"). Yield
is based on the amount determined by (i) calculating the aggregate amount of
dividends and interest earned by a Fund during the base period less expenses
accrued for that period (net of reimbursement), and (ii) dividing that amount by
the product of (A) the average daily number of shares of the Fund outstanding
during the base period and entitled to receive dividends and (B) the per share
maximum public offering price for Class A shares or the net asset value for
Class B shares of the Fund on the last day of the base period. The result is
annualized by compounding on a semi-annual basis to determine the Fund's yield.
For this calculation, interest earned on debt obligations held by the Fund is
generally calculated using the yield to maturity (or first expected call date)
of such obligations based on their market values (or, in the case of
receivables-backed securities such as GNMA Certificates, based on cost).
Dividends on equity securities are accrued daily at their estimated stated
dividend rates.

- -----------------------
(1) Certain expenses of Multi-State Insured have been waived or reimbursed from
commencement of operations through December 31, 1997. Accordingly, return
figures are higher than they would have been had such expenses not been
waived or reimbursed.

(3) The commencement of offering of Class B shares is January 12, 1995.

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<PAGE>

Tax-equivalent yield during the base period may be presented in one or more
stated tax brackets. Tax-equivalent yield is calculated by adjusting a Fund's
tax-exempt yield by a factor designed to show the approximate yield that a
taxable investment would have to earn to produce an after-tax yield equal to the
Fund's tax-exempt yield.

To calculate a taxable bond yield which is equivalent to a tax-exempt bond
yield (for Federal tax purposes), shareholders may use the following formula:

Tax Free Yield
--------------
= Taxable Equivalent Yield
1 - Your Tax Bracket

To calculate a taxable bond yield which is equivalent to a tax-exempt bond
yield (for state and Federal tax purposes), shareholders may use the following
formula:

Tax Free Yield
--------------
= Taxable Equivalent Yield
1 - [[(1-Your Federal Tax Bracket)
x State Rate]
+ Your Federal Tax Bracket]

The yield and tax-equivalent yield for the thirty days ended December 31,
1997 (assuming a Federal tax rate of 28% as well as the maximum rate for the
appropriate state) is shown below. During this period, certain expenses of
Multi-State Insured have been waived or reimbursed. Accordingly, yield and
tax-exempt yield figures are higher than they would have been had such expenses
not been waived or reimbursed. During this period, the maximum Federal tax rate
was 39.6%.

Yield Tax-Equivalent Yield
---------------- ---------------------
Class A Class B Class A Class B
Shares Shares Shares Shares
------ ------ ------ ------
New York Insured 3.32% 2.85% 5.61% 4.82%
Arizona Fund 4.21 3.69 6.97 6.11
California Fund 4.24 3.79 7.44 5.99
Colorado Fund 4.30 3.80 7.07 6.25
Connecticut Fund 3.94 3.42 6.45 5.60
Florida Fund 3.76 3.23 5.88 5.05
Georgia Fund 4.33 3.84 7.20 6.38
Maryland Fund 4.29 3.79 7.06 6.30
Massachusetts Fund 3.86 3.33 6.85 5.91
Michigan Fund 3.80 3.27 6.21 5.34
Minnesota Fund 4.33 3.84 7.39 6.56
Missouri Fund 4.35 3.86 7.23 6.42
New Jersey Fund 3.95 3.42 6.61 5.72
North Carolina Fund 4.28 3.79 7.25 6.42
Ohio Fund 4.15 3.64 7.01 6.15
Oregon Fund 4.12 3.62 7.07 6.22
Pennsylvania Fund 3.97 3.44 6.38 5.53
Virginia Fund 3.80 3.27 6.30 5.42

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<PAGE>

The distribution rate for each Fund is presented for a twelve-month period.
It is calculated by adding the dividends for the last twelve months and dividing
the sum by that Fund's offering price per share at the end of that period. The
distribution rate is also calculated by using a Fund's net asset value.
Distribution rate calculations do not include capital gain distributions, if
any, paid. The distribution rate for each Fund's Class A shares for the
twelve-month period ended December 31, 1997 calculated using both offering price
and net asset value is shown below. The distribution rate for each Fund's Class
B shares for the twelve-month period ended December 31, 1997 calculated using
net asset value is also shown below. During these periods certain expenses of
Multi-State Insured were waived or reimbursed. Accordingly, distribution rates
are higher than they would have been if such expenses had not been waived or
reimbursed.

<TABLE>
<CAPTION>
CLASS A SHARES
Distribution Rate Calculated Using CLASS B SHARES
----------------------------------- Distribution Rate Calculated
Offering Price Net Asset Value Using Net Asset Value
-------------- --------------- -----------------------------
<S> <C> <C> <C>
New York Insured 4.47% 4.76% 4.09%
Arizona Fund 4.59 4.90 4.13
California Fund 4.41 4.70 3.92
Colorado Fund 4.59 4.90 4.16
Connecticut Fund 4.37 4.66 3.92
Florida Fund 4.29 4.58 3.79
Georgia Fund 4.55 4.85 4.10
Maryland Fund 4.54 4.85 4.07
Massachusetts Fund 4.63 4.94 4.16
Michigan Fund 4.37 4.66 3.92
Minnesota Fund 4.83 5.15 4.38
Missouri Fund 4.68 4.99 4.23
New Jersey Fund 4.43 4.73 3.99
North Carolina Fund 4.42 4.72 3.96
Ohio Fund 4.47 4.77 4.02
Oregon Fund 4.35 4.64 3.89
Pennsylvania Fund 4.40 4.70 3.94
Virginia Fund 4.38 4.67 3.91
</TABLE>

A Fund may include in advertisements and sales literature, information,
examples and statistics that illustrate the effect of taxable versus tax-free
compounding income at a fixed rate of return to demonstrate the growth of an
investment over a stated period of time resulting from the payment of dividends
and capital gains distributions in additional shares. The examples used will be
for illustrative purposes only and are not representations by any Fund of past
or future yield or return. Examples of typical graphs and charts depicting such
historical performance, compounding and hypothetical returns are included in
Appendix D.

From time to time, in reports and promotional literature, the Fund may
compare their performance to, or cite the historical performance of, U.S.
Treasury bills, notes and bonds, or indices of broad groups of unmanaged
securities considered to be representative of, or similar to, the Fund's
portfolio holdings, such as:

Lipper Analytical Services, Inc. ("Lipper") is a widely-recognized
independent service that monitors and ranks the performance of regulated
investment companies. The Lipper performance analysis includes the
reinvestment of capital gain distributions and income dividends but does
not take sales charges into consideration. The method of calculating total

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<PAGE>

return data on indices utilizes actual dividends on ex-dividend dates
accumulated for the quarter and reinvested at quarter end.

Morningstar Mutual Funds ("Morningstar"), a semi-monthly publication of
Morningstar, Inc. Morningstar proprietary ratings reflect historical
risk-adjusted performance and are subject to change every month. Funds with
at least three years of performance history are assigned ratings from one
star (lowest) to five stars (highest). Morningstar ratings are calculated
from the Fund's three-, five-, and ten-year average annual returns (when
available) and a risk factor that reflects fund performance relative to
three-month Treasury bill monthly returns. Fund's returns are adjusted for
fees and sales loads. Ten percent of the funds in an investment category
receive five stars, 22.5% receive four stars, 35% receive three stars,
22.5% receive two stars, and the bottom 10% receive one star.

Salomon Brothers Inc., "Market Performance," a monthly publication which
tracks principal return, total return and yield on the Salomon Brothers
Broad Investment-Grade Bond Index and the components of the Index.

Merrill Lynch, Pierce, Fenner & Smith, Inc., "Taxable Bond Indices," a
monthly corporate government index publication which lists principal,
coupon and total return on over 100 different taxable bond indices which
Merrill Lynch tracks. They also list the par weighted characteristics of
each Index.

Lehman Brothers, Inc., "The Bond Market Report," a monthly publication
which tracks principal, coupon and total return on the Lehman Govt./Corp.
Index and Lehman Aggregate Bond Index, as well as all the components of
these Indices.

The Consumer Price Index, prepared by the U.S. Bureau of Labor Statistics,
is a commonly used measure of inflation. The Index shows changes in the
cost of selected consumer goods and does not represent a return on an
investment vehicle.

From time to time, in reports and promotional literature, performance
rankings and ratings reported periodically in national financial publications
such as MONEY, FORBES, BUSINESS WEEK, BARRON'S, FINANCIAL TIMES and FORTUNE may
also be used. In addition, quotations from articles and performance ratings and
ratings appearing in daily newspaper publications such as THE WALL STREET
JOURNAL, THE NEW YORK TIMES and NEW YORK DAILY NEWS may be cited.

GENERAL INFORMATION

Audits And Reports. The accounts of the Funds are audited twice a year by
Tait, Weller & Baker, independent certified public accountants, 8 Penn Center
Plaza, Philadelphia, PA, 19103. Shareholders of each Fund receive semi-annual
and annual reports, including audited financial statements, and a list of
securities owned.

Transfer Agent. Administrative Data Management Corp., 581 Main Street,
Woodbridge, NJ 07095-1198, an affiliate of FIMCO and FIC, acts as transfer agent
for the Funds and as redemption agent for regular redemptions. The fees charged
to each Fund by the Transfer Agent are $5.00 to open an account; $3.00 for each
certificate issued; $.75 per account per month; $10.00 for each legal transfer
of shares; $.45 per account per dividend declared; $5.00 for each exchange of
shares into a Fund; $5.00 for each partial withdrawal or complete liquidation;
$1.00 for each Systematic Withdrawal Plan check;

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<PAGE>

$4.00 for each shareholder services call; $20.00 for each item of
correspondence; and $1.00 per account per report required by any governmental
authority. Additional fees charged to the Funds by the Transfer Agent are
assumed by the Underwriter. The Transfer Agent reserves the right to change the
fees on prior notice to the Funds. Upon request from shareholders, the Transfer
Agent will provide an account history. For account histories covering the most
recent three year period, there is no charge. The Transfer Agent charges a $5.00
administrative fee for each account history covering the period 1983 through
1994 and $10.00 per year for each account history covering the period 1974
through 1982. Account histories prior to 1974 will not be provided. If any
communication from the Transfer Agent to a shareholder is returned from the U.S.
Postal Service marked as "Undeliverable" two consecutive times, the Transfer
Agent will cease sending any further materials to the shareholder until the
Transfer Agent is provided with a correct address. Efforts to locate a
shareholder will be conducted in accordance with SEC rules and regulations prior
to escheatment of funds to the appropriate state treasury. The Transfer Agent
may deduct the costs of its efforts to locate a shareholder from the
shareholder's account. These costs may include a percentage of the account if a
search company charges such a fee in exchange for its location services. The
Transfer Agent is not responsible for any fees that states and/or their
representatives may charge for processing the return of funds to investors whose
funds have been escheated. The Transfer Agent's telephone number is
1-800-423-4026.

The following sets forth transfer agent fees and expenses paid to the
Transfer Agent for each Fund for the fiscal year ended December 31, 1997: New
York Insured-$143,803; Arizona Fund-$7,159; California Fund-$9,282; Colorado
Fund-$4,964; Connecticut Fund-$14,242; Florida Fund-$14,964; Georgia
Fund-$3,155; Maryland Fund-$4,382; Massachusetts Fund-$18,899; Michigan
Fund-$24,506; Minnesota Fund-$6,883; Missouri Fund-$2,224; New Jersey
Fund-$35,650; North Carolina Fund-$2,606; Ohio Fund-$17,059; Oregon
Fund-$11,764; Pennsylvania Fund-$26,068; and Virginia Fund-$18,302.

5% Shareholders. As of April 1, 1998, the following owned of record or
beneficially 5% or more of the outstanding Class A shares of each of the Funds
listed below:

<TABLE>
<CAPTION>
Fund % of Shares Shareholder
- ---- ----------- -----------
<S> <C> <C>
Colorado Fund 5.0 Kenneth Irvin Perry and Dorothy D. Perry
28 Blackfoot Trail
South Fork, CO 81154

Connecticut Fund 6.4 Henry L. Fuqua
94 Granby Street
Bloomfield, CT 06002

Georgia Fund 5.4 Evelyn Fesperman
2699 Caladium Drive
Atlanta, GA 30345

9.9 Barbara D. Nalley
1984 Old Alpharetta Road
Cumming, GA 30131

</TABLE>

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<PAGE>

Fund % of Shares Shareholder
- ---- ----------- -----------
<S> <C> <C>
5.1 Frank T. Nelson
7325 Zebulon Road
Macon, GA 31220

Maryland Fund 6.2 Dallas E. Polek
539 Wyngate Road "Timonium"
Timonium, MD 21093

Missouri Fund 17.5 Virginia Allen Hess
4545 Wornall Road
Kansas City, MO 64111-3215
</TABLE>

As of April 1, 1998 the following owned of record or beneficially 5% or
more of the outstanding Class B shares of each of the Funds listed below:

<TABLE>
<CAPTION>
Fund % of Shares Shareholder
- ---- ----------- -----------
<S> <C> <C>
New York Insured 5.3 Rosalie Lamet
845 West End Avenue
New York, NY 10025-4918

5.3 Issac Lamet
845 West End Avenue
New York, NY 10025-4918

5.1 Louis J. Ciocca
2723 Barnes Avenue
Bronx, NY 10467

5.6 Evelyn Stivale
2519 Matthews Avenue
Bronx, NY 10467

Arizona Fund 5.4 Lillian Smith Apple
1030 Scott Drive
Apt. 206
Prescott, AZ 86301

10.4 Murilyn H. Racine
15606 S. Gilbert, #99
Chandler, AZ 85225

6.1 Ralph Roethler
1813 Camino Pradera
Yuma, AZ 85364

</TABLE>

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<PAGE>

Fund % of Shares Shareholder
- ---- ----------- -----------
<S> <C> <C>
9.7 Catherine T. McAllister
1475 s. 46th Avenue
Yuma, AZ 85364

5.0 Delmar O. Randall
8043 N. Firethorn
Tucson, AZ 85741

15.2 Gladys A. Moum
10330 W. Thunderbird Blvd.
Apt. #C104

Sun City, AZ 85351
17.5 Sebastian B. Bosco & Rita C. Bosco
215 N. Power Road, #165
Mesa, AZ 85205

22.6 Calvin D. Hodgeson & Janet A. Hodgeson
7125 E. Luana Place
Tucson, AZ 85710

California Fund 5.3 Bock Chew Chan & Mary Chan
2247 34th Street
San Francisco, CA 94116

6.9 George L. Coale & Marjorie Cole
4428 Radcliff Lane
Santa Maria, CA 93455

5.0 Minnie Barban & Phllis R. Gurwitz
3317 Tice Creek Drive, #7
Walnut Creek, CA 94595

11.8 Colleen C. O'Hara
P.O. Box 299
Oceanside, CA 92049

Colorado Fund 8.4 Louis P. Barrientos & Helen B. Barrientos
2866 Caulkins Pl.
Broomfield, CO 80020

19.3 Marion Fischel
6690B E Bayaud Avenue
Denver, CO 80224

</TABLE>

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<PAGE>

Fund % of Shares Shareholder
- ---- ----------- -----------
<S> <C> <C>
14.4 Fritz T. Kent & Jerold D. Kent
12140 W. 32 NE Drive
Wheat Ridge, CO 80033

12.8 R2H, LLP
3131 E. Alameda Avenue, #602
Denver, CO 80209

Connecticut Fund 7.0 Lucille P. Gee
115 Vernon St.
Manchester, CT 06040

7.3 Gustave W. Peschell
85 Fairchild Road
Stratford, CT 06497

5.4 Sarah B. Tyson
174 Towne House Road
Hamden, CT 06514

Florida Fund 9.2 Lamaris S. Hill
1946 Palo Alto Avenue
Lady Lake, FL 32159

6.1 Margie B. McAfee
150 Islander Court, #149L
Longwood, FL 32750

6.0 Constance H. Brown
4527 Sanderling Circle West
Boynton Beach, FL 33436

6.4 Geraldine O. Jordan
7401 SW 9th Street
Plantation, FL 33317

23.0 Julia F. Meyers
7930 Ascot Place
Vero Beach, FL 32966

Georgia Fund 16.6 Geraldyne P. Miller
3357 Collier Court N.W.
Atlanta, GA 30331

14.0 Emma G. Burroughs
3631 Nassau Drive
Augusta, GA 30909

</TABLE>

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<PAGE>

Fund % of Shares Shareholder
- ---- ----------- -----------
<S> <C> <C>
5.7 Elisha A. Shephard
225 Little Vine Road
Bremen, GA 30110

15.9 Betty S. Cabaniss
1001 Clifton Road N.E.
Atlanta, GA 30307-1227

14.0 Allen Vegotsky
2215 Greencrest Drive
Atlanta, GA 30345

5.2 Audrey H. Long
1430 Pineview Circle
Douglasville, GA 30331

13.0 Ruby S. Wright
4737 Canton Road
Marietta, GA 30066

Maryland Fund 6.9 David B. Lloyd
65 Wood Duck Drive
Berlin, MD 21811

10.6 John J. Bannon & Elizabeth M. Bannon
17833 Cliffbourne Lane
Derwood, MD 20855

12.8 Sylvia Gordon
8100 Connecticut Avenue
Chevy Chase, MD 20815

7.0 H. Douglas New & E. Irene New
6600 GI GI Drive
Woodbine, MD 21797

8.0 June A. Reed
995 Wayson Way
Davidsonville, MD 21797

16.2 Frank B. Moore
699 Warburton Road
Elkton, MD 21921

11.3 Rita D. McCarthy
507 Coover Road
Annapolis, MD 21401

</TABLE>

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<PAGE>

Fund % of Shares Shareholder
- ---- ----------- -----------
<S> <C> <C>
Massachusetts Fund 15.5 Aurora Graca
141 Queen Drive
West Wareham, MA 02576

7.8 John Bannish
431 Hillside Road
Southwick, MA 01077

5.2 Barbara S. Shapiro & Daniel M. Flieshman
11 Jean Road
Lexington, MA 02173-6829

5.6 Kenneth Gray & Anne Gray
31 Whittmore Road
Framingham, MA 01701

23.5 Paul A. D'Oliveira
2540 Pawtucket Avenue
East Providence, RI 02915

Michigan Fund 20.9 Lillian Thill, Nannet M. Brennan
& Mary Lynn Quilling
26962 Franklin Terrace Apartments
Southfield, MI 48034

Missouri Fund 8.6 Josephine M. Barrale & I. Charles Barrale
608 Packford Drive
Chesterfield, MO 63017

9.9 Ray A. Powell
3315 Gillham Road
Kansas City, MO 64109

New Jersey Fund 10.6 Merrill William Yeager
1411 Thomas Street
Point Pleasant, NJ 08742-3959

9.4 David Weber & Marion R. Weber
42 Pleasant Avenue
Passaic, NJ 07055-2449

15.9 Helen Bodnar
17 B Aldrich Drive
Edison, NJ 08837-3305

</TABLE>

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<PAGE>

Fund % of Shares Shareholder
- ---- ----------- -----------
<S> <C> <C>
6.3 James Lombardo
15 Webster Avenue
Paterson, NJ 07501

North Carolina Fund 10.3 Frances Freeman Bracy
P.O. Box 292 106 Edgewood Drive
Ahoskie, NC 27910

9.9 Martha D. Sachs
48 N Rugby Drive
Hendersonville, NC 28791

12.8 Victor Quinn Hambright
1030 Edgehill Road
Charlotte, NC 28207

Ohio Fund 11.4 Leroy W. Gagle
353 Southwood Drive
Perrysburg, OH 43551

7.8 James R. Hunkler
887 West 8th Avenue
Columbus, OH 43212

Oregon Fund 13.5 John E. Laney & Helen M. Laney
14315 S.W. Stallion Drive
Beaverton, OR 97008

9.6 James M. Hogan
Rt. 1 Box 917A
Astoria, OR 97103

7.4 Ned E. Wagner & Shirley J. Wagner
13825 S.W. 22nd Street
Beaverton, OR 97008

5.6 Conrad Krening
6954 S.E. Ranada Street
Milwaukie, OR 97267

6.0 Donald L. Phillips Sr. & Karen A. Phillips
18729 S. Lyons
Oregon City, OR 97045-9623

7.4 Karleen H. Itsher
19488 S. Red House Road
Molalla, OR 97038

</TABLE>

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<PAGE>

Fund % of Shares Shareholder
- ---- ----------- -----------
<S> <C> <C>
11.4 Mabel Kelsey
8535 SW Cecelia Terrace
Portland, OR 97223

Pennsylvania Fund 5.0 Harrison W. Snyder
RD 4 Box 313
Hungtingdon, PA 16652

5.5 Ruth R. Patterson
5713 Osage Avenue
Philadelphia, PA 19143

6.1 Peter Hesbacher
Suite 235
1933 Highway 35
Wall, NJ 07719

Virginia Fund 14.6 Una H. Harris
P.O. Box 28
Boydton, VA 23917-0028

5.8 Walter Lilkendey & Christine Lilkendey
1304 Cumberland Drive
Harrisonburg, VA 22801

5.1 William C. Voorhees & Jean Carol Conway
7262 Fairview Drive
Mechanicsville, VA 23111

8.4 Saundra G. Taylor
Rt. 1 Box 450 A
Aylett, VA 23009

9.6 John W. Bunting III
328 Bunting Point Road
Yorktown, VA 23693

5.3 Armonia H. Taylor-Wright
1213 Kemper Road
Danville, VA 24541

</TABLE>

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<PAGE>

Trading by Portfolio Managers and Other Access Persons. Pursuant to Section
17(j) of the 1940 Act and Rule 17j-1 thereunder, each Tax Free Fund and the
Adviser have adopted Codes of Ethics restricting personal securities trading by
portfolio managers and other access persons of the Funds. Among other things,
such persons, except the Directors or Trustees: (a) must have all non-exempt
trades pre-cleared; (b) are restricted from short-term trading; (c) must provide
duplicate statements and transactions confirmations to a compliance officer; and
(d) are prohibited from purchasing securities of initial public offerings.

Shareholder Liability. Multi-State Insured is organized as an entity known
as a "Massachusetts business trust." Under Massachusetts law, shareholders of
such a trust may, under certain circumstances, be held personally liable for the
obligations of Multi-State Insured. The Declaration of Trust however, contains
an express disclaimer of shareholder liability for acts or obligations of
Multi-State Insured and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by Multi-State
Insured or its Trustees. The Declaration of Trust provides for indemnification
out of the property of Multi-State Insured of any shareholder held personally
liable for the obligations of Multi-State Insured. The Declaration of Trust also
provides that Multi-State Insured shall, upon request, assume the defense of any
claim made against any shareholder for any act or obligation of Multi-State
Insured and satisfy any judgment thereon. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder liability is limited to
circumstances in which Multi-State Insured itself would be unable to meet its
obligations. The Adviser believes that, in view of the above, the risk of
personal liability to shareholders is immaterial and extremely remote. The
Declaration of Trust further provides that Trustees will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration of
Trust protects a Trustee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office.
Multi-State Insured may have an obligation to indemnify its Trustees and
officers with respect to litigation.

APPENDIX A
DESCRIPTION OF MUNICIPAL BOND RATINGS

STANDARD & POOR'S RATINGS GROUP

The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
any audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.

The ratings are based, in varying degrees, on the following considerations:

1. Likelihood of default-capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;

2. Nature of and provisions of the obligation;

3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization, or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.

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<PAGE>

AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.

AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.

A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

BB, B, CCC, CC, C Debt rated "BB," "B," "CCC," "CC" and "C" is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal. "BB" indicates the least degree of speculation and "C" the
highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

BB Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.

B Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"BB" or "BB-" rating.

CCC Debt rated "CCC" has a currently identifiable vulnerability to default
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.

CC The rating "CC" typically is applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.

C The rating "C" typically is applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.

CI The rating "CI" is reserved for income bonds on which no interest is
being paid.

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<PAGE>

D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The "D" rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.

Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
categories.

MOODY'S INVESTORS SERVICE, INC.

Aaa Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat greater than the Aaa securities.

A Bonds which are rated "A" possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.

Baa Bonds which are rated "Baa" are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba Bonds which are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B Bonds which are rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa Bonds which are rated "Caa" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca Bonds which are rated "Ca" represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.

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<PAGE>

C Bonds which are rated "C" are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.

Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.

APPENDIX B
DESCRIPTION OF MUNICIPAL NOTE RATINGS

STANDARD & POOR'S RATINGS GROUP

S&P's note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in 3 years or less will likely receive a note rating.
Notes maturing beyond 3 years will most likely receive a long-term debt rating.
The following criteria will be used in making that assessment.

- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).

- Source of Payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).

Note rating symbols are as follows:

SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.

MOODY'S INVESTORS SERVICE, INC.

Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade (MIG). This distinction is in
recognition of the difference between short-term credit risk and long-term risk.

MIG-1. Loans bearing this designation are of the best quality, enjoying
strong protection from established cash flows of funds for their servicing or
from established and broad-based access to the market for refinancing, or both.

APPENDIX C
DESCRIPTION OF COMMERCIAL PAPER RATINGS

STANDARD & POOR'S RATINGS GROUP

S&P's commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market. Ratings are
graded into several categories, ranging from "A-1" for the highest quality
obligations to "D" for the lowest.

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<PAGE>

A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) designation.

MOODY'S INVESTORS SERVICE, INC.

Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year. Obligations relying upon support mechanisms such as
letters-of-credit and bonds of indemnity are excluded unless explicitly rated.

Prime-1 Issuers (or supporting institutions) rated Prime-1 (P-1) have a
superior ability for repayment of senior short-term debt obligations. P-1
repayment ability will often be evidenced by many of the following
characteristics:

- Leading market positions in well-established industries.

- High rates of return on funds employed.

- Conservative capitalization structure with moderate reliance on
debt and ample asset protection.

- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.

- Well-established access to a range of financial markets and
assured sources of alternate liquidity.

-110-
<PAGE>

APPENDIX D

[The following tables are represented as graphs in the printed document.]

The following graphs and chart illustrate hypothetical returns:

INCREASE RETURNS

This graph shows over a period of time even a small increase in returns can make
a significant difference.

Years 10% 8% 6% 4%
----- ------- ------ ------ ------
5 16,453 14,898 13,489 12,210
10 27,070 22,196 18,194 14,908
15 44,539 33,069 24,541 18,203
20 73,281 49,268 33,102 22,226
25 120,569 73,402 44,650 27,138

INCREASE INVESTMENT

This graph shows the more you invest on a regular basis over time, the more you
can accumulate.

Years $100 $250 $500 $1,000
----- ------ ------- ------- -------
5 7,348 18,369 36,738 73,476
10 18,295 43,736 91,473 182,946
15 34,604 86,509 173,019 346,038
20 58,902 147,255 294,510 589,020
25 95,103 237,757 475,513 951,026

<PAGE>

[The following table is represented as graph in the printed document.]

This chart illustrates the time value of money based upon the following
assumptions:

If you invested $2,000 each year for 20 years, starting at 25, assuming a 9%
investment return, you would accumulate $573,443 by the time you reach age 65.
However, had you invested the same $2,000 each year for 20 years, at that rate,
but waited until age 35, you would accumulate only $242,228 - a diference of
$331,215.

25 years old .............. 533,443
35 years old .............. 202,228
45 years old .............. 62,320

For each of the above graphs and chart it should be noted that systematic
investment plans do not assume a profit or protect against loss in declining
markets. Investors should consider their financial ability to continue purchases
through periods of both high and low price levels. Figures are hypothetical and
for illustrative purposes only and do not represent any actual investment or
performance. The value of a shareholder's investment and return may vary.

<PAGE>

[The following table is represented as chart in the printed document.]

The following chart illustrates the historical performance of the Dow Jones
Industrial Average from 1928 through 1996.

1928 .................. 300.00
1929 .................. 248.48
1930 .................. 164.58
1931 .................. 77.90
1932 .................. 59.93
1933 .................. 99.90
1934 .................. 104.04
1935 .................. 144.13
1936 .................. 179.90
1937 .................. 120.85
1938 .................. 154.76
1939 .................. 150.24
1940 .................. 131.13
1941 .................. 110.96
1942 .................. 119.40
1943 .................. 136.20
1944 .................. 152.32
1945 .................. 192.91
1946 .................. 177.20
1947 .................. 181.16
1948 .................. 177.30
1949 .................. 200.10
1950 .................. 235.40
1951 .................. 269.22
1952 .................. 291.89
1953 .................. 280.89
1954 .................. 404.38
1955 .................. 488.39
1956 .................. 499.46
1957 .................. 435.68
1958 .................. 583.64
1959 .................. 679.35
1960 .................. 615.88
1961 .................. 731.13
1962 .................. 652.10
1963 .................. 762.94
1964 .................. 874.12
1965 .................. 969.25
1966 .................. 785.68
1967 .................. 905.10
1968 .................. 943.75
1969 .................. 800.35
1970 .................. 838.91
1971 .................. 890.19
1972 .................. 1,020.01
1973 .................. 850.85
1974 .................. 616.24
1975 .................. 858.71
1976 .................. 1,004.65
1977 .................. 831.17
1978 .................. 805.01
1979 .................. 838.74
1980 .................. 963.98
1981 .................. 875.00
1982 .................. 1,046.55
1983 .................. 1,258.64
1984 .................. 1,211.56
1985 .................. 1,546.67
1986 .................. 1,895.95
1987 .................. 1,938.80
1988 .................. 2,168.60
1989 .................. 2,753.20
1990 .................. 2,633.66
1991 .................. 3,168.83
1992 .................. 3,301.11
1993 .................. 3,754.09
1994 .................. 3,834.44
1995 .................. 5,000.00
1996 .................. 6,000.00

<PAGE>

[The following table is represented as a chart in the printed document.]

The following chart shows that inflation is constantly eroding the value of your
money.

THE EFFECTS OF INFLATION OVER TIME

1966 ....................... 96.61836
1967 ....................... 93.80423
1968 ....................... 89.59334
1969 ....................... 84.36285
1970 ....................... 79.88906
1971 ....................... 77.33694
1972 ....................... 74.79395
1973 ....................... 68.80768
1974 ....................... 61.27131
1975 ....................... 57.31647
1976 ....................... 54.63915
1977 ....................... 51.20820
1978 ....................... 46.98000
1979 ....................... 41.46514
1980 ....................... 36.85790
1981 ....................... 33.84564
1982 ....................... 32.60659
1983 ....................... 31.41290
1984 ....................... 30.23378
1985 ....................... 29.12696
1986 ....................... 28.81005
1987 ....................... 27.59583
1988 ....................... 26.43279
1989 ....................... 25.27035
1990 ....................... 23.81748
1991 ....................... 23.10134
1992 ....................... 22.45028
1993 ....................... 21.86006
1994 ....................... 21.28536
1995 ....................... 20.76620
1996 ....................... 20.39000

1995........................ 1.00
1996........................ 1.03
1997........................ 1.06
1998 ....................... 1.09
1999 ....................... 1.13
2000 ....................... 1.16
2001 ....................... 1.19
2002 ....................... 1.23
2003 ....................... 1.27
2004 ....................... 1.30
2005 ....................... 1.34
2006 ....................... 1.38
2007 ....................... 1.43
2008 ....................... 1.47
2009 ....................... 1.51
2010 ....................... 1.56
2011 ....................... 1.60
2012 ....................... 1.65
2013 ....................... 1.70
2014 ....................... 1.75
2015 ....................... 1.81
2016 ....................... 1.86
2017 ....................... 1.92
2018 ....................... 1.97
2019 ....................... 2.03
2020 ....................... 2.09
2021 ....................... 2.16
2022 ....................... 2.22
2023 ....................... 2.29
2024 ....................... 2.36
2025 ....................... 2.43
2026 ....................... 2.43

Inflation erodes your buying power. $100 in 1966, could purchase five times the
goods and services as it could in 1996 ($100 vs. $20).* Projecting inflation at
3%, goods and services costing $100 today will cost $243 in the year 2026.

* Source: Consumer Price Index, U.S. Bureau of Labor Statistics.

<PAGE>

[The following tables are represented as graphs in the printed document.]

This chart illustrates that historically, the longer you hold onto stocks, the
greater chance that you will have a positive return.

1926 through 1996(1)

Total Number of Percentage of
Number of Positive Positive
Periods Periods Periods
------- ------- -------
1-Year Periods 71 51 72%
5-Year Periods 67 60 90%
10-Year Periods 62 60 97%
15-Year Periods 57 57 100%
20-Year Periods 52 52 100%

The following chart shows the compounded annual return of large company stocks
compared to U.S. Treasury Bills and inflation over the most recent 15 year
period. (2)

Compound Annual Return from 1982 -- 1996(1)

Inflation ..................... 3.55
U.S. Treasury Bills ........... 6.50
Large Company Stocks .......... 13.66

The following chart illustrates for the period shown that long-term corporate
bonds have outpaced U.S. Treasury Bills and inflation.

Compound Annual Return from 1982 -- 1996(1)

Inflation ..................... 3.55
U.S. Treasury Bills ........... 6.50
Long-Term Corp. bonds ......... 16.79

(2) Please note that U.S. Treasury bills are guaranteed as to principal and
interest payments (although the funds that invest in them are not), while
stocks will fluctuate in share price. Although past performance cannot
guarantee future results, reeturns of U.S. Treasury bills historically have
not outpaced inflation by as great a margin as stocks.

The accompanying table illustrates that if you are in the 36% tax bracket, a
tax-free yield of 3% is actually equivalent to a taxable investment earning
4.69%.

Your Taxable Equivalent Yield

Your Federal TAx Bracket
---------------------------------------------
your tax-free yield 31.0% 36.0% 39.6%
------------------- ----- ----- -----
3.00% 4.35% 4.69% 4.97%
3.50% 5.07% 5.47% 5.79%
4.00% 5.80% 6.25% 6.62%
4.50% 6.52% 7.03% 7.45%
5.00% 7.25% 7.81% 8.25%
5.50% 7.97% 8.59% 9.11%

This information is general in nature and should not be construed as tax advice.
Please consult a tax or financial adviser as to how this information affects
your particular circumstances.

<PAGE>

Financial Statements
as of December 31, 1997

<PAGE>

Financial Statements
as of December 31, 1997

First Investors New York Insured Tax Free Fund, Inc. (2-86489) incorporates by
reference the financial statements and report of independent auditors contained
in the Annual Report to shareholders for the fiscal year ended December 31, 1997
electronically filed with the Commission on February 24, 1998 (Accession Number:
0000928816-98-000050).

First Investors Multi-State Insured Tax Free Fund (33-4077) incorporates by
reference the financial statements and report of independent auditors contained
in the Annual Report to shareholders for the fiscal year ended December 31, 1997
electronically filed with the Commission on February 26, 1998 (Accession Number:
0000928816-98-000060).
<PAGE>

PART C

OTHER INFORMATION

Item 24. Financial Statements and Exhibits

(a) Financial Statements:

Financial Statements are set forth in Part B, Statement of
Additional Information.

(b) Exhibits:

(1)a.(1) Articles of Restatement

b.(1) Articles Supplementary

(2) Amended and Restated By-laws

(3) Not Applicable

(4) Shareholders' rights are contained in (a) Articles FIFTH and
EIGHTH of Registrant's Articles of Restatement dated
September 14, 1994, previously filed as Exhibit 99.B1.1 to
Registrant's Registration Statement; (b) Article FOURTH of
Registrant's Articles Supplementary to Articles of
Incorporation dated October 20, 1994, previously filed as
Exhibit 99.B1.2 to Registrant's Registration Statement and
(c) Article II of Registrant's Amended and Restated By-laws,
previously filed as Exhibit 99.B2 to Registrant's
Registration Statement.

(5)(1) Investment Advisory Agreement between Registrant and First
Investors Management Company, Inc.

(6)(1) Underwriting Agreement between Registrant and First
Investors Corporation

(7) Not Applicable

(8)a.(1) Custodian Agreement between Registrant and Irving Trust
Company

b.(1) Supplement to Custodian Agreement

(9)a.(1) Administration Agreement between Registrant, First
Investors Management Company, Inc., First Investors
Corporation and Administrative Data Management Corp.

b. Amended Schedule A to Administration Agreement

<PAGE>

(10) Opinion of Counsel

(11)a. Consent of independent accountants

b.(1) Powers of Attorney

c. Consent of New York tax counsel

(12) Not Applicable

(13) No undertaking in effect

(14) Not Applicable

(15)a.(1) Amended and Restated Class A Distribution Plan

b.(1) Class B Distribution Plan

(16) Performance Calculations

(17) Financial Data Schedule (filed as Exhibit 27 for
electronic filing purposes)

(18)(1) 18f-3 Plan

- --------------
(1) Incorporated by reference from Post-Effective Amendment No. 16 to
Registrant's Registration Statement (File No. 2-86489) filed on April 25,
1996.

Item 25. Persons Controlled by or under common control with Registrant

There are no persons controlled by or under common control with the
Registrant.

Item 26. Number of Holders of Securities

Number of
Record Holders as of
Title of Class February 2, 1998
-------------- --------------------
Class A shares 6,523
Class B shares 108

<PAGE>

Item 27. Indemnification

The Articles and By-laws of the Registrant do not contain any
provisions or reference to indemnification.

The Registrant's Investment Advisory Agreement provides as follows:

The Manager shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Company or any Series in connection with the
matters to which this Agreement relate except a loss resulting from the willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement. Any person, even though also an officer, partner, employee, or agent
of the Manager, who may be or become an officer, Board member, employee or agent
of the Company shall be deemed, when rendering services to the Company or acting
in any business of the Company, to be rendering such services to or acting
solely for the Company and not as an officer, partner, employee, or agent or one
under the control or direction of the Manager even though paid by it.

The Registrant's Underwriting Agreement provides as follows:

The Underwriter agrees to use its best efforts in effecting the sale
and public distribution of the shares of the Fund through dealers and to perform
its duties in redeeming and repurchasing the shares of the Fund, but nothing
contained in this Agreement shall make the Underwriter or any of its officers
and directors or shareholders liable for any loss sustained by the Fund or any
of its officers, directors, or shareholders, or by any other person on account
of any act done or omitted to be done by the Underwriter under this Agreement
provided that nothing herein contained shall protect the Underwriter against any
liability to the Fund or to any of its shareholders to which the Underwriter
would otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties as Underwriter or by reason of its
reckless disregard of its obligations or duties as Underwriter under this
Agreement. Nothing in this Agreement shall protect the Underwriter from any
liabilities which they may have under the Securities Act of 1933 or the
Investment Company Act of 1940.

Reference is hereby made to the Maryland Corporations and Associations
Annotated Code, Sections 2-417, 2-418 (1986).

The general effect of this Indemnification will be to indemnify the
officers and directors of the Registrant from costs and expenses arising from
any action, suit or proceeding to which they may be made a party by reason of
their being or having been a director or officer of the Registrant, except where
such action is determined to have arisen out of the willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the director's or officer's office.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the Registrant has been
informed that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable. See Item 32 herein.

<PAGE>

Item 28. Business and Other Connections of Investment Adviser

First Investors Management Company, Inc., the Registrant's Investment
Adviser, also serves as Investment Adviser to:

First Investors Cash Management Fund, Inc.
First Investors Series Fund
First Investors Fund For Income, Inc.
First Investors Government Fund, Inc.
First Investors High Yield Fund, Inc.
First Investors Global Fund, Inc.
First Investors Life Series Fund
First Investors Multi-State Insured Tax Free Fund
First Investors Special Bond Fund, Inc.
First Investors Insured Tax Exempt Fund, Inc.
First Investors Tax-Exempt Money Market Fund, Inc.
First Investors U.S. Government Plus Fund
First Investors Series Fund II, Inc.

Affiliations of the officers and directors of the Investment Adviser
are set forth in Part B, Statement of Additional Information, under "Directors
or Trustees and Officers."

Item 29. Principal Underwriters

(a) First Investors Corporation, Underwriter of the Registrant, is also
underwriter for:

First Investors Cash Management Fund, Inc.
First Investors Series Fund
First Investors Fund For Income, Inc.
First Investors Government Fund, Inc.
First Investors High Yield Fund, Inc.
First Investors Global Fund, Inc.
First Investors Multi-State Insured Tax Free Fund
First Investors Insured Tax Exempt Fund, Inc.
First Investors Tax-Exempt Money Market Fund, Inc.
First Investors U.S. Government Plus Fund
First Investors Series Fund II, Inc.
First Investors Life Variable Annuity Fund A
First Investors Life Variable Annuity Fund C
First Investors Life Variable Annuity Fund D
First Investors Life Level Premium Variable Life Insurance
(Separate Account B)
<PAGE>

(b) The following persons are the officers and directors of the
Underwriter:

<TABLE>
<CAPTION>
<S> <C> <C>
Position and
Name and Principal Office with First Office with
Business Address Investors Corporation Registrant
- ------------------ --------------------- ------------
Glenn O. Head Chairman President
95 Wall Street and Director and Director
New York, NY 10005

Marvin M. Hecker President None
95 Wall Street
New York, NY 10005

John T. Sullivan Director Chairman of the
95 Wall Street Board of Directors
New York, NY 10005

Roger L. Grayson Director Director
95 Wall Street
New York, NY 10005

Joseph I. Benedek Treasurer Treasurer
581 Main Street
Woodbridge, NJ 07095

Lawrence A. Fauci Senior Vice President None
95 Wall Street and Director
New York, NY 10005

Kathryn S. Head Vice President Director
581 Main Street and Director
Woodbridge, NJ 07095

Louis Rinaldi Senior Vice None
581 Main Street President
Woodbridge, NJ 07095

Frederick Miller Senior Vice President None
581 Main Street
Woodbridge, NJ 07095
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Larry R. Lavoie Secretary and None
95 Wall Street General Counsel
New York, NY 10005

Matthew Smith Vice President None
581 Main Street
Woodbridge, NJ 07095

Jeremiah J. Lyons Director None
56 Weston Avenue
Chatham, NJ 07928

Anne Condon Vice President None
581 Main Street
Woodbridge, NJ 07095

Jane W. Kruzan Director None
232 Adair Street
Decatur, GA 30030

Elizabeth Reilly Vice President None
581 Main Street
Woodbridge, NJ 07095

Robert Flanagan Vice President- None
95 Wall Street Sales Administration
New York, NY 10005

William M. Lipkus Chief Financial Officer None
581 Main Street
Woodbridge, NJ 07095
</TABLE>

Item 30. Location of Accounts and Records

Physical possession of the books, accounts and records of the
Registrant are held by First Investors Management Company, Inc. and its
affiliated companies, First Investors Corporation and Administrative Data
Management Corp., at their corporate headquarters, 95 Wall Street, New York, NY
10005 and administrative offices, 581 Main Street, Woodbridge, NJ 07095, except
for those maintained by the Registrant's Custodian, The Bank of New York, 48
Wall Street, New York, NY 10286.

Item 31. Management Services

Inapplicable

<PAGE>

Item 32. Undertakings

The Registrant undertakes to carry out all indemnification
provisions of its Articles of Incorporation, Advisory Agreement and Underwriting
Agreement in accordance with Investment Company Act Release No. 11330 (September
4, 1980) and successor releases.

Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions under Item 27 herein, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.

The Registrant hereby undertakes to furnish a copy of its latest
annual report to shareholders, upon request and without charge, to each person
to whom a prospectus is delivered.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant represents that this Amendment
meets all the requirements for effectiveness pursuant to Rule 485(b) under the
Securities Act of 1933, and has duly caused this Post-Effective Amendment to
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New York, on the
15th day of April, 1998.

FIRST INVESTORS NEW YORK,
INSURED TAX FREE FUND, INC.
(Registrant)

By: /s/Glenn O. Head
----------------------
Glenn O. Head
President and Director

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, this Amendment to this Registration Statement
has been signed below by the following persons in the capacities and on the
dates indicated.

/s/Glenn O. Head Principal Executive April 15, 1998
- ------------------------------- Officer and Director
Glenn O. Head

/s/Joseph I. Benedek Principal Financial April 15, 1998
- ------------------------------- and Accounting Officer
Joseph I. Benedek

* Director April 15, 1998
- -------------------------------
Kathryn S. Head

* Director April 15, 1998
- -------------------------------
Roger L. Grayson

* Director April 15, 1998
- -------------------------------
Herbert Rubinstein

* Director April 15, 1998
- -------------------------------
Nancy Schaenen

<PAGE>

* Director April 15, 1998
- --------------------------------
James M. Srygley

* Director April 15, 1998
- --------------------------------
John T. Sullivan

* Director April 15, 1998
- --------------------------------
Rex R. Reed

* Director April 15, 1998
- --------------------------------
Robert F. Wentworth

*By: /s/Larry R. Lavoie
----------------------
Larry R. Lavoie
Attorney-in-fact

<PAGE>

INDEX TO EXHIBITS

Exhibit
Number Description
- ------- ------------
99.B2 Amended and Restated By-laws
99.B9 Schedule A to Administration Agreement
99.B10 Opinion of counsel
99.B11.1 Consent of accountants
99.B11.2 Consent of New York tax counsel
99.B16 Performance Calculations
27.001 FDS-Class A Shares
27.002 FDS-Class B Shares

<PAGE>

AMENDED AND RESTATED BY-LAWS

FIRST INVESTORS NEW YORK INSURED TAX FREE FUND, INC.

*******

ARTICLE I

OFFICES

SECTION 1. The principal office of the Corporation shall be in the
City of Baltimore, State of Maryland. The Corporation may also have offices at
such other places both within and without the State of Maryland as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
STOCKHOLDERS

SECTION 1. The annual meeting of stockholders shall be held on
such day during the month of April or on such other date and at such time and
place within or without the State of Maryland as may be fixed by the Board of
Directors for the purpose of electing directors and of transacting such other
business as may properly be brought before the meeting; provided, however, that
an annual meeting of stockholders shall not be required to be held in any year
in which none of the following is required, under the Investment Company Act of
1940, to be acted on by the stockholders: election of directors; approval of the
investment advisory agreement; ratification of independent public accountants or
approval of a distribution agreement.

SECTION 2. Special meetings of the stockholders for any purpose or
purposes may be called by the Board of Directors or by the President, and must
be called at the written request of stockholders

-1-

<PAGE>
owning not less than twenty-five percent of the stock then outstanding and
entitled to vote. Special meetings of the stockholders for the purpose of voting
on the removal of one or more directors must be called at the written request of
stockholders owning not less than ten percent of the stock then outstanding and
entitled to vote. Any such meeting shall be held at such time and such place
within or without the State of Maryland as may be stated in the call and notice.

SECTION 3. Written or printed notice of every annual or special
meeting of stockholders, stating the time and place thereof and the general
nature of the business proposed to be transacted at any such meeting, shall be
delivered personally or mailed at least ten days previous thereto to each
stockholder of record entitled to vote at the meeting at his address as the same
appears on the books of the Corporation. Such further notice shall be given as
may be required by law. Meetings may be held without notice if all of the
stockholders entitled to vote are present or represented at the meeting, or if
notice is waived in writing, either before or after the meeting, by those not
present or represented at the meeting. No notice of an adjourned meeting of
stockholders other than an announcement of the time and place thereof at the
preceding meeting shall be required.

SECTION 4. At every meeting of stockholders the holders of record
of a majority of the outstanding shares of the stock of the Corporation entitled
to vote at the meeting, whether present in person or represented by proxy,
shall, except as otherwise provided by law, constitute a quorum. If at any
meeting there shall be no quorum, the holders of record, entitled to vote at the
meeting, of a majority of such shares so present or represented may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall have been obtained when any business may be
transacted which might have been transacted at the meeting as first convened had
there been a quorum.

-2-
<PAGE>

SECTION 5. Each stockholder entitled to vote at any meeting shall
(except as otherwise provided in the Articles of Incorporation) have one vote in
person or by proxy for each share of stock held by him. No share shall be
entitled to vote if any installment payable thereon is overdue and unpaid. All
elections of directors shall be held and all questions, except as otherwise
provided by law or by the Articles of Incorporation or by these By-Laws shall be
decided by a majority of the votes cast by stockholders present or represented
and entitled to vote thereat in person or by proxy.

SECTION 6. Meetings of the stockholders shall be presided over by
the Chairman of the Board, if he is not present, by the President or a Vice
President or in their absence, by a Chairman to be chosen at the meeting. The
Secretary of the Corporation, or, if he is not present, an Assistant Secretary
of the Corporation or, if neither is present, a secretary to be chosen at the
meeting shall act as secretary of the meeting.

SECTION 7. The vote on the election of directors, and other
questions properly brought before any meeting, need not be by ballot except when
so demanded by a majority vote of the shares present in person or by proxy and
entitled to vote thereon, or when so ordered by the Chairman of such meeting.
The Chairman of each meeting at which directors are to be elected by ballot or
at which any question is to be voted on shall, at the request of any stockholder
present or represented by proxy at the meeting and entitled to vote at such
election or on such question, appoint two inspectors of election. No director or
candidate for the office of director shall be appointed as such inspector.

-3-
<PAGE>

Inspectors shall first take and subscribe an oath or affirmation faithfully to
execute the duties of inspector at such meeting with strict impartiality and
according to the best of their ability, and shall take charge of the polls and
after the balloting shall make a certificate of the result of the vote taken.

SECTION 8. The Board of Directors may close the stock transfer
books of the Corporation for a period not exceeding twenty days preceding the
date of any meeting of stockholders, or the date for the payment of any dividend
or the date for the allotment of rights, or the date when any change or
conversion or exchange of stock shall go into effect; or in lieu of closing the
stock transfer books, the Board of Directors may fix in advance a date, not
exceeding ninety days and not less than ten days preceding the date of any
meeting of stockholders, and not exceeding forty days preceding the date for the
payment of any dividend or the date for the allotment of rights, or the date
when any change or conversion or exchange of stock shall go into effect, or a
date in connection with the obtaining of any consent, as a record date, for the
determination of the stockholders entitled to notice of, and to vote at any such
meeting and at any adjournments thereof, or entitled to receive payment of any
such dividend, or to any such allotment of rights, or to exercise the rights in
respect of any such change, conversion or exchange of stock, or to give consent
and in such case such stockholders, and only such stockholders, as shall be
stockholders of record on the date so fixed, shall be entitled to such notice
of, and to vote at, such meeting and any adjournment thereof, or to receive
payment of such dividend, or to receive such allotment of rights, or to exercise
such rights, or to give such consent as the case may be, notwithstanding any
transfer of any stock on the books of the corporation after any such record date
fixed as aforesaid.

-4-
<PAGE>
ARTICLE III
BOARD OF DIRECTORS

SECTION 1. The Board of Directors of the Corporation shall consist
of not less than three nor more than fifteen persons. The number of directors
(within the above limits) shall be determined by the Board of Directors from
time to time as it sees fit, by vote of a majority of the whole Board. Each
director shall hold office until such time as less than a majority of the
directors then holding office have been elected by the stockholders or upon the
occurrence of any of the conditions described under Section 16 of the Investment
Company Act of 1940, as amended. At such time, a meeting of the stockholders
shall be called for the purpose of electing the Board of Directors and the terms
of office of the directors then in office shall terminate upon the election and
qualification of such Board of Directors. Directors need not be stockholders. A
majority of the whole Board, but in no event less than three, shall constitute a
quorum for the transaction of business, but if at any meeting of the Board there
shall be less than a quorum present, a majority of the directors present may
adjourn the meeting from time to time, until a quorum shall have been obtained
where any business may be transacted which might have been transacted at the
meeting as first convened had there been a quorum. No notice of an adjourned
meeting of the directors other than an announcement of the time and place
thereof at the preceding meeting shall be required. The acts of the majority of
the directors present at any meeting at which there is a quorum, shall, except
as otherwise provided by law, by the Articles of Incorporation or by the
By-Laws, be the acts of the Board.

SECTION 2. The Board of Directors, by a vote of a majority of the
whole Board, may elect directors to fill vacancies in the Board

-5-

<PAGE>

resulting from an increase in the number of Directors or from any other cause. A
director so chosen shall hold office until the next meeting of stockholders or
their respective successors are elected and qualify, unless sooner displaced
pursuant to law or these By-Laws. The stockholders, at any meeting called for
the purpose, may, with or without cause, remove any director by the affirmative
vote of the holders of a majority of the votes entitled to be cast and at any
meeting called for that purpose, fill the vacancy in the Board thus caused.

SECTION 3. Meetings of the Board of Directors shall be held at
such place, within or without the State of Maryland, as may from time to time be
fixed by resolution of the Board as may be specified in the call of any meeting.
Regular meetings of the Board of Directors shall be held at such times as may
from time to time be fixed by resolution of the Board, and special meetings may
be held at any time upon the call of a majority of the persons constituting the
Board of Directors or by the President or the Secretary, by oral, telephonic,
telegraphic or written notice, duly served on or sent or mailed to each director
at least twenty-four hours before the meeting. The notice of any special meeting
shall specify the purposes thereof. Notice need not be given of regular meetings
of the Board held at times fixed by resolution of the Board. Meetings may be
held at any time without notice if all of the directors are present or if notice
is waived in writing, either before or after the meeting of those not present.

SECTION 4. Meetings of the Board of Directors shall be presided
over by the Chairman of the Board or the President, or if neither of the above
is present, by a Chairman to be chosen at the meeting; and the Secretary or, if
he is not present, an Assistant Secretary, or if neither is present, a Secretary
to be chosen at the meeting shall act as Secretary of the Meeting.

-6-

<PAGE>

SECTION 5. Except as otherwise provided by law or in the Articles
of Incorporation, a director of the Corporation shall, not in the absence of
fraud, be disqualified by his office from dealing or contracting with the
Corporation either as a vendor, purchaser or otherwise, nor in the absence of
fraud shall any transaction or contract of the Corporation be void or voidable
or affected by reason of the fact that any director, or any firm of which any
director is a member, or any corporation of which any director is an officer,
director or stockholder, is in any way interested in such transaction or
contract; provided that at the meeting of the Board of Directors, authorizing or
confirming said contract or transaction, the existence of an interest of such
director, firm or corporation is disclosed or made known and there shall be
present a quorum of the Board of Directors, and such contract or transaction
shall be approved by a majority of such quorum, which majority shall consist of
directors not so interested or connected. Nor shall any director be liable to
account to the Corporation for any profit realized by him or through any such
transaction or contract of the Corporation ratified or approved as aforesaid, by
reason of the fact that he or any firm of which he is a member, or any
corporation of which he is an officer, director or stockholder, was interested
in such transaction or contract. Directors so interested may be counted when
present at meetings of the Board of Directors for purposes of determining the
existence of a quorum. Any contract, transaction or act of the Corporation or of
the Board of Directors (whether or not approved or ratified as hereinabove
provided) which shall be ratified by a majority in interest of a quorum of the
stockholders having voting power at any annual meeting or any special meeting
called for such purpose or approved in writing by a majority in interest of the
stockholders having voting power without a meeting shall, except as otherwise
provided by

-7-

<PAGE>

law, be valid and as binding as though ratified by every stockholder of the
Corporation.

SECTION 6. The Board of Directors may, by resolution or
resolutions, passed by a majority of the whole Board, designate one or more of
the directors of the Corporation, which, to the extent permitted by law and
provided in said resolution or resolutions, shall have and may exercise the
powers of the Board over the business and affairs of the Corporation and may
have power to authorize the seal of the Corporation to be affixed to all papers
which may require it. Such committee or committees shall have such name or names
as may be determined from time to time by resolution adopted by the Board of
Directors. A majority of the members of such committee may determine its action
and fix the time and place of its meetings unless the Board of Directors shall
otherwise provide. The Board of Directors shall have the power at any time to
change the membership of, or to fill vacancies in, or to dissolve any such
committees.

SECTION 7. The Board may, from time to time, elect one or more
persons to the position of Director Emeritus, which election need not be
submitted for stockholder approval. Such person(s) shall be non-voting honorary
directors who shall not be considered in determining whether a quorum exists,
shall have no right to vote and shall not be responsible for the actions of the
Board.

ARTICLE IV
OFFICERS

SECTION 1. The Board of Directors shall appoint a President of the
Corporation and a Secretary and a Treasurer, and may appoint one or more Vice
Presidents, Assistant Secretaries and Assistant Treasurers

-8-

<PAGE>

and, from time to time, any other officers and agents as it may deem proper. The
President shall be selected from among the Directors. Any two of the
above-mentioned offices, except those of President and a Vice President, may be
held by the same person, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity if such instrument be required by law or by
these By-Laws to be executed, acknowledged or verified by any two or more
officers.

SECTION 2. The term of office of all officers shall be one year
until their respective successors are chosen; but any officer or agent chosen or
appointed by the Board of Directors may be removed, with or without cause, at
any time, by the affirmative vote of a majority of the members of the Board then
in office.

SECTION 3. Subject to such limitations as the Board of Directors
may from time to time prescribe, the officers of the Corporation shall each have
such powers and duties as generally appertain to their respective offices, as
well as such powers and duties as from time to time may be conferred by the
Board of Directors. Any officer, agent, or employee of the Corporation may be
required by the Board of Directors to give bond for the faithful discharge of
his duties, in such sum and of such character as the Board may from time to time
prescribe.

ARTICLE V
CERTIFICATES OF STOCK

SECTION 1. The Board of Directors of the Corporation may authorize
the issuance of some or all of the shares of any or all of its classes or series
without certificates. In the event a certificate shall be issued, such
certificate shall present the number of shares of stock of such class or series
of the Corporation owned by the

-9-

<PAGE>

stockholder, which certificate or certificates shall be in such form as the
Board of Directors may from time to time prescribe by a recording of each
stockholder's interest on the records of the Corporation's Transfer Agent. The
certificates for shares of stock of the Corporation shall bear the signature,
either manual or facsimile, of the President or a Vice President and the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary,
and shall be sealed with the seal of the Corporation or bear a facsimile of such
seal. The validity of any stock certificate shall not be affected if any officer
whose signature appears thereon ceases to be an officer of the Corporation
before such certificate is issued.

SECTION 2. The shares of stock of the Corporation shall be
transferable on the books of the Corporation by the holder thereof in person or
by a duly authorized attorney, upon surrender for cancellation of a certificate
or certificates for a like number of shares, with a duly executed assignment and
power of transfer endorsed thereon or attached thereto, and with such proof of
the authenticity of the signatures as the Corporation or its agent may
reasonably require.

SECTION 3. No certificate for shares of stock of the Corporation
shall be issued in place of any certificate alleged to have been lost, stolen,
mutilated or destroyed, except upon production of such evidence of the loss,
theft, mutilation or destruction, and upon indemnification of the Corporation
and its agents to such extent and in such manner as the Board of Directors may
from time to time prescribe.

ARTICLE VI
CORPORATE BOOKS

SECTION 1. The books of the Corporation, except the original or a
duplicate stock ledger, may be kept outside the State of Maryland at such place
or places as the Board of Directors may from time to time determine.

-10-

<PAGE>

ARTICLE VII
SIGNATURES

SECTION 1. Except as otherwise provided in these By-Laws or as the
Board of Directors may generally or in particular cases authorize the execution
thereof in some other manner, all deeds, leases, transfers, contracts, bonds,
notes, checks, drafts and other obligations made, accepted or endorsed by the
Corporation and all endorsements, assignments, transfers, stock powers or other
instruments of transfer of securities owned by or standing in the name of the
Corporation shall be signed or executed by two officers of the Corporation who
shall be the President or a Vice President and a Vice President, the Secretary
or the Treasurer.

SECTION 2. The President of the Corporation or, in his absence or
disability or at his request, a Vice President of the Corporation may authorize
from time to time the signature and issuance of proxies to vote upon shares of
stock of other corporations owned by the Corporation unless otherwise provided
by the Board of Directors. All proxies for shares held in the name of the
Corporation shall be signed in the name of the Corporation by two officers of
the Corporation, who shall be the President or a Vice President and a Vice
President, the Secretary or the Treasurer.

-11-

<PAGE>

ARTICLE VIII
FISCAL YEAR

SECTION 1. The fiscal year of the Corporation shall be the
calendar year or such other period as may be prescribed by the Board of
Directors.

ARTICLE IX
CORPORATE SEAL

SECTION 1. The corporate seal of the Corporation shall consist of
a flat faced circular die with the word "Maryland" together with the name of the
Corporation, the year of its organization and such other appropriate legend as
the Board of Directors may from time to time determine, cut or engraved thereon.
In lieu of the corporate seal when so authorized by the Board of Directors or a
duly empowered committee thereof, a facsimile thereof may be impressed or
affixed or reproduced.

ARTICLE X
INDEMNIFICATION OF OFFICERS AND DIRECTORS

SECTION 1. Every person who is or was a director or officer of
this Corporation (and his heirs, executors and administrators) shall be
indemnified by the Corporation against reasonable costs and expenses incurred by
him in connection with any action, suit or proceeding to which he may be made a
party to by reason of his being or having been a director or officer of the
Corporation, except in relation to any action, suit or proceeding in which he
has been adjudged liable because of negligence or misconduct, which shall be
deemed to include willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office. In the absence of
any adjudication which expressly absolves the director or officer of liability
to the Corporation or its stockholders for negligence or misconduct, within the
meaning thereof as used herein, or in the event of a settlement, each director
and officer (his heirs, executors and

-12-

<PAGE>

administrators) shall be indemnified by the Corporation against payments made,
including reasonable costs and expenses, provided that such indemnity shall be
conditioned upon the prior determination by a resolution of two-thirds of those
members of the Board of Directors of the Corporation who are not involved in the
action, suit or proceeding that the director or officer has no liability by
reason of negligence or misconduct, within the meaning thereof as used herein,
and provided further that if a majority of the members of the Board of Directors
of the Corporation are involved in the action, suit or proceeding, such
determination shall have been made by a written opinion of independent counsel.
Amounts paid in settlement shall not exceed the costs, fees and expenses which
would have been incurred had such action, suit or proceeding been litigated to a
conclusion. Such a determination by the Board of Directors or by independent
counsel, and the payments of amounts by the Corporation on the basis thereof
shall not prevent a stockholder from challenging such indemnification by
appropriate legal proceedings on the grounds that the person indemnified was
liable to the Corporation or its security holders by reason of negligence or
misconduct, within the meaning thereof as used herein. The foregoing right and
indemnification shall not be exclusive of any other rights to which any officer
or director (or his heirs, executors and administrators) may be entitled
according to law.

ARTICLE XI
INVESTMENT RESTRICTIONS

SECTION 1. Notwithstanding any of the foregoing provisions, the
power of the Corporation to invest and reinvest its assets and to hold, sell,
exchange, pledge, mortgage, hypothecate or otherwise dispose of or turn to
account or realize upon and generally deal in securities and investments of
every kind or description or in and with its own credit, shall be expressly
limited as follows:

-13-

<PAGE>

(a) The Corporation shall not borrow money for temporary or emergency
purposes (not for leveraging or investment) in an amount not exceeding 5% of the
value of its total assets (including the amount borrowed) less liabilities
(other than borrowings). Any borrowings that exceed 5% of the value of the
Corporation's total assets by reason of a decline in net assets will be reduced
within three business days to the extent necessary to comply with the 5%
limitation. This policy shall not prohibit deposits of assets to provide margin
or guarantee positions in connection with transactions in options, futures
contracts, swaps, forward contracts, and other derivative instruments or the
segregation of assets in connection with such transactions.

(b) The Corporation shall not make loans, except by purchase of debt
obligations and through repurchase agreements. However, the Corporation's Board
of Directors may, on the request of broker-dealers or other institutional
investors which they deem qualified, authorize .the Corporation to loan
securities to cover a borrower's short position; provided, however, the borrower
pledges to the Corporation and agrees to maintain at all times with the
Corporation cash collateral equal to not less than 100% of the value of the
securities loaned; provided, further that such loans will not be made if the
value of all loans is greater than an amount equal to 15% of the Corporation's
total assets.

(c) The Corporation shall not purchase or retain any securities of another
issuer if persons affiliated with the Corporation or its Investment Advisor or
management who own, individually, more than one-half of one percent of said
issuer's outstanding stock (or securities convertible into stock) own, in the
aggregate, more than five percent of said issuer's outstanding stock (or
securities convertible into stock).
(d) The Corporation shall not underwrite securities issued by other persons
except to the extend that, in connection with the

-14-

<PAGE>

disposition of its portfolio investments, it may be deemed to be an underwriter
under federal securities laws.
(e) The Corporation shall not invest in companies for the purpose of
exercising control or management.
(f) The Corporation shall not buy or sell real estate (unless acquired as a
result of ownership of securities) or interests in oil, gas or mineral
explorations, provided, however, the Fund may invest in Municipal Instruments
secured by real estate or interests in real estate.
(g) The Corporation shall not purchase any security issued by a municipal
issuer unless it is insured by a policy of insurance procured either by the
Corporation or the issuer or underwriter of such security.

SECTION 2. The Corporation shall not purchase or sell any
securities (other then the capital stock of the Corporation) from or to any of
the following acting as principals, and shall not make any loan to (i) officers
or directors of the Corporation, (ii) any partnership of which any officer or
director of the Corporation is a member, (iii) any corporation or association of
which any officer or director of the Corporation is an officer, director or
trustee, except as permitted by applicable law or regulation; (iv) any person or
organization furnishing advisory or supervisory services to the Corporation, (v)
any officer, director, partner or trustee of, or person owning of record 10% or
more of the stock of, any person or organization furnishing such advisory or
supervisory services, (vi) any partnership of which any officer, director,
partner or trustee of, or person owning of record 10% or more of the stock of,
any person or organization furnishing such advisory or supervisory services, is
a member, or (vii) any corporation or association of which any officer,
director, partner or trustee of or person owning of record 10% or more of the
stock of, any person or organization furnishing such advisory or supervisory
services, is an

-15-
<PAGE>

officer or director or trustee; provided, however, that nothing contained in
(iii) or (vii) shall prevent the purchase of additional securities from any
corporation or association referred to in such clauses upon the exercise of
rights issued to the Corporation as a part of a general offering to the holders
of securities of such corporation or association.

SECTION 3. The Corporation may enter into advisory or supervisory
contracts and other contracts with, and may otherwise do business with, First
Investors Management Company, Inc. and First Investors Corporation,
notwithstanding that the Board of Directors of the Corporation may be composed
in part of directors, officers or employees of said corporations and officers of
the Corporation may have been or may be or become directors, officers or
employees of said corporations, and notwithstanding that First Investors
Management Company, Inc. may act as investment advisor to other investment
companies investing in securities similar or identical with those owned by the
Corporation and may at or about the same time recommend, purchase or sell the
same securities to the Corporation and such other investment companies, and in
the absence of fraud the Corporation and said corporations may deal freely with
each other, and neither such advisory or supervisory contract nor any other
contract or transaction between the Corporation and said corporations shall be
invalidated or in any manner affected thereby, nor shall any director or officer
of the Corporation be liable to the Corporation or any stockholder or creditor
thereof or to any other person for any loss incurred by it or him by reason of
any such contract or transaction; provided that nothing herein shall protect any
director or officer of the Corporation against any liability he would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office; and
provided always that

-16-

<PAGE>

such contracts or transactions shall have been on terms that were not unfair at
the time at which it was entered into.

ARTICLE XII
ADDITIONAL PROVISIONS

SECTION 1. The books of account of the Corporation shall be
examined by an independent firm of public accountants, selected as required by
law, at the close of each fiscal year of the Corporation and at such other
times, if any, as may be directed by the Board of Directors of the Corporation.
A report to the shareholders based upon each such examination shall be mailed to
each shareholder of the Corporation, of record on such date with respect to each
report as may be determined by the Board of Directors, at his address as the
same appears on the books of the Corporation. Each such report shall show the
assets and liabilities of the Corporation as of the close of the period covered
by the report, its income and expenses, the net asset value of its outstanding
shares, the securities in which the funds of the Corporation were invested and
such other matters as the Board of Directors shall determine.

ARTICLE XIII
AMENDMENTS

SECTION 1. The By-laws of the Corporation may be amended, added
to, rescinded or repealed at any meeting of the shareholders, or by a majority
vote of the directors then in office at any meeting of the Board of Directors,
provided notice of the substance of the proposed change is contained in the
notice of the meeting or any waiver thereof.

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<PAGE>

ADMINISTRATION AGREEMENT
SCHEDULE A

Compensation and charges of Administrative Data Management Corp. for
services as Transfer Agent, Dividend Disbursing Agent and Plan Administration,
and for other services under the Administration Agreement.

Monthly Account Maintenance $0.75 per account

New Accounts $5.00 per account

Payments $0.75 per payment

Exchanges $5.00 per transaction

Liquidations $5.00 per transaction

Transfers $10.00 per transaction

Certificates Issued $3.00 per certificate

Systematic Withdrawal Checks $1.00 per check

Dividend Processing $0.45 per dividend

Reports requested by a
Government Agency $1.00 per account

Shareholder Service Calls $4.00 per call

Correspondence $20.00 per item

OUT-OF-POCKET EXPENSES: In addition to the above charges, the fund shall be
responsible for reimbursing Administrative Data Management Corp. for all
out-of-pocket costs including but not limited to postage, insurance, telephone
lines, forms relating to shareholders of the Fund, envelopes and other similar
items, and will also reimburse Administrative Data Management Corp. for counsel
fees, including fees for the preparation of the Administration Data Management
Corp. for counsel fees, including fees for the preparation of the Administration
Agreement and review of prospectus and application forms to the extent that ADM
is not otherwise reimbursed.

THE ABOVE FEES AND OUT-OF POCKET EXPENSES APPLY TO THE FOLLOWING FUNDS:

FIRST INVESTORS FUND FOR INCOME, INC., FIRST INVESTORS GLOBAL FUND, INC., FIRST
INVESTORS GOVERNMENT FUND, INC., FIRST INVESTORS HIGH YIELD FUND, INC., FIRST
INVESTORS INSURED TAX EXEMPT FUND, INC., FIRST INVESTORS NEW YORK INSURED TAX
FREE FUND, INC., FIRST INVESTORS SERIES FUND, FIRST INVESTORS SERIES FUND II,
INC., FIRST INVESTORS, U.S. GOVERNMENT PLUS FUND - 1ST, 2ND & 3RD FUND,
EXECUTIVE INVESTORS TRUST

<PAGE>

KIRKPATRICK & LOCKHART LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800
Telephone 202-778-9000

April 23, 1998

First Investors New York Insured Tax Free Fund, Inc.
95 Wall Street
New York, NY 10005

Ladies and Gentlemen:

You have requested our opinion, as counsel to First Investors New York
Insured Tax Free Fund, Inc. ("Company"), as to certain matters regarding the
issuance of Shares of the Company. As used in this letter, the term "Shares"
means the Class A and Class B shares of common stock of the Company, during the
time that Post-Effective Amendment No. 18 to the Company's Registration
Statement on Form N-1A ("PEA") is effective and has not been superseded by
another post-effective amendment.

As such counsel, we have examined certified or other copies, believed
by us to be genuine, of the Company's Articles of Incorporation and By-laws and
such resolutions and minutes of the meetings of Company's Board of Directors as
we have deemed relevant to our opinion, as set forth herein. Our opinion is
limited to the laws and facts in existence on the date hereof, and it is further
limited to the laws (other than the conflict of law rules) in the State of
Maryland that in our experience are normally applicable to the issuance of
shares by corporations and to the Securities Act of 1933 ("1933 Act"), the
Investment Company Act of 1940 ("1940 Act") and the regulations of the
Securities and Exchange Commission ("SEC") thereunder.

Based on the foregoing, we are of the opinion that the issuance of the
Shares has been duly authorized by the Company and that, when sold in accordance
with the terms contemplated by the PEA, including receipt by the Company of full
payment for the Shares and compliance with the 1933 Act and the 1940 Act, the
Shares will have been validly issued, fully paid and non-assessable.

We hereby consent to this opinion accompanying the PEA when it is filed
with the SEC and to the reference to our firm in the prospectus that is being
filed as part of the PEA.

Very truly yours,

KIRKPATRICK & LOCKHART LLP

By: /s/ Robert J. Zutz
-------------------------
Robert J. Zutz

<PAGE>

Consent of Independent Certified Public Accountants

First Investors New York Insured Tax Free Fund, Inc.
95 Wall Street
New York, New York 10005

We consent to the use in Post-Effective Amendment No. 18 to the
Registration Statement on Form N-1A (File No. 2-86489) of our report dated
January 30, 1998 relating to the December 31, 1997 financial statements of First
Investors New York Insured Tax Free Fund, Inc., which are included in said
Registration Statement.

/s/Tait Weller & Baker
-------------------------

TAIT, WELLER & BAKER

Philadelphia, Pennsylvania
April 20, 1998

<PAGE>

HAWKINS, DELAFIELD & WOOD

67 Wall Street
New York 10005

April 6, 1998

First Investors Management Company, Inc
95 Wall Street
New York, New York 10005-4297

Re: First Investors New York Insured Tax Free Fund, Inc.
----------------------------------------------------

Gentlemen:

We consent to the use of our name and the reference to our firm in
Post-Effective Amendment No. 18 to the Registration Statement on Form N-1A of
First Investors New York Insured Tax Free Fund and the related Prospectus.

Very truly yours,

/s/ HAWKINS, DELAFIELD & WOOD

<PAGE>

SEC Standardized Total Returns -- Class A Shares

Average Annual Total Return and Total Return for First Investors Funds are
calculated using the following standardized formula:

Average Annual

Total Return = ((ERV divided by P) 1/n) - 1

Total Return = ((ERV - P) divided by P

WHERE: ERV = Ending redeemable value of a hypothetical $1,000 investment made at
the beginning of 1, 5, or 10 year periods (or fractional period thereof.)

P = a hypothetical initial investment of $1,000

N = number of years

The following table lists the information used to calculate the standardized
average annual total return and total return for First Investors New York
Insured Tax Free Fund, Inc. (Class A shares) as of December 31, 1997.

- -------------------------------------------------------------------------------
AVE. ANNUAL TOTAL
ERV P N TOTAL RETURN
RETURN
- -------------------------------------------------------------------------------
1 year: $1,010.70 $1,000.00 1.00 1.07% 1.07%

5 years: $1,253.30 $1,000.00 5.00 4.62% 25.33%

10 years: $1,928.00 $1,000.00 10.00 6.79% 92.80%
- -------------------------------------------------------------------------------

<PAGE>

NAV Only Total Returns -- Class A Shares

Average Annual Total Return and Total Return for First Investors Funds are
calculated using the following standardized formula:

Average Annual

Total Return = ((ERV divided by P) 1/n) - 1

Total Return = ((ERV - P) divided by P

WHERE: ERV = Ending redeemable value of a hypothetical $1,000 investment made at
the beginning of 1, 5, or 10 year periods (or fractional period thereof.)

P = a hypothetical initial investment of $1,000

N = number of years

5 years: $1,336.60 $1,000.00 5.00 5.97% 33.66%

10 years: $2,056.90 $1,000.00 10.00 7.48% 105.69%
- -------------------------------------------------------------------------------

<PAGE>

SEC Standardized Total Returns -- Class B Shares

Average Annual Total Return and Total Return for First Investors Funds are
calculated using the following standardized formula:

Average Annual

Total Return = ((ERV divided by P) 1/n) - 1

Total Return = ((ERV - P) divided by P

WHERE: ERV = Ending redeemable value of a hypothetical $1,000 investment made at
the beginning of 1, 5, or 10 year periods (or fractional period thereof.)

P = a hypothetical initial investment of $1,000

N = number of years

Life of fund: $1,214.50 $1,000.00 2.97 6.76% 21.45%
- -------------------------------------------------------------------------------

<PAGE>

NAV Only Total Returns -- Class B Shares

Average Annual Total Return and Total Return for First Investors Funds are
calculated using the following standardized formula:

Average Annual

Total Return = ((ERV divided by P) 1/n) - 1

Total Return = ((ERV - P) divided by P

WHERE: ERV = Ending redeemable value of a hypothetical $1,000 investment made at
the beginning of 1, 5, or 10 year periods (or fractional period thereof.)

P = a hypothetical initial investment of $1,000

N = number of years

Life of fund: $1,244.50 $1,000.00 2.97 7.64% 24.45%
- -------------------------------------------------------------------------------

<PAGE>

Distribution yields for First Investor's Funds are calculated using the
following formula:

Yield = (a/b)

Where:

a = dividends declared during the last 12 months.

b = Net asset value per share on the last day of the period.

The following is a list of the information used to calculate the distribution
yield for First Investors New York Insured Tax Free Fund, Inc. (Class A shares)
as of December 31, 1997.

Distribution
a b Yield
- - -----
$.708 $14.86 4.76%

<PAGE>

Distribution yields for First Investor's Funds are calculated using the
following formula:

Yield = (a/b)

Where:

a = dividends declared during the last 12 months.

b = Maximum offering price per share on the last day of the period.

The following is a list of the information used to calculate the distribution
yield for First Investors New York Insured Tax Free Fund, Inc. (Class A shares)
as of December 31, 1997.

Distribution
a b Yield
- - -----
$.708 $15.85 4.47%

<PAGE>

Distribution yields for First Investor's Funds are calculated using the
following formula:

Yield = (a/b)

Where:

a = dividends declared during the last 12 months.

b = Net asset value per share on the last day of the period.

The following is a list of the information used to calculate the distribution
yield for First Investors New York Insured Tax Free Fund, Inc. (Class B shares)
as of December 31, 1997.

Distribution
a b Yield
- - -----
$.608 $14.86 4.09%

<PAGE>

Yields for First Investor's Funds are calculated using the following
formula:

2(((((a-b)+((cd)-e))+1)-)-1)

Where:

a = dividends and interest earned during the 30 day period.

b = expenses accrued for the period (net of reimbursements).

c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.

d = the maximum offering price per share on the last day of the period.

e = undeclared earned income.

The following is a list of the information used to calculate the for First
Investors New York Insured Tax Free Fund, Inc. (Class A shares) as of December
31, 1997.

*Tax
Equivalent
a b c d e Yield Yield
- - - - - ----- ----------
$741,524 $172,972 13,065,880 $15.85 $.00 3.32% 5.61%

*Tax Equivalent Yields are computed assuming a federal tax rate of 28% as well
as the maximum rate for New York State which is 7.59375%. The formula is listed
below.

Tax Equivalent Yield = Yield / ((1 - Federal Rate - Maximum State Rate)/(Federal
Rate * Maximum State Rate))

<PAGE>

Yields for First Investor's Funds are calculated using the following
formula:

2(((((a-b)+((cd)-e))+1)-)-1)

Where:

a = dividends and interest earned during the 30 day period.

b = expenses accrued for the period (net of reimbursements).

c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.

d = the maximum offering price per share on the last day of the period.

e = undeclared earned income.

The following is a list of the information used to calculate the for First
Investors New York Insured Tax Free Fund, Inc. (Class B shares) as of December
31, 1997.

*Tax
Equivalent
a b c d e Yield Yield
- - - - - ----- ----------
$13,553 $5,167 238,902 $14.86 $.00 2.85% 4.82%

*Tax Equivalent Yields are computed assuming a federal tax rate of 28% as well
as the maximum rate for New York State which is 7.59375%. The formula is listed
below.

Tax Equivalent Yield = Yield / ((1 - Federal Rate - Maximum State Rate)/(Federal
Rate * Maximum State Rate))

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<CIK> 0000727586
<NAME> FIRST INVESTORS NEW YORK INSURED TAX FREE FUND, INC.
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<NAME> CLASS A
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<ARTICLE> 6
<CIK> 0000727586
<NAME> FIRST INVESTORS NEW YORK INSURED TAX FREE FUND, INC.
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<NUMBER> 002
<NAME> CLASS B
<MULTIPLIER> 1,000

<S> <C>
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